REG - S4 Capital PLC - Audited 2023 preliminary results
27/03/2024 07:00
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RNS Number : 4203I S4 Capital PLC 27 March 2024
S(4)Capital plc
("S(4)Capital" or "the Company" or "the Group")
Audited 2023 preliminary results
Full year results in line with revised expectations
Net revenue(2) down 2.1% on a reported basis, down 4.5% like-for-like(3 )
Operational EBITDA(5) £93.7 million down 24.6% on a reported basis, down
36.6% like-for-like, excluding the one-off benefit of £9.3 million from the
significant devaluation of the Argentinian Peso
Operational EBITDA margin in line with revised targets at 10.7%, improved
performance in second half due to cost reductions
Net debt(7) at £180.8 million at the lower end of targeted range of £180
million to £220 million
First share buyback programme completed in March 2024
Challenging macroeconomic conditions and client caution likely to persist,
despite the prospect of lower interest rates
Major client relationships remain resilient with Top 10, 20 and 50 performing
better than average
2024 target like-for-like net revenue expected to be down on the prior year
with a broadly similar overall level of operational EBITDA(9)
Jean-Benoit Berty appointed Chief Operating Officer, Board membership
simplified and Executive Committee strengthened to improve performance
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2023 31 Dec 2022(8)
Billings(1) 1,870.5 1,890.5 (1.1%) (1.4%) (1.4%)
Revenue 1,011.5 1,069.5 (5.4%) (7.8%) (7.8%)
Net revenue(2) 873.2 891.7 (2.1%) (4.5%) (4.5%)
Operational EBITDA(5) 93.7 124.2 (24.6%) (36.6%) (36.7%)
Operational EBITDA margin(5) 10.7% 13.9% (320bps) (550bps) (540bps)
Adjusted operating profit(6) 82.0 114.1 (28.1%)
Adjusting items(6) (61.8) (249.4) 75.2%
Operating profit/(loss) 20.2 (135.3) 114.9%
Loss for year (6.0) (160.5) 96.3%
Basic loss per share (pence) (0.9) (27.2) 26.3
Adjusted basic earnings per share(6) (pence) 5.7 11.4 (5.7)
Number of Monks 7,707 8,891
Net debt(7) (180.8) (110.2)
Financial highlights
¤ Billings £1,870.5 million, down 1.1% on a reported basis and down 1.4%
like-for-like.
¤ Revenue £1,011.5 million, down 5.4% reported and down 7.8%
like-for-like.
¤ Net revenue £873.2 million, down 2.1% reported and down 4.5%
like-for-like, primarily reflecting challenging macroeconomic conditions
compared to 2022. It also reflected cautious spending from clients,
particularly those in the technology sector and by smaller client
relationships and regional and local clients, along with a difficult year for
new business and lower seasonal uplift in the fourth quarter. However,
two-year and three-year net revenue stacks (like-for-like net revenue growth
stacks for the last two and three years) are 21.4% and 65.1%.
¤ Operational EBITDA in line with revised expectations at £93.7 million,
down 24.6% reported and down 36.6% like-for-like. This was primarily due to
lower revenue, with costs tightly controlled and headcount down 13% versus
December 2022. In December 2023, the Argentinian Peso significantly devalued
by over 50%, and operational EBITDA excludes this one-off benefit of £9.3
million which is included in adjusted items. Had this item been included,
operational EBITDA would have been £103.0 million.
¤ Operating profit £20.2 million, an improvement of £155.5 million on
the prior year, primarily due to lower combination related payments.
¤ Basic loss per share of 0.9p, compared to 27.2p basic loss per share in
2022.
⁄ Adjusted basic earnings per share, which excludes adjusting items
after tax, of 5.7p per share, compared to 11.4p per share last year.
¤ Net debt ended the year at £180.8 million, or 1.9x net
debt/pro-forma(4) operational EBITDA(5) of £93.3 million. Net debt was at the
lower end of the £180 million to £220 million target range, reflecting tight
cost control and lower combination payments. Combination payments relating to
prior years' merger activity have largely been completed, with the majority of
the balance of £11.4 million settled in the first quarter of 2024.
¤ The balance sheet has sufficient liquidity and long-dated debt
maturities to facilitate growth, with the maturity of the €375 million term
loan in August 2028 and the currently undrawn £100 million RCF in August
2026, we have comfortable headroom against the key covenant - that net debt
will not exceed 4.5x the pro-forma operational EBITDA(10).
¤ Following the recently completed share buyback of 1% of the Company's
share capital earlier this month, the Board will consider paying an inaugural
dividend following this year's half-year results, if further operational
progress has been made. Our focus remains on using free cash flow to reduce
debt, buyback shares and dividends.
Strategic and operational highlights
¤ After four years of very strong growth (like-for-like net revenue
growth of 44.0% in 2019, 19.4% in 2020, 43.7% in 2021 and 25.9% in 2022), 2023
was a difficult year with a like-for-like decline of 4.5% in net revenue.
After growth in the first half of the year, the third and fourth quarters were
more challenging. This reflects global macroeconomic conditions and client
caution and fear of recession, a difficult year for new business and lower
seasonal uplift than in previous years. We saw longer sales cycles,
particularly for larger transformation projects and whilst all practices saw
some impact, this was most evident in Content with some technology clients, a
reduction in smaller project-based assignments and with local and regional
clients. The final results for 2023 were in line with our revised targets.
¤ Our stated 'whopper' strategy of building broad scaled relationships
with leading enterprise clients continues to drive our revenue. Revenues from
our top clients are subject to the same global macroeconomic pressures,
however, we saw better performance in our top 20 and top 50 clients. We
closed 2023 with 10 'whoppers', that is clients delivering over $20 million of
revenue per annum, the same number as in 2022 and against our target of 20.
¤ Profitability came under pressure due to lower revenue than budgeted
and significant cost reductions were made to deliver an operational EBITDA
margin of 10.7%, in line with revised targets. Margins improved in the second
half as cost reductions took effect. While we have seen some salary and
related benefits inflation, we continue to maintain a disciplined approach to
cost management, including headcount and discretionary costs. These controls
have resulted in 7,707 Monks at year end, down over 13% from 8,891 at the same
time in 2022. The Group continues to manage costs tightly, given the current
uncertain market outlook.
¤ The Content practice's net revenue was down 10.0% like-for-like and
down 9.2% on a reported basis, with Data&Digital Media down 3.1%
like-for-like and down 4.4% on a reported basis. Technology Services was up
21.6% like-for-like and up 48.6% on a reported basis. Content had a very
challenging year and was particularly impacted in the second half by lower
spending by certain technology clients, lower regional and local
opportunities, a difficult year for new business and lower seasonal uplift.
Data&Digital Media had modest growth in the first half, but declined in
the second half, highlighting tougher end markets. Technology Services had
good growth in the first half, but slowed significantly in the second half of
the year due to longer sales cycles for transformation projects, phasing of
work and a reduction in activity from some larger clients.
¤ Geographically, on a like-for-like basis, Americas net revenue was down
2.8% and now accounts for 79% of total net revenue, primarily reflecting the
growth in Technology Services. EMEA, accounting for 15%, was down 10.9% due to
the weaker macroeconomic environment and Asia Pacific, accounting for the
remaining 6%, was down 9.2%, reflecting lower client demand.
¤ Growth rates in digital media and transformation markets remain above
those of traditional, analogue markets. We are mainly focused on these two
digital markets and are at the heart of developing trends around AI, Quantum
Computing, the Metaverse and Blockchain for marketing. We are starting to see
traction from our AI initiatives: clients are engaging us for workshops,
audits and strategic advice and almost all our presentations and new
engagements involve AI in one way or another. Our approach was recognised by
Adweek, as we won their inaugural AI Agency of the Year award in 2023. In
early 2024 we launched Monks.Flow, an AI-centric professional managed service
and the initial response is encouraging - we believe this product will be an
essential differentiator for us as clients move from testing to full-scale
adoption of AI. The Company has key partnerships with AI technology leaders
such as Google, Nvidia, OpenAI, Runway, AWS and Adobe and we are working
closely with them to develop and implement use cases. Media.Monks are a NVIDIA
Service Delivery Partner, which guides the migration of Brands and Industries
to AI-powered workflows and compute. We are transforming the marketing
services landscape through our adoption of NVIDIA software platforms
throughout Monks.Flow.
¤ Our talented people have responded positively to the challenges of the
year and we have continued to focus on the three areas of our ESG strategy:
People Fulfilment, Our Responsibility to the World and One Brand.
Board and management structure
We are delighted to announce Jean-Benoit Berty, has been appointed Chief
Operating Officer and a member of the Executive Committee with immediate
effect. Prior to joining the Company, Jean-Benoit was a Senior Partner at
Ernst & Young for approximately 18 years, where he held various leadership
roles, including being the Technology, Media & Telecommunications Leader,
Head of Industries and part of the original management team to build the
Consulting practice. Jean-Benoit has also spent the past 12 years advising
boards and management teams in the advertising and media industry on strategic
and operational initiatives. His experience spans across strategic growth;
commercial, organisational and operational effectiveness; margin improvement
and enterprise-wide transformation. His previous roles include being Vice
President at Capgemini Consulting and Managing Director at CRM consultancies.
Christopher S Martin will now be able to focus 100% on leading the
Data&Digital Media practice.
Following last year's Board effectiveness review, the Board decided to develop
a more traditional, streamlined Board structure, where Directors are primarily
non-executive. As a result, Christopher S. Martin, Victor Knaap, Wes ter Haar
and Scott Spirit have all agreed to retire from the Board at the conclusion of
the next annual general meeting. Each of the retiring executive directors
will retain their current roles within the Company and, as now, their
involvement in the Executive Committee, where they will be joined by
Jean-Benoit Berty. Finally, Wes ter Haar will become a Board Observer, as an
example of our founder/management ownership approach and to support input into
our strategy, such as the focus on AI..
Outlook
¤ We expect clients to remain cautious in the near term, despite the
possibility of interest rate reductions later in 2024.
¤ At a practice level we expect Content to show a profitability
improvement reflecting the benefit of cost reductions made in 2023,
Data&Digital Media to show a similar top and bottom line performance to
the prior year with some margin improvement, while the outlook for Technology
Services is more challenging and expected to be lower, following a reduction
in activity with some key clients.
¤ For the Company as a whole, given the current outlook for Technology
Services and wider market uncertainty, we are targeting like-for-like net
revenue to be down on the prior year with a broadly similar overall level of
operational EBITDA as 2023, as a result of cost reductions made in the
previous year. The comparatives with 2023 will be difficult in the first-half
and will be easier in the second-half. We expect the year to be heavily
second-half weighted, with improving end markets and our normal seasonality.
¤ Our net debt is expected to fall in 2024 reflecting positive free cash
flow and significantly lower combination payments. Our targeted range for the
year end is £150 million to £190 million. We continue to aim for financial
leverage of around 1.5 times operational EBITDA over the medium term.
¤ Over the medium to longer term we continue to expect our growth to
outperform our markets and operational EBITDA margins to return to historic
levels of around 20%.
Sir Martin Sorrell, Executive Chairman of S(4)Capital plc said:
"After our first four strong net revenue growth years, we had a difficult 2023
reflecting challenging global macroeconomic conditions, fears of recession and
high interest rates. This resulted in client caution to commit and extended
sales cycles, particularly for larger projects, a difficult year for new
business, as well as spend reductions from some regional and smaller client
relationships. We saw better relative performance and continued resilience in
our top 20 and top 50 clients, with our ten largest client relationships
strong. We took significant actions to reduce costs in the year and maintain a
disciplined approach to operational efficiency. We are targeting
like-for-like net revenue for 2024 to be down on the prior year, with a
broadly similar overall level of profit performance to 2023. As usual, the
year is likely to be weighted to the second half, aided by lower interest
rates and the impact of our Artificial Intelligence initiatives. We remain
confident that our talent, business model, strategy and scaled client
relationships position us well for above average growth in the longer term,
with an emphasis on deploying free cash flow to boost shareowner returns. We
welcome Jean-Benoit Berty as Chief Operating Officer. His extensive management
consulting experience will be of great value in focusing on the opportunities
and challenges we face. The simplification of Board membership and
strengthening of the Executive Committee will also enable us to focus more on
our performance. "
Notes:
1. Billings is gross billings to client including pass through costs.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the audited numbers for the previous year of the existing and
acquired businesses consolidated for the same months as in 2023 applying
currency rates as used in 2023.
4. Pro-forma numbers relate to audited non-statutory and non-GAAP
consolidated results in constant currency as if the Group had existed in full
for the year and have been prepared under comparable GAAP with no
consolidation eliminations in the pre-acquisition period.
5. Operational EBITDA is operating profit or loss adjusted for
acquisition related expenses, non-recurring items (primarily acquisition
payments tied to continued employment, amortisation of business combination
intangible assets and restructuring and other one-off expenses) and recurring
items (share-based payments) and includes right-of-use assets depreciation. It
is a non-GAAP measure management uses to assess the underlying business
performance. Operational EBITDA margin is operational EBITDA as a percentage
of net revenue.
6. Adjusted figures are adjusted for non-recurring and recurring items
as defined above.
7. Net debt excludes lease liabilities.
8. The prior year figures have been restated for the adoption of the
amendment to IAS 12.
9. This is a target and not a profit forecast.
10. Net debt/pro-forma operational EBITDA as defined per the facilities
agreement.
Disclaimer
This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives relating to the Company's services) are
forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These forward- looking
statements speak only as at the date of this announcement. S(4)Capital
expressly disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of the Company for the current or future years would necessarily match
or exceed the historical published earnings per share of the Company.
Neither the content of the Company's website, nor the content on any website
accessible from hyperlinks on its website for any other website, is
incorporated into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any such
content be relied upon in reaching a decision as to whether or not to acquire,
continue to hold, or dispose of, shares in the Company.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 of 16 April 2014 as it forms part of
English law by virtue of the European Union (Withdrawal) Act 2018.
Results webcast and conference call
A webcast and conference call covering the results will be held today at 09:00
GMT in London, followed by another webcast and call at 08:00 EDT/ 13:00 GMT.
Both webcasts of the presentation will be available at www.s4capital.com
(http://www.s4capital.com) during the event. Those wishing to ask questions as
part of the Q&A should use the conference call facility.
09:00 GMT webcast (watch only):
Webcast: https://brrmedia.news/SFORFY23UK (https://brrmedia.news/SFORFY23UK)
Conference call: USA Local: +1 786 697 3501
USA Toll Free: 866 580 3963
UK-Wide: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
Confirmation code: Quote 'S4Capital Results' when prompted by the operator
08:00 EDT / 13:00 GMT webcast (watch only):
Webcast:
https://brrmedia.news/SFORFY23US (https://brrmedia.news/SFORFY23US)
Conference call:
USA Local: +1 786 697 3501
USA Toll Free: 866 580 3963
UK-Wide: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
Confirmation code: Quote 'S4Capital Results US' when prompted by the operator
Enquiries to
S(4)Capital
plc
Sir Martin Sorrell, Executive Chairman
+44 (0)20 3793 0003/ +44 (0)20 3793 0007
Mary Basterfield, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)
Elly Williamson
+44 (0)7970 246 725
Pete Lambie
Preliminary results statement overview
2023 was a difficult year with slower market growth and continuing
macroeconomic uncertainty. The first half saw a mixed performance with slower
growth and an expected second half seasonal uplift did not materialise amidst
continuing client caution and further economic and geopolitical challenges.
Overall, we have seen clients very much focused on the short term,
particularly in relation to larger transformation projects which has resulted
in longer sales cycles, along with lower regional and local opportunities and
we have found it harder to convert new business opportunities. Our stated
'whopper' strategy of building broad scaled relationships with leading
enterprise clients continues to drive our business and we are half-way to our
objective of 20 such relationships. We remain focused on a disciplined
approach to costs, headcount and operational cash generation.
In the second half of 2023, as expected, there was cash outflow relating to
prior year combination payments, with net debt rising as a result. Due to
significant cost reductions and £10 million of merger payments being moved
into the following year, we ended the year with net debt at the lower end of
our guided range. We will maintain a liquid balance sheet and the focus will
be on improving operating performance and deploying free cash flow to buybacks
and dividends.
The Company reports in three well defined practices:
· Content had a challenging year, with like-for-like net revenue
declining, particularly in the second half, which impacted margins
significantly, although this was tempered by strong cost discipline. Content
practice operational EBITDA was £38.9 million, down 47.5% on a reported basis
versus 2022 and down 55.7% on a like-for-like basis. Continued control on
hiring and reorganisation of the practice has reduced the number of Monks at
the year end. We continue to focus on improving the operating model,
integration and forecasting. We have made changes to the leadership structure
of the Content practice including, a new co-CEO Bruno Lambertini, and new
leadership in key markets, including Matt Godfrey in APAC, to reinvigorate
growth in local and regional clients.
· Data&Digital Media saw a modest like-for-like net revenue
decline, which impacted margins. Corrective action on costs was taken.
Data&Digital Media practice operational EBITDA was £33.5 million, down
16.0% on a reported basis from the last year and down 21.7% on a like-for-like
basis reflecting the decline in revenue, people cost and related benefits
increases and higher travel and selling costs against a Covid impacted
comparison.
· Technology Services, after a strong first half, declined slightly
in the second half due to phasing and a reduction in work with some larger
clients and strong comparatives. Overall the practice delivered operational
EBITDA of £43.4 million, up 20.2% on a reported basis from the prior year and
up 0.7% like-for-like. Given these trends, Technology Services faces a
challenging outlook for 2024, both at the revenue and profit level.
The Americas net revenue was £688.1 million and now represents 79% of our
total net revenue with the benefit of the growth in Technology Services. EMEA
and APAC had a more challenging year and now represent 15% and 6% of our total
respectively.
Both Data&Digital Media and Technology Services market growth rates remain
above those of traditional, analogue markets. We are mainly focused on the
digital media and transformation markets and are at the heart of developing
trends around AI, the Metaverse, Blockchain and Quantum Computing. We are
seeing our AI initiatives have impact in improving visualisation and
copywriting productivity, in delivering hyper-personalisation at scale, in
more automated media planning and buying, in improving general client and
agency efficiency and in democratising knowledge. This includes the launch of
Monks.Flow, an AI-centric professional managed service. The initial client
traction reinforces our confidence in our offering and approach. There is
ongoing geopolitical uncertainty around US/China relations, the war in Ukraine
and conflict in the Middle East meaning clients are likely to remain cautious
despite confidence improving on the prior year, with the expectation of
interest rate reductions to come later in 2024.
ESG
2023 was focused around the three areas of our ESG strategy: People
Fulfilment, Our Responsibility to the World and One Brand. We are adopting new
tools to help us move towards increased transparency and measuring of CO2
emissions. We continue to engage with leading stakeholders, industry efforts
and global initiatives - like the World Economic Forum, Shanghai
Municipality's International Business Leaders' Advisory Council (IBLAC) and
Amazon's Climate Pledge. Our goal is to reach Net Zero by 2040 and we have a
clear understanding of the emission reduction opportunities within the
Company. We have submitted our SBTi targets for approval. Across the
Company, we donated 1,449 hours for community and charity services and
increased our For Good projects from 445 to 502.
We focused on our people and people experience using our DE&I platform,
Diversity in Action, which touches all aspects of our business. We ran our
third Women in Leadership programme at Berkley University and welcomed three
new S(4) Fellows. Embedding a greater understanding of diversity and
cultural fluency into the Company is also a top priority. We are a signatory
to the United Nations (UN) Women's Empowerment Principles and continue to
focus on closing the representation gap in our industry by providing training
to underserved and/or underrepresented talent.
Summary and outlook
We expect clients to remain cautious in the near term, despite the possibility
of interest rate reductions later in 2024.
At a practice level we expect Content profitability to show an improvement
reflecting the benefit of cost reductions made in 2023, Data&Digital Media
to show a similar top and bottom line performance to the prior year with some
margin improvement, while the outlook for Technology Services is more
challenging and expected to be lower, following a reduction in activity with
some key clients.
For the Company as a whole, given the current outlook for Technology Services
and wider market uncertainty, we are targeting like-for-like net revenue to be
down on the prior year with a broadly similar overall level of operational
EBITDA as 2023. The comparatives with 2023 will be difficult in the first-half
and will be easier in the second-half. We expect the year to be heavily
second-half weighted with improving end markets and our normal seasonality.
Our net debt is expected to reduce in 2024 due to positive free cash flow and
significantly lower combination payments. Our targeted range for the year end
is £150 million to £190 million. We continue to aim for financial leverage
of around 1.5 times operational EBITDA over the medium term.
Over the medium to longer term we continue to expect our growth to outperform
our markets and operational EBITDA margins to return to historic levels of
around 20%. The strategy of S(4)Capital remains the same. The Company's purely
digital transformation model, based on first-party data fuelling the creation,
production and distribution of digital advertising content, distributed by
digital media and built on technology platforms to ensure success and
efficiency, resonates with clients. Our tagline 'faster better cheaper and
more (to which with the arrival of AI we have added 'more') and a unitary
structure both appeal strongly, even more so in challenging economic times.
Financial review
Summary of results
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2023 31 Dec 2022(8)
Billings(1) 1,870.5 1,890.5 (1.1%) (1.4%) (1.4%)
Revenue 1,011.5 1,069.5 (5.4%) (7.8%) (7.8%)
Net revenue(2) 873.2 891.7 (2.1%) (4.5%) (4.5%)
Operational EBITDA(5) 93.7 124.2 (24.6%) (36.6%) (36.7%)
Operational EBITDA margin(5) 10.7% 13.9% (320bps) (550bps) (540bps)
Adjusted operating profit 82.0 114.1 (28.1%)
Adjusting items(6) (61.8) (249.4) 75.2%
Adjusted operating profit margin(6) 9.4% 12.8% (340bps)
Net finance expenses and loss on net monetary position (34.1) (24.4) (39.8%)
Adjusted result before income tax(6) 48.1 88.4 (46.4%)
Adjusted Income tax expenses(6) (11.6) (20.9) (44.2%)
Adjusted result for the year(6) 36.5 67.5 (45.9%)
Adjusted basic earnings per share(6) (pence) 5.7 11.4 (5.7)
A full list of alternative performance measures and non-IFRS measures together
with reconciliations to IFRS or GAAP measures is set out in the Alternative
Performance Measures.
Financial summary
Despite a challenging 2023 with slower market growth and ongoing macroeconomic
uncertainty, cautious spending from clients, a difficult year for new business
and a lower seasonal uplift than in previous years, we have continued to
enhance our financial processes and controls, supported by a now well
established finance team, with a focus on operational EBITDA margin, tight
cost controls, forecasting and driving cash generation. We will continue to
focus on all of these areas throughout 2024 along with ongoing investments in
finance systems and processes to support the Group in delivering its targets
for the year.
Billings were £1,870.5 million, down 1.1% on a reported basis, down 1.4% on a
like-for-like basis.
Revenue was £1,011.5 million, down 5.4% from £1,069.5 million on a reported
basis, down 7.8% on a like-for-like basis.
Net revenue was £873.2 million, down 2.1% reported, down 4.5% like-for-like.
Operational EBITDA was £93.7 million compared to £124.2 million in the prior
year, a reported decrease of 24.6% and down 36.6% on a like-for-like basis
reflecting the challenging revenue trajectory. We have continued to maintain a
disciplined approach to cost management, including headcount and discretionary
costs. These controls have resulted in the number of Monks at the end of the
year being 7,707, down 13% from 8,891 at this time last year and down 15% on
the June 2022 figure. In December 2023, the Argentinian Peso significantly
devalued by over 50%. Operational EBITDA excludes this one-off benefit of
£9.3m, which is included in adjusting items.
Operational EBITDA margin was 10.7%, down 320 basis points versus 13.9% in
2022 and down 550 basis points like-for-like reflecting primarily the lower
growth and margins in the Content practice and lower margins in Technology
Services and Data&Digital Media. Our ambition remains to return full year
margins to historic levels, around 20%, over the medium to longer term.
Adjusted operating profit was down 28.1% on a reported basis to £82.0 million
from £114.1 million, before adjusting items of £61.8 million (2022: £249.4
million). The reduction in adjusting items is largely due to lower
combination payments tied to continued employment. Adjusting items also
includes share-based payments, restructuring costs primarily related to
headcount, amortisation of business combination intangible assets and the
benefit to our costs of the significant devaluation of the Argentinian Peso.
The reported operating profit of £20.2 million, was an improvement of £155.5
million on 2022, reflecting a reduction in the acquisition expenses. The loss
for the year was £6.0 million (2022: loss £160.5 million).
Adjusted basic earnings per share was 5.7p, versus adjusted basic earnings per
share of 11.4p in 2022. Basic loss per share was 0.9p (2022: 27.2p).
Practice and Geographic Performance
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2023 31 Dec 2022
Content 528.9 582.7 (9.2%) (10.0%) (10.0%)
Data&Digital Media 207.3 216.8 (4.4%) (3.1%) (3.1%)
Technology Services 137.0 92.2 48.6% 21.6% 21.3%
Net revenue(2) 873.2 891.7 (2.1%) (4.5%) (4.5%)
Americas 688.1 683.9 0.6% (2.8%) (2.8%)
EMEA 133.1 148.3 (10.2%) (10.9%) (10.9%)
Asia-Pacific 52.0 59.5 (12.6%) (9.2%) (9.2%)
Net revenue(2*) 873.2 891.7 (2.1%) (4.5%) (4.5%)
Content 38.9 74.1 (47.5%) (55.7%) (55.7%)
Data&Digital Media 33.5 39.9 (16.0%) (21.7%) (21.7%)
Technology Services 43.4 36.1 20.2% 0.7% 0.5%
S(4) central (22.1) (25.9) 14.7% 15.0% 15.4%
Operational EBITDA(5) 93.7 124.2 (24.6%) (36.6%) (36.7%)
*The prior year geographical split of net revenue has been re-presented to be
consistent with the internal reporting provided to the Group's Board of
Directors in the current year.
Practice performance
The Content practice's net revenue was down 10.0% like-for-like and down 9.2%
on a reported basis, with Data&Digital Media down 3.1% like-for-like and
down 4.4% on a reported basis. Technology Services was up 21.6% like-for-like
and up 48.6% on a reported basis.
Content practice operational EBITDA was £38.9 million, down 47.5% on a
reported basis versus 2022, down 55.7% on a like-for-like basis. The Content
practice operational EBITDA margin was 7.4%, compared to 12.7% in 2022,
reflecting lower revenues impacting profitability. Continued control on
hiring and reorganisation of the practice has reduced the number of Monks at
the year end. We continue to focus on improving the operating model,
integration and forecasting.
Data&Digital Media practice operational EBITDA was £33.5 million, down
16.0% on a reported basis from the last year, down 21.7% on a like-for-like
basis. Data&Digital Media practice operational EBITDA margin was 16.2%,
compared to 18.4%, reflecting the decline in revenue, people and related
benefits cost inflation and higher travel and selling costs against a Covid
impacted comparison.
Technology Services performed strongly in the year, with operational EBITDA of
£43.4 million, up 20.2% on a reported basis from the prior year, up 0.7%
like-for-like and delivering an operational EBITDA margin of 31.7%.
Geographic performance
The Americas net revenue was £688.1 million (79% of total), up 0.6% on a
reported basis from last year. On a like-for-like basis the Americas net
revenue was down 2.8%, with growth in our 'whoppers' offset by slower market
growth and client caution.
EMEA net revenue was £133.1 million (15% of total), down 10.2% from last year
on a reported basis. On a like-for-like basis EMEA net revenue was down 10.9%
primarily reflecting macroeconomic conditions leading to slower market growth
and client caution and a difficult new business environment.
Asia Pacific net revenue was £52.0 million (6% of total), down 12.6% on a
reported basis. On a like-for-like basis Asia Pacific net revenue was down
9.2% reflecting challenging market conditions and lower client demand.
Cash flow
£ millions Year ended Year ended
31 Dec 2023 31 Dec 2022
Operational EBITDA 93.7 124.2
Capital expenditure(1) (10.2) (16.1)
Interest and facility fees paid (26.7) (16.3)
Income tax paid (20.5) (19.0)
Restructuring and other one-off expenses paid (20.8) (4.9)
Change in working capital(2) (1.7) 1.9
Free cash flow 13.8 69.8
Mergers & Acquisitions (80.8) (162.6)
Other (3.6) 0.6
Movement in net debt (70.6) (92.2)
Opening net debt (110.2) (18.0)
Net debt (180.8) (110.2)
The table reflects how the business is managed and this is a non-statutory
cash flow format.
1. Includes purchase of intangible assets, purchase of property, plant and
equipment and security deposits.
2. Working capital primarily includes movement on receivables, payables,
principal elements of lease payments and depreciation of right-of-use assets.
Free cash flow for 2023 was £13.8 million, a reduction of £56.0 million
compared to 2022, with a lower operational EBITDA, increased cash interest
costs reflecting higher interest rates, restructuring payments and a slight
outflow in working capital.
Cash paid in relation to combinations (M&A) decreased £81.8 million
versus the prior year to £80.8 million reflecting lower M&A activity. The
majority of the cash payments have now been made with the majority of the
balance of £11.4 million settled in the first quarter of 2024.
Treasury and net debt
2023 2022
Net debt reconciliation
£ millions
Cash and cash equivalents 145.7 223.6
Loans and borrowings (excluding bank overdrafts) (326.5) (333.8)
Net debt (180.8) (110.2)
The year end net debt was £180.8 million (2022: £110.2 million) or 1.9x net
debt/pro-forma operational EBITDA. During the year, the S(4)Capital Group (as
defined in its facilities agreement) complied with the covenants set in that
agreement. The pro-forma operational EBITDA for the year was £93.3 million.
S(4)Capital Group will ensure that the net debt will not exceed 4.5:1 of the
pro-forma earnings before interest, tax, depreciation, and amortisation,
measured at the end of any relevant period of 12 months ending each
semi-annual date in a financial year, as defined in the facility agreement. As
at 31 December 2023, the net debt/pro-forma EBITDA, as defined by the
facilities agreement, was 1.9x.
The balance sheet has sufficient liquidity and long dated debt maturities. The
duration of the facilities 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.
Interest and tax
Consolidated statement of profit or loss net financing costs were £35.4
million (2022: £25.7 million), an increase of £9.7 million due to higher
interest rates and increased lease costs. The profit or loss tax credit for
the year was £7.9 million (2022: £0.8 million expense).
Balance sheet
Overall the Group reported net assets of £865.9 million as at 31 December
2023, which is an increase of £15.8 million compared to 31 December 2022,
driven mainly by a reduction in contingent consideration balances.
Acquisitions
On 31 October 2023, S(4)Capital plc announced the business combination of
Formula Consultants Incorporated ('FCI') for an expected total consideration
of £1.2 million, including performance linked consideration of £0.4 million.
The initial cash outlay was funded through the Group's own cash resources for
the entire issued share capital of FCI.
The purchase price allocation has been finalised and net identifiable assets
acquired totaled £1.0 million, including cash and cash equivalents of £0.3
million. Goodwill arising on the acquisition was £0.2 million. FCI has
contributed £0.4 million to the Group's revenue and £0.3 million to the
Group's operational EBITDA since the acquisition date.
About S(4)Capital
S(4)Capital plc (SFOR.L) is the tech-led, new age/new era digital advertising,
marketing and technology services company, established by Sir Martin Sorrell
in May 2018.
Our strategy is to build a purely digital advertising and marketing services
business for global, multinational, regional, and local clients, and
millennial-driven influencer brands. This will be achieved by integrating
leading businesses in three practices: Content, Data&Digital Media and
Technology Services, along with an emphasis on 'faster, better, cheaper, more'
execution in an always-on consumer-led environment, with a unitary structure.
The S(4)Capital Board includes Rupert Faure Walker, Paul Roy, Daniel Pinto,
Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly, Miles
Young and Colin Day as Non-Executive Directors.
The Company now has approximately 7,700 people in 32 countries with
approximately 80% of net revenue across the Americas, 15% across Europe, the
Middle East and Africa and 5% across Asia-Pacific. The longer-term objective
is a geographic split of 60%:20%:20%. Content currently accounts for
approximately 60% of net revenue, Data&Digital Media 25% and Technology
Services 15%. The long-term objective for the practices is a split of
50%:25%:25%.
Sir Martin was CEO of WPP for 33 years, building it from a £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.
Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi
Company Plc for nine years.
Audited consolidated statement of profit or loss
For the year ended 31 December 2023
2023 2022
Restated(1)
£m £m
Notes
Revenue 7 1,011.5 1,069.5
Direct costs (138.3) (177.8)
Net revenue 7 873.2 891.7
Personnel costs (670.8) (682.1)
Other operating expenses (92.6) (83.3)
Acquisition, restructuring and other one-off expenses (11.9) (155.9)
Depreciation, amortisation and impairment (77.9) (105.7)
Share of profit of joint venture 0.2 -
Total operating expenses (853.0) (1,027.0)
Operating profit/(loss) 20.2 (135.3)
Adjusted operating profit 82.0 114.1
Adjusting items(2) (61.8) (249.4)
Operating profit/(loss) 20.2 (135.3)
Finance income 2.8 1.5
Finance costs (38.2) (27.2)
Net finance costs (35.4) (25.7)
Gain on the net monetary position 1.3 1.3
Loss before income tax (13.9) (159.7)
Income tax credit/(expense) 7.9 (0.8)
Loss for the year (6.0) (160.5)
Attributable to owners of the Company (6.0) (160.5)
Attributable to non-controlling interests - -
(6.0) (160.5)
Loss per share attributable to the ordinary equity holders of the Company
Basic loss per share (pence)
(0.9) (27.2)
Diluted loss per share (pence) (0.9) (27.2)
Notes:
1. The comparatives for the year ended 31 December 2022 have been
restated for the adoption of the amendment to IAS 12 (see Note 2).
2. Adjusting items comprises amortisation and impairment of £48.6 million
(2022: £78.9 million), acquisition expenses of £9.2 million gain (2022:
£151.0 million expense), share-based payments of £10.1 million (2022: £14.6
million) and restructuring and other one-off expenses of £12.3 million (2022:
£4.9 million).
The results for the year are wholly attributable to the continuing operations
of the Group.
Audited consolidated statement of comprehensive income
For the year ended 31 December 2023
2023 2022
Restated(1)
£m £m
Loss for the year (6.0) (160.5)
Other comprehensive (expense)/income
Items that may be reclassified to profit or loss
Foreign operations - foreign currency translation differences (53.8) 70.7
Other comprehensive (expense)/income (53.8) 70.7
Total comprehensive expense for the year (59.8) (89.8)
Attributable to owners of the Company (59.8) (89.8)
Attributable to non-controlling interests - -
(59.8) (89.8)
Notes:
1. The comparatives for the year ended 31 December 2022 have been
restated for the adoption of the amendment to IAS 12 (see Note 2).
Audited consolidated balance sheet
As at 31 December 2023
2022
Restated(1)
2023 £m
Note
£m
Assets
Goodwill 8 691.3 718.8
Intangible assets 381.6 445.2
Right-of-use assets 45.8 55.7
Property, plant and equipment 21.9 29.7
Interest in joint ventures 0.2 -
Deferred tax assets 7.3 5.4
Other receivables 13.7 12.2
Non-current assets 1,161.8 1,267.0
Trade and other receivables 407.5 442.4
Current tax assets 4.9 -
Cash and cash equivalents 145.7 223.6
Current assets 558.1 666.0
Total assets 1,719.9 1,933.0
Liabilities
Deferred tax liabilities (32.7) (54.1)
Loans and borrowings (320.9) (326.2)
Lease liabilities (35.8) (43.1)
Contingent consideration and holdbacks 9 (7.3) (11.3)
Provisions (2.7) (5.7)
Non-current liabilities (399.4) (440.4)
Trade and other payables (418.1) (443.2)
Contingent consideration and holdbacks 9 (18.2) (177.3)
Loans and borrowings (0.2) (0.7)
Lease liabilities (13.2) (15.3)
Provisions (1.0) -
Current tax liabilities (3.9) (6.0)
Current liabilities (454.6) (642.5)
Total liabilities (854.0) (1,082.9)
Net assets 865.9 850.1
Equity
Share capital 145.9 142.0
Share premium 80.4 5.9
Other reserves 162.7 175.2
Foreign exchange reserves (5.3) 48.5
Retained earnings 482.1 478.4
Attributable to owners of the Company 865.8 850.0
Non-controlling interests 0.1 0.1
Total equity 865.9 850.1
Notes:
1. The comparatives as at 31 December 2022 have been restated for the
adoption of measurement period adjustments in respect of business
combinations, the adoption of the amendment to IAS 12, the deferred tax
offsetting and reclassification between trade and other payables and
provisions (see Note 2).
Audited consolidated statement of changes in equity
For the year ended 31 December 2023
Share capital(1) Share premium Merger reserves Other reserves(2) Foreign exchange reserves Retained earnings/ (accumulated losses)(3) Attributable to owners of the Company Non-controlling interests Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2022 138.8 446.9 205.7 76.7 (22.2) (44.8) 801.1 0.1 801.2
Amendment to IAS 12 restatement(3) - - - - - 1.3 1.3 - 1.3
Hyperinflation restatement - - - 3.3 - - 3.3 - 3.3
Adjusted 138.8 446.9 205.7 80.0 (22.2) (43.5) 805.7 0.1 805.8
opening balance
Comprehensive (loss)/income for the year
Loss for the year - - - - - (160.5) (160.5) - (160.5)
Other comprehensive income - - - - 70.7 - 70.7 - 70.7
Total comprehensive income/(loss) - - - - 70.7 (160.5) (89.8) - (89.8)
for the year
Transactions with owners of the Company
Realised merger reserve(4) - (462.6) (205.7) - - 668.3 - - -
Business combinations 3.2 21.6 - 94.8 - - 119.6 - 119.6
Share-based payments - - - 0.4 - 14.1 14.5 - 14.5
At 31 December 2022(3) 142.0 5.9 - 175.2 48.5 478.4 850.0 0.1 850.1
Hyperinflation restatement - - - 2.6 - - 2.6 - 2.6
Adjusted 142.0 5.9 - 177.8 48.5 478.4 852.6 0.1 852.7
opening balance
Comprehensive loss for the year
Loss for the year - - - - - (6.0) (6.0) - (6.0)
Other comprehensive - - - -
expense (53.8) - (53.8) - (53.8)
Total comprehensive loss - - - - (53.8) (6.0) (59.8) - (59.8)
for the year
Transactions with owners of the Company
Business combinations 3.9 74.5 - (15.7) - - 62.7 - 62.7
Share-based payments - - - 0.6 - 9.7 10.3 - 10.3
At 31 December 2023 145.9 80.4 - 162.7 (5.3) 482.1 865.8 0.1 865.9
Notes:
1. At the end of the reporting period, the issued and paid up share
capital of S(4)Capital plc consisted of 583,064,256 (2022: 567,832,883)
Ordinary Shares having a nominal value of £0.25 per Ordinary Share.
2. Other reserves include the deferred equity consideration of £156.2
million (2022: £171.8 million), which comprises TheoremOne for £81.4 million
(2022: £55.0 million), Raccoon for £43.6 million (2022: £43.0 million),
Decoded for £nil (2022: £47.9 million), XX Artists for £25.3 million (2022:
£7.8 million), Cashmere for £nil (2022: £6.9 million), Zemoga for £3.4
million (2022: £8.7 million), 4 Mile for £2.3 million (2022: £2.3 million)
and Destined for £0.2 million (2022: £0.2 million), the treasury shares
issued in the name of S(4)Capital plc to an employee benefit trust for the
amount of £1.2 million (2022: £1.8 million), and the impact of
hyperinflation in Argentina of £7.5 million (2022: £4.9 million)
3. The opening balance as at 1 January 2022 and the comparatives as at
31 December 2022 have been restated for the adoption of the amendment to IAS
12 (see Note 2).
4. During the year ended 31 December 2022, the Group undertook a
reduction of capital to effect the cancellation of the C ordinary shares
resulting from the capitalisation of the sum of £205.7 million outstanding to
the credit of the Company's merger reserve.
Audited consolidated statement of cash flows
For the year ended 31 December 2023
2023 2022
Note Restated(1)
£m £m
Cash flows from operating activities
Loss before income tax (13.9) (159.7)
Net finance costs 35.4 25.7
Depreciation, amortisation and impairment 77.9 105.7
Share-based payments 10.1 14.2
Acquisition, restructuring and other one-off expenses 11.9 155.9
Employment linked contingent consideration paid (77.7) (38.9)
Restructuring and other one-off expenses paid (20.8) (4.9)
Share of profit in joint venture (0.2) -
Gain on the net monetary position (1.3) (1.3)
Other non cash items (9.8) -
Decrease/(increase) in trade and other receivables 11.3 (48.7)
(Decrease)/increase in trade and other payables (13.1) 49.3
Cash flows from operations 9.8 97.3
Income taxes paid (20.5) (19.0)
Net cash flows (used in)/from operating activities (10.7) 78.3
Cash flows from investing activities
Purchase of intangible assets (2.1) (1.5)
Purchase of property, plant and equipment (5.9) (16.4)
Acquisition of subsidiaries, net of cash acquired(2) 6, 9 (3.1) (123.7)
Amounts (paid into)/withdrawn from security deposits (2.2) 1.8
Cash flows used in investing activities (13.3) (139.8)
Cash flows from financing activities
Proceeds from issuance of shares 0.2 0.2
Principal element of lease payments(1) (16.3) (15.4)
Repayments of loans and borrowings (0.2) (0.9)
Interest and facility fees paid(1) (26.7) (16.3)
Cash flows used in financing activities (43.0) (32.4)
Net movement in cash and cash equivalents (67.0) (93.9)
Cash and cash equivalents beginning of the year 223.6 299.1
Exchange (loss)/gain on cash and cash equivalents (10.9) 18.4
Cash and cash equivalents at the end of the year 145.7 223.6
Notes:
1. The comparatives for the year ended 31 December 2022 have
been reclassified (see Note 2).
2. Comprises cash paid on the current year acquisition of £0.8
million (2022: £96.8 million) less cash acquired of £0.3 million (2022:
£7.6 million), cash paid into escrow accounts of £nil (2022: £12.8 million)
and contingent consideration and holdback payments, net of cash released from
escrow accounts, of £2.6 million (2022: £21.7 million).
Notes to the audited consolidated financial statements
For the year ended 31 December 2023
1. General information
S(4)Capital plc ('S(4)Capital' or 'Company') is a public limited company
incorporated on 14 November 2016 in the United Kingdom. The Company has its
registered office at 12 St James's Place, London, SW1A 1NX, United Kingdom.
The audited consolidated financial statements represent the results of the
Company and its subsidiaries (together referred to as 'S(4)Capital Group' or
the 'Group').
S(4)Capital Group is a new age/new era digital advertising and marketing
services company.
2. Basis of preparation
A. Statement of compliance
The financial statements of S(4)Capital plc have been prepared in accordance
with UK-adopted International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards.
The financial information set out above does not constitute the company's
statutory accounts for the year ended 31 December 2023. The statutory accounts
for 2023 will be finalised based on the financial information presented by the
directors in this preliminary announcement and will be delivered to the
Registrar of Companies in due course. The audited financial information is
prepared under the historical cost basis, unless stated otherwise in the
accounting policies.
The Group has undertaken a detailed going concern assessment, reviewing its
current and projected financial performance and position. The Directors
believe that the Group's forecasts have been prepared on a prudent basis.
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.
B. Restatement and reclassification
Business combinations
The consolidated balance sheet at 31 December 2022 has been restated for fair
value adjustments relating to the TheoremOne acquisition. See Note 6 for
further details.
Deferred tax related to assets and liabilities arising from a single
transaction (Amendments to IAS 12 Income Taxes)
An amendment to IAS 12 Income taxes was published in May 2021 and became
effective for the Group from 1 January 2023. The amendment narrowed the scope
of the deferred tax recognition exemption so that it no longer applies to
transactions that, on initial recognition, give rise to equal taxable and
deductible temporary differences.
The Group has considered the impact of this amendment, notably in relation to
the accounting for deferred taxes on leases and dilapidation provisions. The
impact of transitioning to the revised standard was to increase deferred tax
assets by £0.3 million, decrease deferred tax liabilities by £1.0 million
and increase total equity by £1.3 million as at 1 January 2022. The impact on
the consolidated statement of profit or loss was £0.8 million expense for
period ended 31 December 2022. As a result, basic and diluted loss per share
has increased by 0.2 pence. The impact of this retrospective adjustment on the
consolidated balance sheet at 31 December 2022 is shown below.
Deferred tax offset
The impact of this retrospective adjustment as at 31 December 2022 was a £9.7
million decrease on both deferred tax assets and deferred tax liabilities,
with no impact on net assets. The impact on the consolidated balance sheet at
1 January 2022 was £nil. The impact on the consolidated statement of profit
or loss was £nil.
Provisions and other payables
Provisions previously presented as other payables have been reclassified to be
shown separately on the consolidated balance sheet to provide consistency with
the presentation of balances for the year ended 31 December 2023.
31 December 2022
As reported Business combinations Amendment to IAS 12 Deferred tax offset Reclassification As restated
£m £m £m
£m £m £m
Goodwill 720.4 (1.6) - - - 718.8
Deferred tax assets 16.8 - (1.7) (9.7) - 5.4
Total non-current assets 1,280.0 (1.6) (1.7) (9.7) - 1,267.0
Trade and other receivables 440.8 1.6 - - - 442.4
Total current assets 664.4 1.6 - - - 666.0
Total assets 1,944.4 - (1.7) (9.7) - 1,933.0
Deferred tax liabilities (66.0) - 2.2 9.7 - (54.1)
Provisions - - - - (5.7) (5.7)
Other payables (5.7) - - - 5.7 -
Total non-current liabilities (452.3) - 2.2 9.7 - (440.4)
Total liabilities (1,094.8) - 2.2 9.7 - (1,082.9)
Net assets 849.6 - 0.5 - - 850.1
Reclassification of statement of cash flows
The statement of cash flows for the year ended 31 December 2022 has been
reclassified to provide consistency with
the presentation of amounts for the year ended 31 December 2023.
31 December 2022
As reported Reclassification As restated
£m
£m £m
Cash flows from operating activities:
Restructuring and other one-off expenses paid - (4.9) (4.9)
Increase in trade and other payables 44.4 4.9 49.3
Cash flows from operations 97.3 - 97.3
Cash flows from financing activities:
Principal element of lease payments 17.5 (2.1) 15.4
Interest and facility fees paid 14.2 2.1 16.3
Cash flows used in financing activities (43.0) - (43.0)
C. Functional and presentation currency
The audited consolidated financial statements are presented in Pound Sterling
(GBP or £), the Company's functional currency. All financial information in
Pound Sterling has been rounded to the nearest million unless otherwise
indicated.
D. Principal risks and uncertainties
The principal risks and uncertainties facing the Group as at 31 December 2023
relate to the following:
¤ Macroeconomic headwinds
¤ Operational decision making
¤ Talent lifecycle
¤ Governance and compliance
¤ Artificial intelligence
¤ Integration of acquisitions
¤ Key customers
¤ Reputation risk
¤ Information security & data privacy
¤ Competitive environment
3. Accounting policies
The audited consolidated financial statements have been prepared on a
consistent basis with the accounting policies of the Group which were set out
on pages 139 to 154 of the Annual Report and Accounts 2022, excluding the
impact of amended standards as detailed below.
A number of amended standards became applicable for the current reporting
period. These are as follows:
Definition of accounting estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of accounting estimates
(Amendments to IAS 8) to clarify the distinction between accounting policies
and accounting estimates. The amendments are effective for reporting periods
beginning on or after 1 January 2023. The Group adopted this standard as of 1
January 2023. The adoption of this standard had no material impact on the
Groups audited consolidated financial statements.
Making Materiality Judgements (Amendments to IAS 1 and IFRS Practice Statement
2)
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 "Making Materiality Judgements", which provide guidance and
examples to help entities apply materiality judgements to accounting policy
disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for entities to
disclose their 'significant' accounting policies with a requirement to
disclose their material accounting policies and adding guidance on how
entities are to apply the concept of materiality in making decisions about
accounting policy disclosures. These amendments are applicable for annual
periods beginning on or after 1 January 2023. These amendments have been
adopted as of such date and their adoption has had no material impact on the
Group's consolidated financial statements.
Deferred tax related to assets and liabilities arising from a single
transaction (Amendments to IAS 12 Income Taxes)
In May 2021, the IASB issued Deferred tax related to assets and liabilities
arising from a single transaction (Amendments to IAS 12 Income Taxes) to
clarify how to account for deferred tax on transactions including leases and
decommissioning obligations. The amendments are effective for reporting
periods beginning on or after 1 January 2023. The Group adopted this standard
as of 1 January 2023 and retrospectively applied the changes as at 1 January
2022, as detailed in Note 2.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts. IFRS 17 replaces
IFRS 4 and sets out principles for the recognition, measurement, presentation
and disclosure of insurance contracts within the scope of IFRS 17. This
standard is effective for reporting periods beginning on or after 1 January
2023. The Group adopted this standard as of 1 January 2023. The adoption of
this standard had no material impact on the Group's audited consolidated
financial statements.
Pillar 2
The Group is within the scope of the OECD Pillar Two model rules which will
come into effect from 1 January 2024. Since the Pillar Two legislation was not
effective at the reporting date, the Group has no related current tax
exposure. The Group applies the exception to recognising and disclosing
information about deferred tax assets and liabilities related to Pillar Two
income taxes, as provided in the amendments to IAS 12 issued in May 2023.
Under the legislation, the Group is liable to pay a top-up tax on adjusted
jurisdictional profits for the difference between its GloBE effective tax rate
per jurisdiction and the 15% minimum rate.
Based on the Pillar Two assessment undertaken by the Group using the relevant
information for the year ending 31 December 2023, the Group should be able to
benefit from one of the three tests under the transitional CbCr safe harbour
for most of its jurisdictions. The Group considers that the total amount of
top up tax arising in respect of its jurisdictions is expected to be
immaterial and as such has not undertaken detailed calculations required under
the legislation. The Group expects to undertake a Pillar 2 assessment in the
second quarter of 2024 for the purposes of interim reporting based on its
forecasts for the year ending 31 December 2024.
4. Critical accounting judgements and estimates
The following are the critical accounting judgements and estimates, made by
management in the process of applying the Group's accounting policies, that
have the most significant effect on the amounts recognised in the Group's
audited consolidated financial statements.
Judgements
Revenue recognition
The Group's revenue is earned from the provision of data and digital media
solutions and technology services. Under IFRS 15, revenue from contracts with
customers is recognised as, or when, the performance obligation is satisfied.
Specifically for the Content segment, due to the size and complexity of
contracts, management is required to form a number of judgements in the
determination of the amount of revenue to be recognised including the
identification of performance obligations within the contract and whether the
performance obligation is satisfied over time or at a point in time. The key
judgement is whether revenue should be recognised over time or at point in
time. Where revenue is recognised over time, an estimate must be made
regarding the progress towards completion of the performance obligation.
Impairment of goodwill and intangible assets
The Group applies judgement in determining whether the carrying value of
goodwill and intangible assets have any indication of impairment at each
reporting period, or more frequently if required. Both external and internal
factors are monitored for indicators of impairment. When performing the
impairment review, management's approach for determining the recoverable
amount of a cash-generating unit is based on the higher of value in use or
fair value less cost to dispose. In determining the value in use, estimates
and assumptions are used to derive cash flows, growth rates and discount
rates. See Note 8 for further information.
Tax positions
The Group is subject to sales tax in a number of jurisdictions. Judgement is
required in determining the provision for sales taxes due to uncertainty of
the amount of tax that may be payable. Provisions in relation to uncertain tax
positions are established on an individual rather than portfolio basis,
considering whether, in each circumstance, the Group considers it is probable
that the uncertainty will crystallise.
Use of alternative performance measures
In establishing which items are disclosed separately as adjusting items to
enable a better understanding of the underlying financial performance of the
Group, management exercises judgement in assessing the size and nature of
specific items. The Group uses alternative performance measures as we believe
these measures provide additional useful information on the underlying trend,
performance, and position of the Group. These underlying measures are used by
the Group for internal performance analyses, and credit facility covenant
calculations. The alternative performance measures include 'adjusted operating
profit', 'adjusting items', 'EBITDA' (earnings before interest, tax,
depreciation) and 'operational EBITDA'. The terms 'adjusted operating profit',
'adjusting items', 'EBITDA' and 'operational EBITDA' are not defined terms
under IFRS and may therefore not be comparable with similarly titled profit
measures reported by other companies. The measures are not intended to be a
substitute for, or superior to, GAAP measures. A full list of alternative
performance measures and non-IFRS measures together with reconciliations to
IFRS measures are set out in the Alternative Performance Measures.
Estimates
Impairment of goodwill and intangible assets
The recoverable amount for each CGU is determined using a value-in-use
calculation. In determining the value-in-use, the Group uses forecasted
revenue and profits adjusted for non-cash transactions to generate cash flow
projections. The forecasts are prepared by management based on the
Board-approved three-year business plans for each CGU along with a one-year
management-prepared extrapolation period. The forecasts reflect the expected
financial performance for each CGU, and consider the impact of inflation and
the latest macroeconomic trends and external factors, as well as historic
performance and trends, amongst other factors.
5. Statutory information and independent review
The condensed audited consolidated financial statements for the year ended 31
December 2023 do not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. A full copy of the 2023 Annual Report
and Accounts will be available online in April 2024. The statutory accounts
for the year ended 31 December 2022 have been delivered to the Registrar of
Companies and received an unqualified auditors' report, did not include a
reference to any matters to which the auditors drew attention by way of an
emphasis of matter and did not contain a statement under sections 498 (2) or
(3) of the Companies Act 2006.
6. Acquisitions
Current year acquisitions
On 31 October 2023, S(4)Capital plc announced the business combination of
Formula Consultants Incorporated ('FCI') for an expected total consideration
of £1.2 million, including performance linked consideration of £0.4 million.
The initial cash outlay was funded through the Group's own cash resources for
the entire issued share capital of FCI.
The purchase price allocation has been finalised and net identifiable assets
acquired totalled £1.0 million, including cash and cash equivalents of £0.3
million. Goodwill arising on the acquisition was £0.2 million.
FCI has contributed £0.4 million to the Group's revenue and £0.3 million to
the Group's operational EBITDA since the acquisition date. If the acquisition
had occurred on 1 January 2023, the Group's Revenue and operational EBITDA
would have been £1,012.2 million and £93.3 million respectively.
Prior year acquisitions
XX Artists
The initial accounting for the business combination of XX Artists was
provisional at the 31 December 2022 and was finalised as at 30 June 2023.
There has been no change to the provisional fair value as disclosed at 31
December 2022.
At 31 December 2023, the employment linked contingent consideration was
unconditional, on the basis that XX Artists fully achieved post acquisition
EBITDA targets for the 12 month period ended 31 December 2022. As a result,
during the year ended 31 December 2023 £35.8 million of employment linked
contingent consideration was derecognised, with £15.3 million being cash
settled, £17.5 million being recognised as deferred equity consideration and
a revaluation gain of £0.9 million recognised in the consolidated statement
of profit or loss.
At 31 December 2023, the holdback remaining on the balance sheet was £1.3
million. The Group expects to settle the maximum amounts, as the business had
achieved the post acquisition EBITDA targets for the 12 month period ended 31
December 2022.
TheoremOne
The initial accounting for the business combination of TheoremOne was
provisional at the 31 December 2022. As required by IFRS 3, the following fair
value adjustments have been made during the measurement period, which had no
material impact on the consolidated statement of profit or loss.
As disclosed at 31 December 2022 At 31 December 2023
Provisional fair Fair value
value adjustments Fair value
£m £m £m
Net identifiable assets 105.0 - 105.0
Goodwill 38.0 (1.5) 36.5
Total 143.0 (1.5) 141.5
Cash 78.0 - 78.0
Deferred consideration 55.0 - 55.0
Holdback obligations 10.0 - 10.0
Adjustment to purchase consideration(1) - (1.5) (1.5)
Total purchase consideration 143.0 (1.5) 141.5
Notes:
1. Adjustment to purchase consideration relates to the amount to
be recovered by the Group through the completion accounts process.
During the year ended 31 December 2023, £28.5 million was charged to the
consolidated statement of profit or loss with no further amounts to be accrued
which related to the employment linked contingent consideration due to sellers
who remain employees of the business.
At 31 December 2023, the employment linked contingent consideration was
unconditional, on the basis that TheoremOne fully achieved post acquisition
EBITDA targets for the 12 month period ended 31 December 2022. As a result,
£79.0 million of employment linked contingent consideration was derecognised,
with £39.5 million being cash settled, £26.4 million being recognised as
deferred equity consideration and a revaluation gain of £13.1 million
recognised in the statement of profit or loss.
Included within other reserves as at 31 December 2023 is £81.4 million,
comprised of £55.0 million of deferred consideration on initial acquisition
and £26.4 million recognised during the period, as explained above.
At 31 December 2023, £6.0 million of holdbacks remain as a liability,
relating to amounts held back to cover and indemnify the Group against certain
acquisition costs and damages. The Group currently expects to settle the
maximum holdback amount. The amount payable would be dependent on the amount
of these acquisition costs and damages, with the minimum amount payable being
£nil.
4 Mile
At 31 December 2023, the performance linked and employment linked contingent
consideration remaining on the balance sheet was £6.7 million and £2.6
million respectively. As a result of partially achieving post acquisition
EBITDA targets for the 12 month period ended 31 December 2022, this amount was
agreed and will be paid in 2024. As a result, a revaluation gain of £1.5
million recognised in the consolidated statement of profit or loss and a gain
of £1.1 million recognised in the consolidated statement profit or loss
through contingent consideration as remuneration during the year ended 31
December 2023.
At 31 December 2023, £4.7 million of holdbacks remain relating to amounts
held back to cover and indemnify the Group against certain acquisition costs
and any damage. The Group currently expects to settle the maximum holdback
amount. The amount payable would be dependent on the acquisition costs and any
damages, with the minimum amount payable being £nil.
Raccoon Group (Raccoon)
At 31 December 2023, the employment linked contingent consideration was
unconditional, on the basis that Raccoon fully achieved post acquisition
EBITDA targets for the 12 month period ended 31 December 2022. As a result,
£55.1 million of employment linked contingent consideration was derecognised,
with £20.7 million cash settled, £17.4 million recognised as deferred equity
consideration, a revaluation gain of £3.4 million recognised in the
consolidated statement of profit or loss and a gain of £14.4 million
recognised in the consolidated statement of profit or loss through contingent
consideration as remuneration.
Zemoga Group (Zemoga)
At 31 December 2023, £0.9 million of holdbacks remain relating to amounts
held back to cover and indemnify the Group against certain acquisition costs
and damages. The Group currently expects to settle the maximum holdback
amount. The amount payable is dependent on the amount of these acquisition
costs and damages, with the minimum amount payable being £nil. During the
year the Group settled £2.0 million of holdbacks, with a revaluation gain of
£3.3 million recognised in the consolidated statement of profit or loss.
Cashmere Agency Inc (Cashmere)
At 31 December 2023, £nil of holdbacks remain relating to amounts held back
to cover and indemnify the Group against certain acquisition costs and
damages. The Group settled £1.6 million of holdbacks during the year, with a
revaluation gain of £1.2 million recognised in the consolidated statement of
profit or loss.
7. Segment information
A. Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker (CODM). The CODM has
been identified as the Board of Directors of S(4)Capital Group.
During the year, S(4)Capital Group has three reportable segments as follows:
· Content: 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: Full-service campaign management
analytics, creative production and ad serving, platform and systems
integration and transition, training and education.
· Technology Services: digital transformation services in
delivering advanced digital product design, engineering services and delivery
services.
The customers are primarily businesses across technology, FMCG and media and
entertainment. Any intersegment transactions are based on commercial terms.
The Board of Directors monitor the results of the reportable segments
separately for the purpose of making decisions about resource allocation and
performance assessment prior to charges for tax, depreciation and
amortisation.
The Board of S(4)Capital Group uses net revenue rather than revenue to manage
the Group due to the fluctuating amounts of direct costs, which form part of
revenue.
The following is an analysis of the Group's net revenue and results by
reportable segments:
Data&Digital Media Technology services
2023 Content £m £m Total
£m £m
Revenue 664.1 210.4 137.0 1,011.5
Net revenue 528.9 207.3 137.0 873.2
Segment profit(1) 46.5 35.2 43.4 125.1
Overhead costs (22.1)
Adjusted non-recurring and acquisition related expenses(2) (22.0)
Depreciation, amortisation and impairment(3) (60.8)
Net finance costs and gain on net monetary position (34.1)
Loss before income tax (13.9)
Data&Digital Media Technology services
2022 Content £m £m Total
£m £m
Revenue 755.4 220.5 93.6 1,069.5
Net revenue 582.7 216.8 92.2 891.7
Segment profit(1) 74.1 39.9 36.1 150.1
Overhead costs (25.9)
Adjusted non-recurring and acquisition related expenses(2) (170.6)
Depreciation, amortisation and impairment(3) (88.9)
Net finance costs and loss on net monetary position (24.4)
Loss before income tax (159.7)
Notes:
1. Including £17.1 million (2022: £16.8 million) depreciation on
right-of-use assets.
2. Comprised of acquisition and restructuring expenses of £11.9 million
(2022: £155.9 million) and share-based payment costs of £10.1 million (2022:
£14.6 million).
3. Excluding £17.1 million (2022: £16.8 million) depreciation on
right-of-use assets.
Segment profit represents the profit earned by each segment without allocation
of the share of loss of joint ventures, central administration costs including
Directors' salaries, finance income, non-operating gains and losses, and
income tax expense. This is the measure reported to the Group's Board of
Directors for the purpose of resource allocation and assessment of segment
performance.
B. Information about major customers
One customer (2022: one) accounted for more than 10% of the Group's revenue
during the year, contributing £177.5 million (2022: £187.5 million). The
revenue from this customer was attributable to both the Content and
Data&Digital Media segments.
8. Goodwill
2023 2022
Restated(1)
£m £m
At 1 January 718.8 625.0
Acquired through business combinations 0.2 51.8
Impairments - (15.2)
Foreign exchange differences (27.7) 57.2
At 31 December 691.3 718.8
Notes:
1. The comparatives as at 31 December 2022 have been restated
for measurement period adjustments in respect of business combinations for
year ended 31 December 2023 (see Note 2).
During the year an amount of £0.2 million (2022: £51.8 million) has been
acquired through business combinations and has been allocated to the
Technology Services CGU.
Goodwill represents the excess of consideration over the fair value of the
Group's share of the net identifiable assets of the acquired subsidiary at the
date of acquisition.
Impairment testing
Goodwill acquired through business combinations is allocated to CGUs for the
purpose of the impairment testing. The Group's three CGUs are Content,
Data&Digital Media and Technology Services. The goodwill balance is
allocated to each of the three CGUs as follows:
2023 2022(1)
Restated
£m £m
Content 413.6 393.3
Data&Digital Media 197.6 241.0
Technology Services 80.1 84.5
Total 691.3 718.8
Notes:
1. The comparatives as at 31 December 2022 have been restated
for measurement period adjustments in respect of business combinations for
year ended 31 December 2023 (see Note 2).
The recoverable amount for each CGU is determined using a value-in-use
calculation. In determining the value-in-use, the Group uses forecasted
revenue and profits adjusted for non-cash transactions to generate cash flow
projections. The forecasts are prepared by management based on the
Board-approved three-year business plans for each CGU along with a one-year
management-prepared extrapolation period. The forecasts reflect the expected
financial performance for each CGU, and consider the impact of inflation and
the latest macroeconomic trends and external factors, as well as historic
performance and trends, amongst other factors.
Sensitivity analysis has been carried out for the value-in-use calculations of
each CGU. Based on this sensitivity analysis, it has been determined that the
excess of recoverable amount over the carrying amount of all three CGUs could,
without changing other assumptions, be reduced to nil as a result of
reasonably possible changes in the key assumptions of net revenue growth and
EBITDA percentage margin in the cash flow forecasts, which are considered the
two most sensitive assumptions.
For Content, with a headroom of £85.1 million, the range of net revenue
growth rates across the four-year forecast period is between -0.3% and 12.6%,
and the range of EBITDA margin across the four-year forecast period is between
14.1% and 20.0%. A pre-tax discount rate of 13.9% has been used, with a
long-term growth rate of 2.0% applied in perpetuity beyond the four-year
explicit forecast period. The recoverable amount would equal the carrying
amount either if net revenue growth range were to be reduced to a range of
-0.4% to 7.6% (with margins remaining unchanged) or if EBITDA margin were to
be reduced to a range of 12.7% to 18.6% (with net revenue growth remaining
unchanged).
For Data & Digital Media, with a headroom of £34.4 million, the range of
net revenue growth rates across the four-year forecast period is between -0.2%
and 13.3%, and the range of EBITDA margin across the four-year forecast period
is between 15.0% and 20.0%. A pre-tax discount rate of 13.9% has been used,
with a long-term growth rate of 2.0% applied in perpetuity beyond the
four-year explicit forecast period. The recoverable amount would equal the
carrying amount either if net revenue growth range were to be reduced to a
range of -0.3% to 8.8% (with margins remaining unchanged) or if EBITDA margin
were to be reduced to a range of 13.5% to 18.4% (with net revenue growth
remaining unchanged).
For Technology Services, with a headroom of £61.0 million, the range of net
revenue growth rates across the four-year forecast period is between -13.9%
and 50.1%, and the range of EBITDA margin across the four-year forecast period
is between 11.8% and 22.0%. A pre-tax discount rate of 13.4% has been used,
with a long-term growth rate of 2.0% applied in perpetuity beyond the
four-year explicit forecast period. The recoverable amount would equal the
carrying amount either if net revenue growth range were to be reduced to a
range of -19.5% to 29.5% (with margins remaining unchanged) or if EBITDA
margin were to be reduced to a range of 7.8% to 18.1% (with net revenue growth
remaining unchanged).
The consequential impacts of the changes in net revenue growth/EBITDA margins
on cash flow assumptions including working capital movements and tax charges
have been incorporated into the sensitivity analyses referred to above.
9. Financial instruments
Financial instruments by category
Financial assets 2023
£m 2022
£m
Cash and cash equivalents 145.7 223.6
Trade receivables 346.8 349.6
Accrued income 28.2 44.7
Other receivables 33.1 43.9
Total 553.8 661.8
2022
£m
2023
Financial liabilities £m
Financial liabilities held at amortised cost
Trade and other payables (348.9) (369.2)
Loans and borrowings (321.1) (326.9)
Lease liabilities (49.0) (58.4)
Financial liabilities held at fair value through profit or loss
Contingent consideration and holdbacks (25.5) (188.6)
Total (744.5) (943.1)
The following table categorises the Group's financial liabilities held at fair
value on the audited consolidated balance sheet. There have been no transfers
between levels during the year (2022: none).
2023 2023 2022 2022
Fair value Level 3 Fair value Level 3
Financial liabilities held at fair value £m £m £m £m
Contingent consideration and holdbacks (25.5) (25.5) (188.6) (188.6)
Total (25.5) (25.5) (188.6) (188.6)
The following table shows the movement in contingent consideration and
holdbacks.
Performance Employment
linked linked
contingent contingent
Contingent consideration and holdbacks consideration consideration Holdbacks(1) Total
£m £m £m £m
Balance at 1 January 2022 (42.9) (58.7) (16.8) (118.4)
Acquired through business combinations (12.5) - (14.2) (26.7)
Recognised in consolidated statement of profit or loss(2) 13.1 (155.6) (1.6) (144.1)
Cash paid 17.0 38.9 9.4 65.3
Equity settlement 19.1 35.4 - 54.5
Exchange rate differences (4.7) (11.7) (2.8) (19.2)
Balance at 31 December 2022 (10.9) (151.7) (26.0) (188.6)
Acquired through business combinations (0.4) - - (0.4)
Recognised in consolidated statement of profit or loss(2) 1.6 4.1 5.8 11.5
Cash paid - 77.7 5.9 83.6
Equity settlement - 62.3 0.4 62.7
Exchange rate differences 0.7 4.6 0.4 5.7
Balance at 31 December 2023 (9.0) (3.0) (13.5) (25.5)
Included in current liabilities (10.9) (151.7) (14.7) (177.3)
Included in non-current liabilities - - (11.3) (11.3)
Balance at 31 December 2022 (10.9) (151.7) (26.0) (188.6)
Included in current liabilities (8.6) (3.0) (6.6) (18.2)
Included in non-current liabilities (0.4) - (6.9) (7.3)
Balance at 31 December 2023 (9.0) (3.0) (13.5) (25.5)
Notes:
1. Holdback payments of £5.9 million(2022: £9.4 million) includes £3.3
million (2022: £4.7 million) of cash paid out escrow accounts.
2. Includes a charge of £13.2 million (2022: £172.4 million) relating to
employment linked contingent consideration and holdback deemed remuneration, a
credit of £24.7 million relating to a fair value gain (2022: £29.8 million)
and a charge of £nil (2022: £1.5 million) relating to the impact of
discounting.
Where the contingent consideration conditions have been satisfied,
consideration that is payable as equity is recognised within Other Reserves as
deferred equity consideration.
The fair value of the performance linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed and recognised at the
acquisition date, and reassessed at each balance sheet date thereafter, until
fully settled, cancelled or expired. Any change in the range of future
outcomes is recognised in the consolidated statement of profit or loss as a
fair value gain or loss. The impact of discounting on the performance linked
contingent consideration is £nil for the year (2022: £1.5 million). During
the year ended 31 December 2023, a fair value gain of £1.9 million (2022:
£14.6 million) was recognised in the consolidated statement of profit or
loss.
The fair value of the employment linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed at the acquisition date, and
systematically accrued over the respective employment term. Any changes in the
range of future outcomes are recognised in the consolidated statement of
profit or loss as a fair value gain or loss. During the year ended 31 December
2023, a £3.8 million credit (2022: £155.6 million charge) was recognised in
the consolidated statement of profit or loss. The £3.8 million (2022: £155.6
million charge) comprised a charge of £13.5 million (2022: £170.8 million)
relating to the systematic accrual of the employment linked contingent
consideration and a fair value gain of £17.3 million (2022: £15.2 million).
Holdbacks relate to amounts held by the Group to cover and indemnify the Group
against certain acquisition costs and damages. The fair value of the holdbacks
has been determined based on management's best estimate of the level of the
costs incurred and damages expected to which the holdback is linked, which is
the most significant unobservable input used in the fair value measurement.
During the year ended 31 December 2023, a credit of £5.8 million (2022: £1.6
million charge) has been recognised in the consolidated statement of profit or
loss.
10. Net debt reconciliation
The following table shows the reconciliation of net cash flow to movements in
net debt:
Net debt including Lease Liabilities
Borrowings and overdrafts Cash Net debt Leases(1) £m
£m £m £m £m
Net debt as at 1 January 2022 (319.0) 301.0 (18.0) (42.0) (60.0)
Financing cash flows 0.9 (95.8) (94.9) 15.4 (79.5)
Acquired through business combinations (0.3) - (0.3) (0.7) (1.0)
Lease additions - - - (26.9) (26.9)
Foreign exchange adjustments (17.6) 18.4 0.8 (3.5) (2.7)
Interest expense (13.5) - (13.5) (2.1) (15.6)
Interest payment 13.5 - 13.5 2.1 15.6
Other 2.2 - 2.2 (0.7) 1.5
Net debt as at 31 December 2022 (333.8) 223.6 (110.2) (58.4) (168.6)
Financing cash flows 0.2 (67.0) (66.8) 16.3 (50.5)
Acquired through business combinations - - - (0.2) (0.2)
Lease additions - - - (14.0) (14.0)
Foreign exchange adjustments 6.8 (10.9) (4.1) 1.1 (3.0)
Interest expense (22.7) - (22.7) (2.3) (25.0)
Interest payment 23.1 - 23.1 2.3 25.4
Other (0.1) - (0.1) 6.2 6.1
Net debt as at 31 December 2023 (326.5) 145.7 (180.8) (49.0) (229.8)
Notes:
1. The comparatives for the year ended 31 December 2022 have been
reclassified between financing cash flows and interest payment (see Note 2).
11. Related party transactions
Apart from key management personnel compensation and the interest in S4S
Ventures detailed in the Annual Report and Accounts 2022, S(4)Capital Group
did not have any other related party transactions during the year (2022: nil).
12. Events occurring after the reporting period
There were no material post balance sheet events, that require adjustment or
disclosure, occurring between the reporting period and 26 March 2024.
Appendix- Alternative Performance Measures
The Group has included various audited alternative performance measures (APMs)
in its audited consolidated financial statements. The Group includes these
non-GAAP measures as it considers these measures to be both useful and
necessary to the readers of these audited consolidated financial statements to
help them more fully understand the performance and position of the Group. The
Group's measures may not be calculated in the same way as similarly titled
measures reported by other companies. The APMs should not be viewed in
isolation and should be considered as additional supplementary information to
the IFRS measures. Full reconciliations have been provided between the APMs
and their closest IFRS measures.
The Group has concluded that these APMs are relevant as they represent how the
Board assesses the performance of the Group and they are also closely aligned
with how shareholders value the business. They provide like-for-like,
year-on-year comparisons and are closely correlated with the cash inflows from
operations and working capital position of the Group. They are used by the
Group for internal performance analysis and the presentation of these measures
facilitates comparison with other industry peers as they adjust for
non-recurring factors which may materially affect IFRS measures. Adjusting
items for the Group include amortisation of acquired intangibles, acquisition
related expenses costs, share-based payments, employment-related acquisition
costs and restructuring costs. Whilst adjusted measures exclude amortisation
of intangibles, acquisition costs and restructuring costs they do include the
revenue from acquisitions and the benefits of the restructuring programmes and
therefore should not be considered a complete picture of the Group's financial
performance, that is provided by the IFRS measures.
The adjusted measures are also used in the calculation of the adjusted
earnings per share and banking covenants as per our agreement with our
lenders.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Audited consolidated statement of profit or loss
Controlled Billings Revenue Includes media spend contracted directly by clients with media providers and It is an important measure to help understand the scale of the activities that
pass-through costs (see reconciliation A1 below) Group has managed on behalf of its clients, in addition to the activities that
are directly invoiced by the Group.
Billings Revenue Includes pass through costs (see reconciliation A1 below) It is an important measure to understand the activities that are directly
invoiced by the Group to its clients.
Net Revenue Revenue Excludes direct costs (see reconciliation A2 below) This is more closely aligned to the fees the Group earns for its services
provided to the clients. This is a key metric used by the Group when looking
at the Practice performance.
Operational EBITDA Operating profit Excludes acquisition related expenses, non-recurring items (primarily Operational EBITDA is Operating profit or loss before the impact of adjusting
acquisition payments tied to continued employment, amortisation of business items, amortisation of intangible assets and PPE depreciation. The Group
combination intangible assets and restructuring and other one-off expenses) considers this to be an important measure of Group performance and is
and recurring share-based payments, and includes right-of-use assets consistent with how the Group is assessed by the Board and investment
depreciation. (see reconciliation A3 below) community.
Like-for-Like Revenue and operating profit Is the prior year comparative, in this case 2022, restated to include acquired Like-for-like is an important measure used by the Board and investors when
businesses for the same months as 2023, and restated using same FX rates as looking at Group performance. It provides a comparison that reflects the
used in 2023 (see reconciliations A4 below) impact of acquisitions and changes in FX rates during the year.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Pro-forma Revenue and operating profit Is the full year consolidated results in constant currency and for Pro-forma figures are used extensively by management and the investment
acquisitions as if the Group had existed in full for the year (see community. It is a useful measure when looking at how the Group has changed
reconciliations A5 below) in light of the number of acquisitions that have been completed and to
understand the performance of the Group.
Adjusted basic earnings per share Basic earnings per share Excludes amortisation of intangible assets, acquisition related expenses, Adjusted basic earnings per share is used by management to understand the
share-based payments and restructuring and other one-off expenses (see earnings per share of the Group after removing non-recurring items and those
reconciliation A6 below) linked to combinations.
Adjusted profit year (Loss)/Profit for the year Excludes amortisation of intangible assets, acquisition related expenses, Adjusted profit for the year is used by management to understand the profit
share-based payments and restructuring and other one-off expenses (see for the Group after removing non-recurring items and those linked to
reconciliation A6 below) combinations.
Audited consolidated balance sheet
Net debt None Net debt is cash less gross bank loans (excluding transaction costs and lease Net debt is a commonly used metric to identify the debt obligations of the
liabilities). This is a key measure used by management and in calculations for Group after utilising cash in bank.
bank covenants (see reconciliation A7 below)
Audited consolidated statement of cash flows
Free cash flow Net cash inflow/(outflow) from operating activities Net cash flow from operating activities adjusted for investments in Free cash flow is a commonly used metric used to identify the amount of cash
intangibles and property, plant and equipment, lease liabilities, interest and at the disposal of the Group.
facility fees paid, security deposits and employment linked contingent
consideration paid.
2023 2022
Billings and Controlled billings (A1) £m £m
Revenue 1,011.5 1,069.5
Pass-through expenses 859.0 821.0
Billings(1) 1,870.5 1,890.5
Third party billings direct to clients 3,152.3 3,760.7
Controlled billings(2) 5,022.8 5,651.2
Notes:
1. Billings is gross billings to clients including pass-through expenses.
2. Controlled billings are billings we influenced.
2023
2022
Net Revenue (A2) £m £m
Revenue 1,011.5 1,069.5
Direct costs (138.3) (177.8)
Net Revenue 873.2 891.7
2023 2022
Reconciliation to Operational EBITDA (A3) £m £m
Operating profit/(loss) 20.2 (135.3)
Amortisation and impairment of intangible assets 48.6 78.9
Acquisition expenses (9.2) 151.0
Share-based payment 10.1 14.6
Restructuring and other one-off expenses(1) 11.8 4.9
Depreciation of property, plant and equipment(2) 12.2 10.1
Operational EBITDA 93.7 124.2
Notes:
1. Restructuring and other one-off expenses relates to restructuring costs
of £18.2 million (2022: £4.9 million), transformation costs of £2.9 million
(2022: £nil), offset by £9.3 million due to the significant devaluation of
the Argentinian Peso (2022: £nil).
2. Depreciation of property, plant and equipment is exclusive of depreciation
on right-of-use assets and includes £0.5 million expense (2022: £nil)
relating to the significant devaluation of the Argentinian Peso.
Like-for-Like (A4)
Data&Digital Media Technology Services
Like-for-like revenue Content Total
Year ended 31 December 2022 £m £m £m £m
Revenue 755.4 220.5 93.6 1,069.5
Impact of acquisitions 41.5 8.4 80.3 130.2
Impact of foreign exchange (31.8) (11.3) (59.5) (102.6)
Like-for-like revenue(1) 765.1 217.6 114.4 1,097.1
% like-for-like revenue change (13.2%) (3.3%) 19.8% (7.8%)
Notes:
1. Like-for-like is a non-GAAP measure and relates to 2022 being restated to
show the numbers for the previous year of the existing and acquired businesses
consolidated for the same months as in 2023, applying currency rates as used
in 2023.
Data&Digital Media Technology Services
Like-for-like net revenue Content Total
Year ended 31 December 2022 £m £m £m £m
Net revenue 582.7 216.8 92.2 891.7
Impact of acquisitions 23.9 8.1 79.0 111.0
Impact of foreign exchange (19.0) (11.0) (58.5) (88.5)
Like-for-like net revenue(1) 587.6 213.9 112.7 914.2
% like-for-like net revenue change (10.0%) (3.1%) 21.6% (4.5%)
Notes:
1. Like-for-like is a non-GAAP measure and relates
to 2022 being restated to show the audited numbers for the previous year of
the existing and acquired businesses consolidated for the same months as in
2023, applying currency rates as used in 2023.
Like-for-like Operational EBITDA Total
Year ended 31 December 2022 £m
Operational EBITDA 124.2
Impact of acquisitions 39.9
Impact of foreign exchange (16.4)
Like-for-like operational EBITDA(1) 147.7
% like-for-like operational EBITDA change (36.6%)
Notes:
1. Like-for-like is a non-GAAP measure and relates to 2022 being restated to
show the audited numbers for the previous year of the existing and acquired
businesses consolidated for the same months as in 2023, applying currency
rates as used in 2023.
Pro-forma (A5)
Data&Digital Media Technology Services
Content £m £m Total
Pro-forma revenue £m £m
FY23 Revenue 664.1 210.4 137.0 1,011.5
Impact of acquisitions - - 0.7 0.7
FY23 Pro-forma revenue(1) 664.1 210.4 137.7 1,012.2
FY22 Revenue 755.4 220.5 93.6 1,069.5
Impact of acquisitions 41.5 8.4 80.9 130.8
Impact of foreign exchange (31.8) (11.3) (59.4) (102.5)
FY22 Pro-forma revenue(1) 765.1 217.6 115.1 1,097.8
% pro-forma revenue change (13.2%) (3.3%) 19.6% (7.8%)
Notes:
1. Pro-forma relates to audited non-statutory and
non-GAAP consolidated results in constant currency as if the Group had existed
in full for the year and have been prepared under comparable GAAP with no
consolidation eliminations in the pre-acquisition year.
Data&Digital Media Technology Services
Content £m £m Total
Pro-forma net revenue £m £m
FY23 net revenue 528.9 207.3 137.0 873.2
Impact of acquisitions - - 0.6 0.6
FY23 Pro-forma net revenue(1) 528.9 207.3 137.6 873.8
FY22 net revenue 582.7 216.8 92.2 891.7
Impact of acquisitions 23.9 8.1 79.7 111.7
Impact of foreign exchange (19.1) (11.0) (58.5) (88.6)
FY22 Pro-forma net revenue(1) 587.5 213.9 113.4 914.8
% pro-forma net revenue change (10.0%) (3.1%) 21.3% (4.5%)
Notes:
1. Pro-forma relates to audited non-statutory and
non-GAAP consolidated results in constant currency as if the Group had existed
in full for the year and have been prepared under comparable GAAP with no
consolidation eliminations in the pre-acquisition year.
Total
Pro-forma Operational EBITDA £m
FY23 operational EBITDA 93.7
Impact of acquisitions (0.4)
FY23 Pro-forma operational EBITDA(1) 93.3
FY22 Operational EBITDA 124.2
Impact of acquisitions 39.5
Impact of foreign exchange (16.4)
FY22 Pro-forma operational EBITDA(1) 147.3
% pro-forma operational EBITDA change (36.7%)
Notes:
1. Pro-forma relates to audited non-statutory and non-GAAP consolidated
results in constant currency as if the Group had existed in full for the year
and have been prepared under comparable GAAP with no consolidation
eliminations in the pre-acquisition year.
Adjusted basic earnings per share (A6)
Restructuring
Acquisition expenses(2) Share-based payments and other one-off expenses(3)
£m
£m
£m
Reported Amortisation and impairment(1) Adjusted
Year ended 31 December 2023 £m £m £m
Operating profit 20.2 48.6 (9.2) 10.1 12.3 82.0
Net finance costs (35.4) - - - 1.5 (33.9)
Gain on net monetary position 1.3 - - - (1.3) -
(Loss) / profit before income tax (13.9) 48.6 (9.2) 10.1 12.5 48.1
Income tax expense 7.9 (14.7) - (0.7) (4.1) (11.6)
(Loss) / profit for the year (6.0) 33.9 (9.2) 9.4 8.4 36.5
Notes:
1. Amortisation and impairment relates to the intangible assets
recognised as a result of the acquisitions.
2. Acquisition expenses relate to acquisition related advisory fees of
£2.3 million, contingent consideration as remuneration of £13.2 million and
remeasurement gain on contingent considerations of £24.7 million.
3. Restructuring and other one-off expenses relate to restructuring costs of
£18.2 million, transformation costs of £2.9 million, offset by £8.8 million
due to the significant devaluation of the Argentinian Peso.
Acquisition expenses(2) Share-based payments Restructuring and other one-off expenses(3)
Reported Amortisation(1)
Adjusted
Year ended 31 December 2022 £m £m £m £m £m £m
Operating (loss)/profit (135.3) 78.9 151.0 14.6 4.9 114.1
Net finance costs (25.7) - - - - (25.7)
Gain on net monetary position 1.3 - - - (1.3) -
(Loss) / profit before income tax (159.7) 78.9 151.0 14.6 3.6 88.4
Income tax expense (0.8) (16.7) (0.1) (2.5) (0.8) (20.9)
(Loss) / profit for the year (160.5) 62.2 150.9 12.1 2.8 67.5
Notes:
1. Amortisation and impairment relates to the intangible assets
recognised as a result of the acquisitions.
2. Acquisition expenses relate to acquisition related advisory fees of
£7.9 million, bonuses of £0.4 million, contingent consideration as
remuneration of £172.4 million and remeasurement gain on contingent
considerations of £29.7 million.
3. Restructuring and other one-off expenses relate to restructuring costs of
£4.9 million.
Adjusted basic result per share
2023 2022
Adjusted profit attributable to owners of the Company (£m) 36.5 67.5
Weighted average number of ordinary shares for the purpose of basic EPS 639,218,703 590,667,949
(shares)
Adjusted basic earnings per share (pence) 5.7 11.4
2023 2022
Net debt (A7) £m £m
Cash and bank 145.7 223.6
Loans and borrowings (excluding bank overdrafts) (326.5) (333.8)
Net debt (180.8) (110.2)
Lease liabilities (49.0) (58.4)
Net debt including lease liabilities (229.8) (168.6)
Free cash flow (A8)
2023 2022
£m £m
Net cash (outflow)/inflow from operating activities (10.7) 78.3
Employment linked contingent consideration paid 77.7 38.9
Interest and facility fees paid (26.7) (16.3)
Investments in intangible assets (2.1) (1.5)
Investments in property, plant and equipment (5.9) (16.4)
Security deposits (2.2) 1.8
Principal element of lease payments (16.3) (15.4)
Other - 0.4
Free cash flow 13.8 69.8
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