REG - S4 Capital PLC - Interim Results for 2023
18/09/2023 07:00
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RNS Number : 6895M S4 Capital PLC 18 September 2023
S(4)Capital plc
("S(4)Capital" or "the Company" or "the Group")
Interim Results for 2023
Net revenue(2) growth of 18.7%, 5.1% like-for-like(3)
Operational EBITDA(5) £36.5 million up 21.3% on a reported basis, down 30.2%
like-for-like
Net debt(7) at £109 million, better than expectations and last year's £135
million
The Board will consider a dividend of at least 1p per share when the final
results for 2023 have been determined
Continued client conversion at scale, with like-for-like revenue growth from
top 20 clients of 8.9% and top 50 clients of 11.4%
Revised full year like-for-like net revenue target, likely down on last year
with operational EBITDA margins of 12 to 13.5%(9)
£ millions six months ended six months ended change Reported change change
Like-for-like(3)
Pro-forma(4)
30 June 2023 30 June 2022(8)
Billings(1) 925.4 765.6 20.9% 10.9% 10.9%
Revenue 517.1 446.4 15.8% 2.5% 2.5%
Net revenue(2) 445.5 375.3 18.7% 5.1% 5.1%
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
Operational EBITDA margin(5) 8.2% 8.0% 20bps (410)bps (410)bps
Adjusted(6) operating profit 30.6 25.4 20.5%
Adjusting(6) items (37.0) (100.8) 63.3%
Operating loss (6.4) (75.4) 91.5%
Loss for period (19.7) (82.3) 76.1%
Basic loss per share (pence) (3.2) (14.5) 11.3
Adjusted(6) basic earnings per share (pence) 1.7 2.1 (0.4)
Number of Monks 8,551 9,041 (5.4%)
Net debt(7) (109.4) (135.5)
Financial highlights
¤ Billings(1) £925.4 million, up 20.9% on a reported basis, up 10.9%
like-for-like(3).
¤ Revenue £517.1 million, up 15.8% reported, 2.5% like-for-like.
¤ Net revenue(2) £445.5 million, up 18.7% reported, and 5.1%
like-for-like, reflecting the challenging macroeconomic conditions compared to
last year and clients' caution, with longer sales cycles, particularly with
technology and newer regional and local clients. Two-year and three-year net
revenue stacks (like-for-like net revenue growth stacks for the last two and
three years) are 32.9% and 82.3%.
¤ Operational EBITDA(5) £36.5 million, up 21.3% reported and down 30.2%
like-for-like.
¤ Operating loss £6.4 million, an improvement of £69.0 million on the
prior year, primarily due to lower combination related expenses.
¤ Basic loss per share of 3.2p, compared to 14.5p basic loss per share in
the first half of 2022.
⁄ Adjusted(6) basic earnings per share, which excludes adjusting items
after tax, of 1.7p per share, compared to 2.1p per share last year.
⁄ The Board will consider a dividend of at least 1p per share, when the
final results for 2023 have been determined, reflecting its confidence in the
strategy and that we expect to be cash generative in 2024 with no material
combination payments.
¤ Net debt(7) ended the period at £109.4 million, or 0.9x net
debt/pro-forma 12 month operational EBITDA. The cash consideration payments to
be made in respect of prior year combinations are now expected in H2, and as a
result we expect to see net debt rise by the year end to £180-220 million.
¤ The balance sheet has sufficient liquidity and long-dated debt
maturities to facilitate growth.
Strategic and operational highlights
¤ Our stated 'whopper' strategy of building broad scaled relationships
with leading enterprise clients continues to drive our growth. Revenues from
our top 20 clients grew 8.9% on a like-for-like basis in H1 2023 and the
average size of our top 20 clients increased from £14.3 million to £15.5
million. Our top 50 client cohort delivered similar revenue growth of 11.4% on
a like-for-like basis and their average size increased from £7.0 million to
£7.7 million. We will likely have eight "whoppers" this year, with a further
two on the fringe of reaching $20 million of gross revenue in 2023.
¤ We had a mixed first half of 2023, despite reported H1 net revenue
growth of 18.7%, with like-for-like growth 5.1%. This reflects the more
challenging global macroeconomic conditions and clients' caution reflecting
fears of recession. We see longer sales cycles, particularly for larger
transformation projects, and whilst all practices have seen some impact, this
is most evident in Content and in particular with one or two technology
clients and regional and local opportunities.
¤ Profitability in the first half reflects slower top line growth and was
below our budgets. We have seen some salary and related benefits inflation
and we continue to maintain a disciplined approach to cost management,
including headcount and discretionary costs. These controls have resulted in
the number of Monks at the half year of 8,550, down over 5% from over 9,000 at
this time last year. The Group continues to take action, especially in
Content, given the current market outlook.
¤ The Content practice net revenue(2) was down 2.5% like-for-like, but up
5.8% on a reported basis, with Data&Digital Media up 2.4% like-for-like
and Technology Services up 54.3% like-for-like. Content had a very challenging
first half, particularly in May and June with one or two technology clients
and regional and local opportunities. Data&Digital Media had modest
growth in the first half, again highlighting tougher end markets and
Technology Services remained strong, continuing to outperform.
¤ Geographically, on a like-for-like basis, the Americas net revenue
growth was up 6.8% and now accounts for 79% of the Company, EMEA, accounting
for 15% was up 1.7% and Asia Pacific, accounting for the remaining 6% was down
6.9%, reflecting lower client demand, particularly in China and some
underperformance.
¤ Growth rates in digital media and transformation still 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 Blockchain, the Metaverse, AI and Quantum computing. Initial traction
from our AI initiatives with clients is encouraging, such as last week's
exclusive Outside Broadcasting Services initiative with Nvidia, AWS and Adobe,
which is engendering considerable interest from media companies.
¤ Our talented people have responded positively to the challenges of the
first half and we have continued to make progress in the three areas of our
ESG strategy: zero impact workspaces, sustainable work, and diversity, equity
and inclusion (DE&I).
¤ No new combinations were added to the Company in the first half of
2023.
Outlook
¤ Following slower than expected trading over the summer months,
including August and current client activity levels, full year expectations
have been further revised. Like-for-like net revenue is now expected to be
likely down on the prior year and operational EBITDA margins are now targeted
to be in the range of 12% to 13.5%. As in recent years, we expect the full
year results to be heavily Q4 weighted reflecting our seasonality and
anticipated client activity(9).
¤ Our net debt(7) will rise in H2 2023 reflecting payments for prior year
combinations, after which virtually all of the existing contingent
consideration due will have been satisfied. Our expected range for the year
end is £180-220 million. We aim for financial leverage of around 1.5 times
operational EBITDA over the medium term.
¤ Over the longer term we continue to expect our growth to outperform our
markets and operational EBITDA margins to return to historic levels of 20%+.
Sir Martin Sorrell, Executive Chairman of S(4)Capital plc said:
"We had a very mixed first half of the year reflecting challenging global
macroeconomic conditions and consequent fears of recession, which resulted in
client caution to commit and extended sales cycles, particularly for larger
projects. Despite this like-for-like revenue growth at our top 20 clients was
up 8.9% and at the top 50 up 11.4%. We expect the year as usual to be
weighted to the second half, especially Q4 - stimulated, in particular, by
increased seasonal levels of clients' activity and our Artificial Intelligence
initiatives and the use cases we are developing with our clients. We remain
confident our talent, business model, strategy and scaled client relationships
position us well for above average growth in the longer term, with a new
emphasis on deploying free cash flow to dividends and share buybacks."
Notes:
1. Billings is unaudited gross billings to client including pass
through costs.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous period 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 unaudited non-statutory and non-GAAP
consolidated results at half year in constant currency as if the Group had
existed in full for the six month period 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, restructuring costs and amortisation of
business combination intangible assets) and recurring share-based payments,
and includes right-of-use assets depreciation. It is a non-GAAP measure
management uses to assess the underlying business performance. Operational
EBITDA margin is operational EBITDA as a percentage of net revenue.
6. Adjusted operating profit is operating profit/loss adjusted for
non-recurring items (as defined above) and recurring share-based payments.
7. Net debt excludes lease liabilities.
8. The prior period figures have been restated for the adoption of the
amendment to IAS 12.
9. This is a target and not a profit forecast.
Disclaimer
This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives relating to the Company's services) are
forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These forward- looking
statements speak only as at the date of this announcement. S(4)Capital
expressly disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of the Company for the current or future years would necessarily match
or exceed the historical published earnings per share of the Company.
Neither the content of the Company's website, nor the content on any website
accessible from hyperlinks on its website for any other website, is
incorporated into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any such
content be relied upon in reaching a decision as to whether or not to acquire,
continue to hold, or dispose of, shares in the Company.
Results webcast and conference call
A webcast and conference call covering the results will be held today at 09:00
BST, followed by another webcast and call at 08:00 EDT/ 13:00 BST. Both
webcasts of the presentation will be available at www.s4capital.com
(http://www.s4capital.com) during the event.
09:00 BST webcast (watch only) and conference call (for Q&A):
Webcast: https://brrmedia.news/SFOR_H1IR2023
Conference call:
UK: +44 (0)330 551 0200
USA: +1 786 697 3501
08:00 EDT / 13:00 BST webcast (watch only) and conference call (for Q&A):
Webcast:
https://brrmedia.news/SFOR_H1IRUS23 (https://brrmedia.news/SFOR_H1IRUS23)
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
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
Interim results statement overview
The first half of 2023 was mixed with slower market growth and continuing
macroeconomic uncertainty. Our stated 'whopper' strategy of building broad
scaled relationships with leading enterprise clients continues to drive our
growth. Overall, we have seen clients being cautious and very much focused
on the short term, particularly in relation to larger transformation
projects. We anticipate an improved second half performance reflecting our
seasonality and particularly Q4 weighting, and ongoing cost management which
drives the stronger performance. We remain focused on a disciplined approach
to costs, headcount and operational cash generation.
In the second half of 2023 there will be a cash outflow relating to 2022 and
prior year combinations, with net debt expected to rise as a result. We will
maintain a liquid balance sheet and the focus will be on improving operating
performance and deploying free cash flow to dividends and buybacks.
The Company reports in three well defined practices; Content, Data&Digital
Media and Technology Services. Content had a challenging first half, with like
for like net revenue down slightly, which impacted margins significantly,
delivering results below our budget. Data&Digital Media saw modest
like-for-like net revenue growth, but is trading satisfactorily, although at
reduced margins. Technology Services continues to perform strongly. Growth
in Technology Services is expected to moderate in the second half due to
expected phasing of work with its larger clients and strong comparatives. As
in prior years, we anticipate a significant second half weighting and
particularly in Q4 reflecting our seasonality and anticipated client activity,
which will be complemented by an ongoing disciplined approach to cost
management.
Both Data&Digital Media and Technology Services 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 Blockchain, the Metaverse, AI and Quantum computing. We are seeing our
Artificial Intelligence initiatives improving visualisation and copywriting
productivity, in delivering more empathetic hyper-personalisation (better
targeted content at greater scale), more automated media planning and buying,
improving general client and agency efficiency and democratising knowledge.
The initial client traction reinforces our confidence in our offering and
approach. As anticipated our markets and clients are growing more slowly in
2023, reflecting the weaker global economic conditions, which have been
impacted by inflation and higher interest rates and general geopolitical
uncertainty around US/China relations, the war in Ukraine and relations with
Iran.
We continue to focus on the three areas of our ESG strategy: zero impact
workspaces, sustainable work, and diversity, equity and inclusion (DE&I).
We are adopting new tools to help us move towards increased transparency and
measuring of CO(2) emissions. We continue to engage with leading stakeholders,
industry efforts and global initiatives - like Amazon and the World Economic
Forum and we continue to focus on our external reporting and compliance.
Across the Company, we continue to donate hours to support community and
charity services and our For Good projects. We focused on our people and
people experience with our DE&I platform, Diversity in Action, which
touches all aspects of our business. Embedding a greater understanding of
diversity and cultural fluency into the Company is also a top priority. We
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
Following slower than expected trading over the summer months, including
August and current client activity levels, full year expectations have been
revised further. Like-for-like net revenue is now expected to be down on the
prior year and operational EBITDA margins are now targeted to be in the range
of 12 to 13.5%. As in recent years, we expect the full year results to be
heavily Q4 weighted reflecting our seasonality and anticipated client
activity.
Our net debt will rise in H2 2023 reflecting payments for prior year
combinations, after which virtually all of the existing contingent
consideration due will have been satisfied. Our expected range for the year
end is £180-220 million. We aim for financial leverage of around 1.5 times
operational EBITDA over the medium term. We will focus on improving efficiency
and effectiveness and deploying free cash flow to dividends and buybacks.
Over the longer term we continue to expect our growth to outperform our
markets and operational EBITDA margins to return to historic levels of 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,
more' or 'speed, quality, value, more' (to both of 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 six months ended six months ended change Reported change change
Like-for-like(3)
Pro-forma(4)
30 June 2023 30 June 2022(8)
Billings(1) 925.4 765.6 20.9% 10.9% 10.9%
Revenue 517.1 446.4 15.8% 2.5% 2.5%
Net revenue(2) 445.5 375.3 18.7% 5.1% 5.1%
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
Operational EBITDA margin(5) 8.2% 8.0% 20bps (410)bps (410)bps
Adjusted(6) operating profit 30.6 25.4 20.5%
Adjusting(6) items (37.0) (100.8) 63.3%
Adjusted(6) operating profit margin 6.9% 6.8% 10bps
Net finance expenses and loss on net monetary position (16.8) (10.2) (64.7%)
Adjusted(6) result before income tax 13.8 15.2 (9.2%)
Adjusted(6) Income tax expenses (3.5) (3.3) (6.1%)
Adjusted(6) result for the period 10.3 11.9 (13.4%)
Adjusted(6) basic earnings per share (pence) 1.7 2.1 (0.4)
A full list of alternative performance measures and non-IFRS measures together
with reconciliations to IFRS or GAAP measures are set out in the Alternative
Performance Measures.
Financial summary
Despite the challenging first half of 2023 with slower market growth and
ongoing macroeconomic uncertainty, 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 and driving cash
generation centred around working capital. We will continue to focus on all of
these areas throughout the second half of 2023 to support the Company in
delivering its revised targets for the year.
Billings(1) were £925.4 million, up 20.9% on a reported basis, up 10.9% on a
like-for-like(3) basis.
Revenue was £517.1 million, up 15.8% from £446.4 million on a reported
basis, up 2.5% like-for-like basis.
Net revenue(2) was £445.5 million, up 18.7% reported, up 5.1% like-for-like.
Operational EBITDA(5) was £36.5 million compared to £30.1 million in the
prior year, a reported increase of 21.3% and down 30.2% on a like-for-like
basis. 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 half year being around 8,550, down 5%
from over 9,000 at this time last year. We are taking further actions in the
second half, particularly in Content, given the current market conditions.
Operational EBITDA margin was 8.2%, up 20 basis points versus 8.0% in the
first half of 2022 and down 410 basis points like-for-like reflecting
primarily the lower growth in the Content practice and lower margins in
Data&Digital Media. Our ambition remains to return full year margins to
historic levels, above 20%, over the longer term.
Adjusted operating profit was up 20.5% on a reported basis to £30.6 million
from £25.4 million, before adjusting items of £37.0 million. The reduction
in adjusting items is largely due to lower combination costs tied to continued
employment and a fair value adjustment on equity consideration. Adjusting
items also includes share-based payments, restructuring costs primarily
related to headcount and amortisation of business combination intangible
assets.
The reported operating loss of £6.4 million, was £69.0 million lower than in
2022, reflecting a reduction in the acquisition and restructuring expenses.
The loss for the period was £19.7 million (30 June 2022: £82.3 million).
Adjusted basic earnings per share was 1.7p, versus adjusted basic earnings per
share of 2.1p in the first half of 2022.
The Board will consider a dividend of at least 1p per share, when the final
results for 2023 have been determined, reflecting its confidence in the
strategy for the Group and that we expect to be cash generative in 2024 with
no material combination payments.
Practice and Geographic Performance
£ millions six months ended six months ended change Reported change change
Like-for-like(3)
Pro-forma(4)
30 June 2023 30 June 2022
Content 264.7 250.2 5.8% (2.5%) (2.5%)
Data&Digital Media 106.6 100.7 5.9% 2.4% 2.4%
Technology Services 74.2 24.4 204.1% 54.3% 54.3%
Net revenue(2) 445.5 375.3 18.7% 5.1% 5.1%
Americas 353.7 284.5 24.3% 6.8% 6.8%
EMEA 66.1 63.3 4.4% 1.7% 1.7%
Asia-Pacific 25.7 27.5 (6.5%) (6.9%) (6.9%)
Net revenue(2*) 445.5 375.3 18.7% 5.1% 5.1%
Content 6.8 14.0 (51.4%) (73.3%) (73.3%)
Data&Digital Media 16.3 17.4 (6.3%) (15.5%) (15.5%)
Technology Services 26.5 8.8 201.1% 49.7% 49.7%
S(4) central (13.1) (10.1) (29.7%) (28.4%) (28.4%)
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
*The prior period 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 period.
Practice performance
Content practice operational EBITDA was £6.8 million, down 51.4% on a
reported basis versus the first half of 2022, down 73.3% on a like-for-like
basis. The Content practice operational EBITDA margin was 2.6%, compared to
5.6% in the first half of 2022, reflecting people cost inflation and related
benefits, higher IT costs and lower than budgeted revenues impacting
profitability. Continued control on hiring has reduced headcount at the
period end and will benefit the second half and Q4. We continue to focus on
integration and improving the operating model for Content, with further cost
reduction measures taking place during Q3 and Q4.
Data&Digital Media practice operational EBITDA was £16.3 million, down
6.3% on a reported basis from the last year, down 15.5% on a like-for-like
basis. Data&Digital Media practice operational EBITDA margin was 15.3%,
compared to 17.3%, reflecting the lower like-for-like topline growth, people
cost inflation and related benefits, and higher travel and selling costs
against a covid impacted comparison.
Technology Services continues to outperform with operational EBITDA of £26.5
million, up 201.1% on a reported basis from the prior period, up 49.7%
like-for-like and delivering an operational EBITDA margin of 35.7%.
Central costs reflect a full six months of the investments made in 2022 to
build out finance, assurance and governance.
Geographic performance
The Americas net revenue was £353.7 million (79.4% of total), up 24.3% on a
reported basis from last year. On a like-for-like basis the Americas net
revenue was up 6.8%, reflecting growth in our "whoppers" offset by slower
market growth and client caution.
EMEA net revenue was £66.1 million (14.8% of total), up 4.4% from last year
on a reported basis. On a like-for-like basis EMEA net revenue was up 1.7%
primarily reflecting slower market growth and client caution.
Asia Pacific net revenue was £25.7 million (5.8% of total), down 6.5% on a
reported basis. On a like-for-like basis Asia Pacific net revenue was down
6.9% reflecting challenging market conditions, particularly in China and some
underperformance.
Cash flow
£ millions six months ended six months ended
30 June 2023 30 June 2022
Operational EBITDA 36.5 30.1
Capital expenditure(1) (5.1) (10.2)
Interest paid (11.6) (6.6)
Income tax paid (10.7) (7.4)
Change in working capital (10.8) (7.7)
Free cashflow (1.7) (1.8)
Mergers & Acquisitions (0.3) (125.6)
Other 2.8 9.9
Movement in net cash/(net debt) 0.8 (117.5)
Opening net debt (110.2) (18.0)
Net debt (109.4) (135.5)
The table reflects how the business is managed and this is a non-statutory
cash flow format.
1. Includes investment in intangible
assets, investments in property, plant and equipment and security deposits.
Free cashflow for the period was negative £1.7 million, an improvement of
£0.1 million compared to the first of 2022 with an improvement in operational
EBITDA and the benefits of lower capital expenditure, partially offset by
increased cash interest costs reflecting higher interest rates.
Cash paid in relation to combinations (M&A) decreased £125.3 million
versus the prior period to £0.3 million reflecting lower M&A activity and
timing of payments, which are now expected in the second half of the year.
Treasury and net debt
six months ended six months ended
30 June 2023 30 June 2022
Net debt reconciliation
£ millions
Cash and cash equivalents 213.3 193.1
Loans and borrowings (excluding bank overdrafts) (322.7) (323.8)
Bank overdrafts - (4.8)
Net debt (109.4) (135.5)
The half year net debt was £109.4 million (30 June 2022: £135.5 million) or
0.9x net debt/12 month pro-forma operational EBITDA. The balance sheet has
sufficient liquidity and long dated debt maturities. During the period
S(4)Capital Group complied with the covenants set in its loan agreement. The
pro-forma 12 month operational EBITDA for the period to 30(th) June 2023 was
£128.1 million.
Interest and tax
Income statement net financing costs were £16.8 million (30 June 2022: £10.2
million), an increase of £6.6 million due to higher interest rates, increased
lease costs and the discounting of contingent consideration. The income
statement tax credit for the half year was £3.5 million (30 June 2022: £3.3
million).
Balance sheet
Overall the Group reported net assets of £827.8 million as at 30 June 2023,
which is a decrease of £22.3 million compared to 31 December 2022, driven
mainly by changes in FX rates and amortisation of intangible assets.
Acquisitions
No acquisitions were made in the six months ended 30 June 2023.
Responsibility Statement
The directors confirm that these unaudited consolidated interim financial
statements have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and that the interim management report includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
¤ an indication of important events that have occurred during the
first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
¤ material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
The maintenance and integrity of the S(4)Capital plc website is the
responsibility of the directors; the work carried out by the authors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that might have occurred to the interim
financial statements since they were initially presented on the website. The
directors of S(4)Capital plc are listed in the S(4)Capital plc annual report
for 31 December 2022. A list of current directors is maintained on the
S(4)Capital plc website: www.s4capital.com (http://www.s4capital.com) .
By order of the Board
Sir Martin
Sorrell
Mary Basterfield
Chairman
Chief Financial Officer
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.
Victor Knaap, Wesley ter Haar, Christopher S. Martin, Scott Spirit and Mary
Basterfield all joined the S(4)Capital Board as Executive Directors. The
S(4)Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto,
Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly, Miles
Young and Colin Day.
The Company now has approximately 8,600 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.
Unaudited consolidated interim statement of profit or loss
For the six month period ended 30 June 2023
Six months Six months
ended ended
30 June 2023 30 June 2022(1)
£m £m
Note
Revenue 7 517.1 446.4
Direct costs (71.6) (71.1)
Net revenue 7 445.5 375.3
Personnel costs (358.8) (308.9)
Other operating expenses (48.7) (36.1)
Acquisition, restructuring and other expenses (5.7) (69.7)
Depreciation and amortisation (38.8) (36.0)
Share of profit of joint ventures 0.1 -
Total operating expenses (451.9) (450.7)
Operating loss (6.4) (75.4)
Adjusted operating profit 30.6 25.4
Adjusting items(2) (37.0) (100.8)
Operating loss (6.4) (75.4)
Finance income 1.1 0.8
Finance costs (18.6) (10.4)
Net finance costs (17.5) (9.6)
Gain/(loss) on the net monetary position 0.7 (0.6)
Loss before income tax (23.2) (85.6)
Income tax credit 3.5 3.3
Loss for the period (19.7) (82.3)
Attributable to owners of the Company (19.7) (82.3)
Attributable to non-controlling interests - -
(19.7) (82.3)
Loss per share is attributable to the ordinary equity holders of the Company
Basic loss per share (pence)
(3.2) (14.5)
Diluted loss per share (pence) (3.2) (14.5)
Notes:
1. The comparatives for the six month period ended 30 June
2022 have been restated for the adoption of the amendment to IAS 12 (see Note
2).
2. Adjusting items comprises amortisation of intangibles of
£24.2m (H1 2022: £24.2m), acquisition and restructuring expenses of £5.7m
(H1 2022: £69.7m) and share-based payments of £7.1m (H1 2022: £6.9m).
The results for the period are wholly attributable to the continuing
operations of the Group.
Unaudited consolidated interim statement of comprehensive income
For the six month period ended 30 June 2023
Six months Six months
ended ended
30 June 2023 30 June 2022(1)
£m £m
Loss for the period (19.7) (82.3)
Other comprehensive (expense)/income
Items that may be reclassified to profit or loss
Foreign operations - foreign currency translation differences (38.8) 70.4
Other comprehensive (expense)/income (38.8) 70.4
Total comprehensive expense for the period (58.5) (11.9)
Attributable to owners of the Company (58.5) (11.9)
Attributable to non-controlling interests - -
(58.5) (11.9)
Notes:
1. The comparatives for the six month period ended
30 June 2022 have been restated for the adoption of the amendment to IAS 12
(see Note 2).
Unaudited consolidated interim balance sheet
As at 30 June 2023
Six months Year
ended ended
30 June 31 December 2022(1)
Note 2023 £m
£m
Assets
Goodwill 8 690.2 718.8
Intangible assets 404.3 445.2
Right-of-use assets 51.5 55.7
Property, plant and equipment 27.0 29.7
Interest in joint ventures 0.1 -
Deferred tax assets 15.8 15.1
Other receivables 9.3 12.2
Non-current assets 1,198.2 1,276.7
Trade and other receivables 365.2 442.4
Tax assets 3.6 -
Cash and cash equivalents 213.3 223.6
Current assets 582.1 666.0
Total assets 1,780.3 1,942.7
Liabilities
Deferred tax liabilities (57.2) (63.8)
Loans and borrowings (316.3) (326.2)
Lease liabilities (38.9) (43.1)
Contingent consideration and holdbacks 9 (6.3) (11.3)
Provisions (4.7) (5.7)
Non-current liabilities (423.4) (450.1)
Trade and other payables (401.4) (443.2)
Contingent consideration and holdbacks 9 (111.3) (177.3)
Loans and borrowings (0.4) (0.7)
Lease liabilities (15.2) (15.3)
Provisions (0.8) -
Tax liabilities - (6.0)
Current liabilities (529.1) (642.5)
Total liabilities (952.5) (1,092.6)
Net assets 827.8 850.1
Equity
Share capital 145.1 142.0
Share premium 67.6 5.9
Merger reserves - -
Other reserves 139.7 175.2
Foreign exchange reserves 9.7 48.5
Retained earnings/(accumulated losses) 465.6 478.4
Attributable to owners of the Company 827.7 850.0
Non-controlling interests 0.1 0.1
Total equity 827.8 850.1
Notes:
1. The comparatives as at 31 December 2022 have been restated for the adoption
of the amendment to IAS 12, measurement period adjustments in respect of
business combinations and re-presented to split out certain balance sheet
items and provide more clarity for the year ended 31 December 2022. See Note
2.
Unaudited consolidated interim statement of changes in equity
For the six month period ended 30 June 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 - - - 1.7 - - 1.7 - 1.7
Adjusted 138.8 446.9 205.7 78.4 (22.2) (43.5) 804.1 0.1 804.2
opening balance
Comprehensive loss for the period
Loss for the period - - - - - (82.3) (82.3) - (82.3)
Foreign currency translation differences - - - - 70.4 - 70.4 - 70.4
Total comprehensive loss - - - - 70.4 (82.3) (11.9) - (11.9)
for the period
Transactions with owners of the Company
Business combinations 0.2 2.9 - 91.0 - - 94.1 - 94.1
Share-based payments - - - 0.3 - 6.6 6.9 - 6.9
At 30 June 2022(3) 139.0 449.8 205.7 169.7 48.2 (119.2) 893.2 0.1 893.3
Hyperinflation restatement - - - 1.6 - - 1.6 - 1.6
Adjusted 139.0 449.8 205.7 171.3 48.2 (119.2) 894.8 0.1 894.9
opening balance
Comprehensive loss for the period
Loss for the period - - - - - (78.2) (78.2) - (78.2)
Other comprehensive - - - - 0.3 - 0.3 - 0.3
Income
Total comprehensive income/(loss) - - - - 0.3 (78.2) (77.9) - (77.9)
for the period
Transactions with owners of the Company
Realised merger reserve(4) - (462.6) (205.7) - - 668.3 - - -
Business combinations 3.0 18.7 - 3.8 - - 25.5 - 25.5
Share-based payments - - - 0.1 - 7.5 7.6 - 7.6
At 31 December 2022(3) 142.0 5.9 - 175.2 48.5 478.4 850.0 0.1 850.1
Hyperinflation restatement - - - 2.4 - - 2.4 - 2.4
Adjusted 142.0 5.9 - 177.6 48.5 478.4 852.4 0.1 852.5
opening balance
Comprehensive loss for the period
Loss for the period - - - - - (19.7) (19.7) - (19.7)
Other comprehensive - - - - (38.8) - (38.8) - (38.8)
Income
Total comprehensive loss - - - - (38.8) (19.7) (58.5) - (58.5)
for the period
Transactions with owners of the Company
Business combinations 3.1 61.7 - (38.3) - - 26.5 - 26.5
Share-based payments - - - 0.4 - 6.9 7.3 - 7.3
At 30 June 2023 145.1 67.6 - 139.7 9.7 465.6 827.7 0.1 827.8
Notes:
1. At the end of the reporting period, the issued and paid up share
capital of S4Capital plc consisted of 580,147,552 (H1 2022: 556,085,466, 2022:
567,832,883) Ordinary Shares having a nominal value of £0.25 per Ordinary
Share.
2. Other reserves primarily includes the deferred equity consideration
arising from business combinations of £133.5m (H1 2022: £168.0m ), made up
of the following: TheoremOne for £81.4m, Raccoon for £26.2m, XX Artists for
£7.8m, Cashmere for £6.9m, Zemoga £8.7m, 4Mile for £2.3m and Destined for
£0.2m, the treasury shares issued in the name of S(4)Capital plc to an
employee benefit trust for the amount of £1.4m (H1 2022: £2.2m), and
hyperinflation restatement in Argentina of £7.4m (H1 2022: £3.4m).
3. The comparatives as at 30 June 2022, 31 December 2022 and 1 January
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 £205.7m outstanding to the
credit of the Company's merger reserve.
Unaudited consolidated interim statement of cashflows
For the six month period ended 30 June 2023
Note
Six months Six months
ended ended
30 June 2023 30 June 2022
£m £m
Cash flows from operating activities
Loss before income tax (23.2) (85.6)
Financial income and expenses 17.5 9.6
Depreciation and amortisation 38.8 36.0
Share-based payments 7.1 6.9
Acquisition, restructuring and other expenses 5.7 69.7
Employment linked contingent consideration paid - (32.3)
Share of profit in joint venture (0.1) -
(Gain)/loss on the net monetary position (0.7) 0.6
Decrease in trade and other receivables 60.6 40.9
Decrease in trade and other payables (70.3) (48.1)
Cash flows from operations 35.4 (2.3)
Income taxes paid (10.7) (7.4)
Net cash inflow/(outflow) from operating activities 24.7 (9.7)
Cash flows from investing activities
Investments in intangible assets (1.1) (0.5)
Investments in property, plant and equipment (3.8) (10.2)
Acquisition of subsidiaries, net of cash acquired 6, 9 (0.3) (93.2)
Security deposits (0.2) 0.5
Cash flows used in investing activities (5.4) (103.4)
Cash flows from financing activities
Proceeds from own shares 0.2 -
Payment of lease liabilities (9.7) (7.6)
Repayments of loans and borrowings (0.1) (0.2)
Transaction costs paid on borrowings - (0.3)
Interest paid (11.6) (6.6)
Cash flows used in financing activities (21.2) (14.7)
Net movement in cash and cash equivalents (1.9) (127.8)
Cash and cash equivalents beginning of the year(1) 223.6 299.1
Exchange (loss)/gain on cash and cash equivalents (8.4) 17.1
Cash and cash equivalents at the end of the period(1) 213.3 188.4
Note:
1. Including bank overdrafts £nil (31 December 2022: £nil; 30 June 2022:
£4.8m; 31 December 2021: £1.9m).
Notes to the unaudited consolidated interim financial statements
For the six month period ended 30 June 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 unaudited consolidated interim financial statements represent the results
of the Company and its subsidiaries (together referred to as 'S(4)Capital
Group' or the 'Group').
S(4)Capital Group is a new age/new era digital advertising and marketing
services company.
2. Basis of preparation
A. Statement of compliance
This report is to be read in conjunction with the Annual Report and Accounts
of S(4)Capital plc for the year ended 31 December 2022 and has been prepared
in accordance with UK adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards.
The unaudited consolidated interim financial statements for the 6 months
period ended 30 June 2023 are a condensed set of financial information and
have been prepared on the basis of the policies set out in the 2022 annual
financial statements and in accordance with UK adopted IAS 34 and the
Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial
Conduct Authority.
The Group has undertaken a detailed going concern assessment, reviewing its
current and projected financial performance and position. The Directors
believe that the Group's forecasts have been prepared on a prudent basis.
Considering the Group's bank covenant and liquidity headroom and cost
mitigation actions which could be implemented, the Directors have concluded
that the Group will be able to operate within its facilities and comply with
its banking covenants for the foreseeable future and therefore believe it is
appropriate to prepare the financial statements of the Group on a going
concern basis and that there are no material uncertainties which gives rise to
a significant going concern risk. Given its debt maturity profile and
available facilities, the Directors believe the Group has sufficient liquidity
to match its requirements for the foreseeable future.
The unaudited consolidated interim financial statements were authorised for
issue by the Board of Directors on 17 September 2023.
B. Restatement and re-presentation
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 statement of profit and loss was £0.1 million income and £0.9 million
expense for period ended 30 June 2022 and 31 December 2022 respectively.
The impact of this retrospective adjustment on the consolidated balance
sheet at 31 December 2022 is shown below.
Provisions and other payables
Provisions previously presented as other payables have been re-presented to be
shown separately on the consolidated balance sheet to provide consistency with
the presentation of balances for the six months ended 30 June 2023.
31 December 2022
As reported Business combinations Amendment to IAS 12 Re-presented As restated
£m £m
£m £m £m
Goodwill 720.4 (1.6) - - 718.8
Deferred tax assets 16.8 - (1.7) - 15.1
Total non-current assets 1,280.0 (1.6) (1.7) - 1,276.7
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) - 1,942.7
Deferred tax liabilities 66.0 - (2.2) - 63.8
Provisions - - - 5.7 5.7
Other payables 5.7 - - (5.7) -
Total non-current liabilities 452.3 - (2.2) - 450.1
Total liabilities 1,094.8 - (2.2) - 1,092.6
Net assets 849.6 - 0.5 - 850.1
C. Functional and presentation currency
The unaudited consolidated interim 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 at the 2022 year end
are set out in detail on pages 24 to 28 of the Annual Reports and Accounts
2022. The principal risks and uncertainties facing the Group at the 30 June
2023 remain the same and relate the following:
¤ Economic environment
¤ People retention
¤ Controls and compliance
¤ Strategy
¤ Integration of entities
¤ Governance
¤ Systems and processes
¤ Competitive environment
¤ Information security
3. Significant accounting policies
The unaudited consolidated interim financial statements have been prepared on
a consistent basis with the accounting policies of the Group which were set
out on pages 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 unaudited consolidated interim 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 has had no material impact on the Group's
unaudited consolidated interim 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, 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 unaudited consolidated
interim financial statements.
Pillar 2
The Group has applied the mandatory temporary exception under IAS 12 in
relation to the accounting for deferred taxes arising from the implementation
of the Pillar 2 rules.
4. Critical accounting judgements and estimates
The following are the critical accounting judgements and estimates, made by
management in the process of applying the Group's accounting policies, that
have the most significant effect on the amounts recognised in the Group's
unaudited consolidated interim 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
judgment is whether revenue should be recognised over time or at point in
time. Where revenue is recognised over time, an estimate must be made
regarding the progress towards completion of the performance obligation.
Impairment of goodwill and intangible assets
The Group applies judgement in determining whether the carrying value of
goodwill and intangible assets have any indication of impairment 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 cashflows, 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 exercise judgement in assessing the size and nature of
specific items. The Group uses alternative performance measures as we believe
these measures provide additional useful information on the underlying trend,
performance, and position of the Group. These underlying measures are used by
the Group for internal performance analyses, and credit facility 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 or GAAP measures are set out in the Alternative Performance Measures.
Estimates
Fair value of assets and liabilities acquired and measurement of consideration
on business combinations
During the six months ended 30 June 2023, there were no business combinations.
In determining the fair value of the customer relationships in comparative
periods, or adjustments to provisional amounts recognised, estimates and
assumptions are used in deriving the cashflows, renewal rates and discount
rates. The cashflows include estimates of revenue growth, attrition rates,
profit margins, contract durations and discount rates. Management involves
external advisors on the valuation techniques used in determining the fair
value of customer relationships. These inputs, combined with our internal
knowledge and expertise on the relevant market growth opportunities, enabled
management to determine the appropriate value of customer relationships. See
Note 6 for further details.
The Group recognises contingent consideration on acquisitions, which comprise
both performance and employment linked contingent consideration. The fair
value of contingent consideration is based on management's best estimate of
achieving future targets to which the contingent consideration is linked to,
which is the most significant unobservable input. See Note 6 and 9 for further
information.
5. Statutory information and independent review
The condensed unaudited consolidated interim financial statements for the six
months period ended 30 June 2023 do not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. The statutory accounts
for the year ended 31 December 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. The consolidated interim financial statements
are unaudited but have been reviewed by the auditors and their report is set
out on the last page.
6. Acquisitions
Current period acquisitions
There were no acquisitions during the six month period ended 30 June 2023.
Prior period acquisitions
XX Artists
The initial accounting for the business combination of XX Artists was
provisional at the 31 December 2022 and has been finalised as at 30 June 2023.
There has been no change to the provisional fair value as disclosed at 31
December 2022.
At 30 June 2023, the employment linked contingent consideration and holdback
remaining on the balance sheet was £34.0 million and £0.6 million
respectively. 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 profit or loss statement.
As disclosed at 31 December 2022 At 30 June 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. This has been received
by the Group after the 30 June 2023.
During the six months ended 30 June 2023, £28.5 million was charged to the
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 30 June 2023, the employment linked contingent consideration became
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 recognised within trade and other payables, £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. The
£39.5 million within trade and other payables was settled in August 2023.
Included within other reserves as at 30 June 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 30 June 2023, £7.9 million of holdbacks remain relating to amounts held
back due to cover and indemnify the Group against certain acquisition costs
and damages. The Group currently expects to settle the maximum holdback
amount. The amount payable would be dependent on the amount of these
acquisition costs and damages, with the minimum amount payable being £nil.
4Mile
At 30 June 2023, the performance linked and employment linked contingent
consideration remaining on the balance sheet is £8.3 million and £3.5
million respectively. The post acquisition gross margin targets for the 12
months ended 31 December 2022 have not been met in full and the amounts held
at 30 June 2023 represent the maximum amount payable based on this
performance. Given the performance, the Group continues to hold commercial
discussions with the Sellers regarding the outstanding consideration. The
minimum amount payable would be £nil.
At 30 June 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 30 June 2023, the employment linked contingent consideration remaining on
the balance sheet is £42.6 million. As the business had not fully met the
agreed post-acquisition EBITDA targets for the 12 months ended 31 December
2022, during the six months ended 30 June 2023, a revaluation gain of £14.3
million was recognised in the statement of profit or loss. The amount held of
£42.6 million was paid in August 2023.
Zemoga Group (Zemoga)
At 30 June 2023, £6.0 million of holdbacks remain relating to amounts held
back due to cover and indemnify the Group against certain acquisition costs
and damages. The Group currently expects to settle the maximum holdback
amount. The amount payable is dependent on the amount of these acquisition
costs and damages, with the minimum amount payable being £nil.
Cashmere Agency Inc (Cashmere)
At 30 June 2023, £2.8 million of holdbacks remain relating to amounts held
back due to cover and indemnify the Group against certain acquisition costs
and damages. The Group currently expects to settle the maximum holdback
amount. The amount payable is dependent on the amount of these acquisition
costs and damages, with the minimum amount payable being £nil.
7. Segment information
A. Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker (CODM). The CODM has
been identified as the Board of Directors of S(4)Capital Group.
During the period, S(4)Capital Group has three reportable segments as follows:
· Content practice: Creative content, campaigns, and assets at a
global scale for paid, social and earned media - from digital platforms and
apps to brand activations that aim to convert consumers at every possible
touchpoint.
· Data&Digital Media practice: Full-service campaign management
analytics, creative production and ad serving, platform and systems
integration and transition, training and education.
· Technology Services practice: digital transformation services in
delivering advanced digital product design, engineering services and delivery
services.
The customers are primarily businesses across technology, FMCG and media and
entertainment. Any intersegment transactions are based on commercial terms.
The Board of Directors monitor the results of the reportable segments
separately for the purpose of making decisions about resource allocation and
performance assessment prior to charges for tax, depreciation and
amortisation.
The Board of S(4)Capital Group uses net revenue rather than revenue to manage
the Company due to the fluctuating amounts of direct costs, which form part of
revenue.
The following is an analysis of the Group's net revenue and results by
reportable segments:
Data&Digital Media Technology services
Six months ended 30 June 2023 Content £m £m Total
£m £m
Revenue 334.8 108.1 74.2 517.1
Net revenue 264.7 106.6 74.2 445.5
Segment profit(1) 6.8 16.3 26.5 49.6
Overhead costs (13.1)
Adjusted non-recurring and acquisition related expenses(2) (12.8)
Depreciation, amortisation and impairments(3) (30.1)
Net finance costs and gain on net monetary position (16.8)
Loss before income tax (23.2)
Data&Digital Media Technology services
Six months ended 30 June 2022 Content £m £m Total
£m £m
Revenue 319.1 102.3 25.0 446.4
Net revenue 250.2 100.7 24.4 375.3
Segment profit(1) 14.0 17.4 8.8 40.2
Overhead costs (10.1)
Adjusted non-recurring and acquisition related expenses(2) (76.6)
Depreciation, amortisation and impairments(3) (28.9)
Net finance costs and loss on net monetary position (10.2)
Loss before income tax (85.6)
Notes:
1. Including £8.7m (H1 2022: £7.1m) depreciation on right-of-use assets.
2. Comprised of acquisition and restructuring expenses of £5.7m (H1 2022:
£69.7m) and share-based payment costs of £7.1m (H1 2022: £6.9m).
3. Excluding £8.7m (H1 2022: £7.1m) 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
S(4)Capital Group has an attractive and expanding client base with four
clients providing more than £20 million of revenue in the first six months of
the year representing 36% of the Group's revenue. During the six months ended
30 June 2022 four clients provided more than £20 million of revenue
representing 31% of the Group's revenue.
One customer accounted for more than 10% of the Group's revenue during the
period, contributing £92.6 million. The revenue from this customer was
attributable to both the Content and Data&Digital Media segments. For the
prior period, one customer accounted for more than 10% of the Group's revenue,
contributing £70.9 million. The revenue from this customer was attributable
to both the Content and Data&Digital Media segments.
8. Goodwill
Six months Restated(1)
ended Year ended
30 June 2023 31 Dec 2022
£m £m
At the start of the period 718.8 625.0
Acquired through business combinations - 51.8
Impairments - (15.2)
Foreign exchange differences (28.6) 57.2
At the end of the period 690.2 718.8
Note:
1. Restated for the business combinations. Refer to Note 2.
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
The Group performs its Goodwill impairment testing annually and in addition,
when circumstances indicate that the carrying value may be impaired. In light
of the Group's recent market capitalisation and revised targets for the full
year as issued in July, the Group has conducted impairment tests of the 3
cash-generating unit's (CGU) as at 30 June 2023.
The Group's impairment testing is based on value-in-use calculations. The
Group considers the relationship between its market capitalisation and its
book value, among other factors, when reviewing for indicators of impairment.
The recoverable amount for each CGU is determined using a value-in-use
calculation. The Group's CGUs are Content, Data&Digital Media and
Technology Services. 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 reflect management's latest expectations
for each CGU's future financial performance, based on estimated growth rates
and margins for each CGU considering the latest macroeconomic trends and
external factors, historic performance and trends, and latest outlook for the
rest of the year, amongst other factors.
Net revenue growth rates of between -1% and 22% per annum depending on the CGU
in years one to five has been used. Beyond the explicit five-year forecast
period, a long-term growth rate has been applied in perpetuity. A terminal
value has been applied using an underlying long term growth rate of 2.0%. The
cash flows have been discounted to present value using a pre-tax discount rate
of between 14.3% and 14.8% depending on the CGU. The resultant value-in-use
figure exceeds the carrying value of the CGUs.
Sensitivity analysis has been carried out by adjusting the respective CGU
discount rates, growth rates and margins. Based on the Group's sensitivity
analysis, no indications of impairment have been identified. In carrying out
the impairment review, management believes that there are no CGUs where
reasonably possible changes to the underlying assumptions exist that would
give rise to an impairment.
The Group will continue to perform its annual impairment test as part of the
preparation for the year end Annual Report and Accounts.
9. Financial instruments
Financial instruments by category
Six months Year
ended ended
Financial assets 30 June 2023 31 Dec 2022
£m £m
Cash and cash equivalents 213.3 223.6
Trade receivables 291.5 349.6
Accrued income 39.4 44.7
Other receivables 34.6 42.2
Total 578.8 660.1
Six months Year
Financial liabilities ended ended
30 June 2023 31 Dec 2022
£m £m
Financial liabilities held at amortised cost
Trade and other payables (321.3) (369.2)
Loans and borrowings (316.7) (326.9)
Lease liabilities (54.1) (58.4)
Financial liabilities held at fair value through profit and loss
Contingent consideration and holdbacks (117.6) (188.6)
Total (809.7) (943.1)
The following table categorises the Group's financial liabilities held at fair
value on the unaudited consolidated interim balance sheet. There have been no
transfers between levels during the period.
Six months Six months Year Year
ended ended ended ended
Financial liabilities 30 June 2023 30 June 2023 Level 3 31 Dec 2022 31 Dec 2022
Fair value £m Fair value Level 3
£m £m £m
Contingent consideration and holdbacks 117.6 117.6 188.6 188.6
Total 117.6 117.6 188.6 188.6
The following table shows the movement in contingent consideration and
holdbacks.
Performance Employment
linked linked
contingent contingent
Contingent consideration and holdbacks consideration consideration Holdbacks 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 and loss (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 - - - -
Recognised in consolidated statement of profit and loss - 1.1 - 1.1
Cash paid - - (0.3) (0.3)
Equity settlement - (26.4) - (26.4)
Transfer to other payables - (39.5) - (39.5)
Exchange rate differences (0.5) (4.0) (1.4) (5.9)
Balance at 30 June 2023 10.4 82.9 24.3 117.6
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 10.4 82.9 18.0 111.3
Included in non-current liabilities - - 6.3 6.3
Balance at 30 June 2023 10.4 82.9 24.3 117.6
Where the contingent consideration conditions have been satisfied, the Group
recognises deferred equity consideration, which is included within Other
Reserves.
The fair value of the performance linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed and recognised at the
acquisition date, and reassessed at each balance sheet date thereafter, until
fully settled, cancelled or expired. Any change in the range of future
outcomes is recognised in the consolidated statement of profit or loss.
The fair value of the employment linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed at the acquisition date, and
systematically accrued over the respective employment term. Any changes in the
range of future outcomes are recognised in the consolidated statement of
profit or loss. During the six month period ended 30 June 2023, the amounts
recognised in the consolidated statement of profit or loss, of £28.5 million
(2022: £172.4 million), related to the systematic accrual of the employment
linked contingent consideration. During the six months ended 30 June 2023, a
revaluation gain of £27.4 million (2022: £28.3 million) was recognised in
the consolidated statement of profit or loss.
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 six month period ended 30 June 2023, £nil (2022: £nil) 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 £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 0.2 (125.1) (124.9) 7.6 (117.3)
Acquired through business combinations (0.3) - (0.3) - (0.3)
Lease additions - - - (18.3) (18.3)
Foreign exchange adjustments (6.8) 17.2 10.4 (3.2) 7.2
Interest expense (6.1) - (6.1) (1.0) (7.1)
Interest payment 6.1 - 6.1 - 6.1
Other (2.7) - (2.7) 1.6 (1.1)
Net debt as at 30 June 2022 (328.6) 193.1 (135.5) (55.3) (190.8)
Financing cash flows 0.7 29.4 30.1 9.9 40.0
Acquired through business combinations - - - (0.7) (0.7)
Lease additions - - - (8.6) (8.6)
Foreign exchange adjustments (10.8) 1.1 (9.7) (0.3) (10.0)
Interest expense (7.4) - (7.4) (1.1) (8.5)
Interest payment 7.4 - 7.4 - 7.4
Other 4.9 - 4.9 (2.3) 2.6
Net debt as at 31 December 2022 (333.8) 223.6 (110.2) (58.4) (168.6)
Financing cash flows 0.1 (2.0) (1.9) 9.7 7.8
Acquired through business combinations - - - - -
Lease additions - - - (5.1) (5.1)
Foreign exchange adjustments 9.7 (8.3) 1.4 1.5 2.9
Interest expense (10.4) - (10.4) (1.2) (11.6)
Interest payment 11.7 - 11.7 - 11.7
Other - - - (0.6) (0.6)
Net debt as at 30 June 2023 (322.7) 213.3 (109.4) (54.1) (163.5)
11. Related party transactions
Details of compensation for key management personnel for the 12 months to 31
December 2022 are disclosed on pages 105 to 116 of the Annual Report and
Accounts 2022. Apart from the 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
financial period (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 the 17 September 2023.
Appendix- Alternative Performance Measures
The Group has included various unaudited alternative performance measures
(APMs) in its unaudited consolidated interim 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 unaudited consolidated interim
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 agreements with our
lenders.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Unaudited consolidated interim 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, restructuring costs and items, amortisation of intangible assets and PPE depreciation. The Group
amortisation of business combination intangible assets) and recurring considers this to be an important measure of Group performance and is
share-based payments, and includes right-of-use assets depreciation. (see consistent with how the Group is assessed by the Board and investment
reconciliation A3 below) community
Like-for-Like Revenue and operating profit Is the prior period comparative, in this case 2022, restated to include Like-for-like is an important measure used by the Board and investors when
acquired businesses for the same months as 2023, and restated using same FX looking at Group performance. It provides a comparison that reflects the
rates as used in 2023 (see reconciliations A4 below) impact of acquisitions and changes in FX rates during the period.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Pro-forma Revenue and operating profit Is the period consolidated results in constant currency and for acquisitions Pro-forma figures are used extensively by management and the investment
as if the Group had existed in full for the period (see reconciliations A5 community. It is a useful measure when looking at how the Group has changed
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 expenses (see reconciliation A6 below) earnings per share of the Group after removing non-recurring items and those
linked to combinations.
Adjusted (loss)/profit period (Loss)/Profit for the period Excludes amortisation of intangible assets, acquisition related expenses, Adjusted (loss)/profit for the period is used by management to understand the
share-based payments and restructuring expenses (see reconciliation A6 below) (loss)/profit for the Group after removing non-recurring items and those
linked to combinations.
Unaudited consolidated interim balance sheet
Net debt None See reconciliation A7 below Net debt is cash less gross bank loans (excluding transaction costs). This is
a key measure used by management and in calculations for bank covenants.
Unaudited consolidated interim statement of cashflows
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 at the disposal of the Group.
paid, security deposits and employment linked contingent consideration paid.
Six months Six months Year
ended ended ended
30 June 2023 30 June 2022 31 Dec 2022
Billings and Controlled billings (A1) £m £m £m
Revenue 517.1 446.4 1,069.5
Pass-through expenses 408.3 319.2 821.0
Billings(1) 925.4 765.6 1,890.5
Third party billings direct to clients 1,352.8 2,068.7 3,760.7
Controlled billings(2) 2,278.2 2,834.3 5,651.2
1. Billings is gross billings to clients including pass-through expenses.
2. Controlled billings are billings we influenced.
Six months Six months Year
ended ended ended
30 June 2023 30 June 2022 31 Dec 2022
Net Revenue (A2) £m £m £m
Revenue 517.1 446.4 1,069.5
Direct costs (71.6) (71.1) (177.8)
Net Revenue 445.5 375.3 891.7
Six months Six months
ended ended
30 June 2023 30 June 2022
Reconciliation to Operational EBITDA (A3) £m £m
Operating loss (6.4) (75.4)
Amortisation and impairment of intangible assets 24.2 24.2
Acquisition, restructuring and other expenses 5.7 69.7
Share-based payment 7.1 6.9
Depreciation of property, plant and equipment(1) 5.9 4.7
Operational EBITDA 36.5 30.1
1. Depreciation of property, plant and equipment is exclusive of depreciation
on right-of-use assets
Like-for-Like (A4)
Data&Digital Media Technology Services
Like-for-like revenue Content Total
Six months ended 30 June 2022 £m £m £m £m
Revenue 319.1 102.3 25.0 446.4
Impact of acquisitions 17.9 4.9 32.6 55.4
Impact of foreign exchange 12.8 (1.4) (8.5) 2.9
Like-for-like revenue(1) 349.8 105.8 49.1 504.7
% like-for-like revenue change (4.3%) 2.2% 51.1% 2.5%
1. Like-for-like is a non-GAAP measure and relates
to 2022 being restated to show the unaudited numbers for the previous period
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
Six month period ended 30 June 2022 £m £m £m £m
Net revenue 250.2 100.7 24.4 375.3
Impact of acquisitions 11.0 4.7 32.2 47.9
Impact of foreign exchange 10.3 (1.3) (8.5) 0.5
Like-for-like net revenue(1) 271.5 104.1 48.1 423.7
% like-for-like net revenue change (2.5%) 2.4% 54.3% 5.1%
1. Like-for-like is a non-GAAP measure and relates to 2022 being restated to
show the unaudited numbers for the previous period 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
Six month period ended 30 June 2022 £m
Operational EBITDA 30.1
Impact of acquisitions 17.1
Impact of foreign exchange 5.1
Like-for-like operational EBITDA(1) 52.3
% like-for-like operational EBITDA change (30.2%)
1. Like-for-like is a non-GAAP measure and relates to 2022 being restated to
show the unaudited numbers for the previous period 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
HY23 Revenue 334.8 108.1 74.2 517.1
Impact of acquisitions - - - -
HY23 Pro-forma revenue(1) 334.8 108.1 74.2 517.1
HY22 Revenue 319.1 102.3 25.0 446.4
Impact of acquisitions 17.9 4.9 32.6 55.4
Impact of foreign exchange 12.8 (1.4) (8.5) 2.9
HY22 Pro-forma revenue(1) 349.8 105.8 49.1 504.7
% pro-forma revenue change (4.3%) 2.2% 51.1% 2.5%
1. Pro-forma relates to unaudited non-statutory and non-GAAP consolidated
results in constant currency as if the Group had existed in full for the
period and have been prepared under comparable GAAP with no consolidation
eliminations in the pre-acquisition period.
Data&Digital Media Technology Services
Content £m £m Total
Pro-forma net revenue £m £m
HY23 net revenue 264.7 106.6 74.2 445.5
Impact of acquisitions - - - -
HY23 Pro-forma net revenue(1) 264.7 106.6 74.2 445.5
HY22 net revenue 250.2 100.7 24.4 375.3
Impact of acquisitions 11.0 4.7 32.2 47.9
Impact of foreign exchange 10.3 (1.3) (8.5) 0.5
HY22 Pro-forma net revenue(1) 271.5 104.1 48.1 423.7
% pro-forma net revenue change (2.5%) 2.4% 54.3% 5.1%
Total
Pro-forma Operational EBITDA £m
HY23 operational EBITDA 36.5
Impact of acquisitions -
HY23 Pro-forma operational EBITDA(1) 36.5
HY22 Operational EBITDA 30.1
Impact of acquisitions 17.1
Impact of foreign exchange 5.1
HY22 Pro-forma operational EBITDA(1) 52.3
% pro-forma operational EBITDA change (30.2%)
Adjusted basic earnings per share (A6)
Restructuring
Acquisition expenses Share-based payments and other expenses
£m
£m
£m
Reported Amortisation(1) Adjusted
Six month period ended 30 June 2023 £m £m £m
Operating (loss) / profit (6.4) 24.2 2.1 7.1 3.6 30.6
Net finance costs (17.5) - - - - (17.5)
Gain on net monetary position 0.7 - - - - 0.7
(Loss) / profit before income tax (23.2) 24.2 2.1 7.1 3.6 13.8
Income tax credit/(expense) 3.5 (6.2) - - (0.8) (3.5)
(Loss) / profit for the period (19.7) 18.0 2.1 7.1 2.8 10.3
1. Amortisation relates to the amortisation of the intangible assets
recognised as a result of the acquisitions.
Acquisition expenses Share-based payments Restructuring and other expenses
Reported Amortisation(1)
Adjusted
Six month period ended 30 June 2022 £m £m £m £m £m £m
Operating profit (75.4) 24.2 69.7 6.9 - 25.4
Net finance costs (9.6) - - - - (9.6)
Loss on net monetary position (0.6) - - - - (0.6)
(Loss) / profit before income tax (85.6) 24.2 69.7 6.9 - 15.2
Income tax expense(2) 3.3 (6.6) - - - (3.3)
(Loss) / profit for the period (82.3) 17.6 69.7 6.9 - 11.9
1. Amortisation relates to the amortisation of the intangible assets
recognised as a result of the acquisitions.
2. The comparatives as at 30 June 2022 have been restated for the adoption of
the amendment to IAS 12 (see Note 2).
Adjusted basic result per share Six months Six months
ended ended
30 June 2023 30 June 2022
Adjusted profit attributable to owners of the Company (£m) 10.3 11.9
Weighted average number of ordinary shares for the purpose of basic EPS 615,663,576 567,714,015
(shares)
Adjusted basic earnings per share (pence) 1.7 2.1
Net debt (A7)
Six months Year
ended ended
30 June 2023 31 Dec 2022
£m £m
Cash and bank 213.3 223.6
Loans and borrowings (excluding bank overdrafts)(1) (322.7) (333.8)
Net debt (109.4) (110.2)
Lease liabilities (54.1) (58.4)
Net debt including lease liabilities (163.5) (168.6)
1. Loans and borrowings exclude £6.0m (2022: £6.9m) of transaction costs.
Free cash flow (A8)
Six months Six months
ended ended
30 June 2023 30 June 2022
£m £m
Net cash inflow/(outflow) from operating activities 24.7 (9.7)
Employment linked contingent consideration paid - 32.3
Interest paid (11.6) (6.6)
Investments in intangible assets (1.1) (0.5)
Investments in property, plant and equipment (3.8) (10.2)
Security deposits (0.2) 0.5
Payment of lease liabilities (9.7) (7.6)
Free cash flow (1.7) (1.8)
Independent review report to S(4)Capital plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed S(4)Capital plc's condensed consolidated interim financial
statements (the "interim financial statements") in the unaudited consolidated
interim financial statements of S(4)Capital plc for the 6 month period ended
30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the unaudited consolidated interim balance sheet as at
30 June 2023;
· the unaudited consolidated interim statement of profit or loss and
unaudited consolidated interim statement of comprehensive income for the
period then ended;
· the unaudited consolidated interim statement of cashflows for the
period then ended;
· the unaudited consolidated interim statement of changes in equity
for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the unaudited consolidated
interim financial statements of S4 Capital plc have been prepared in
accordance with UK adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the unaudited consolidated
interim financial statements and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim
financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The unaudited consolidated interim financial statements, including the interim
financial statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the unaudited
consolidated interim financial statements in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the unaudited consolidated interim financial
statements, including the interim financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the unaudited consolidated interim financial statements based on
our review. Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report. This
report, including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 September 2023
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