REG - S4 Capital PLC - Unaudited 2020 preliminary results

S4 CapitalAnnouncement

25/03/2021 07:05

RNS Number : 4656T
  
S4 Capital PLC
  
25 March 2021
  
 

25 March 2021
 
 
S4 Capital plc 
("S4Capital" or the "Company")
 
Unaudited 2020 preliminary results
 
New age/new era digital marketing model starts to convert at scale
 
Significant growth in like-for-like and pro-forma billings, revenue, gross profit and EBITDA
 
Announcement of MediaMonks conditional combination with Jam3
 
 
 
Financial Highlights
·      Billings* £653.4 million, up 43.4% reported, up 19.6% like-for-like*** and pro-forma** billings £768.4 million, up 22.3%.
·      Revenue £342.7 million, up 59.3% reported from £215.1 million, like-for-like up 15.2%, pro-forma up 20.1%.
·      Gross profit £295.2 million, up 72.3% reported from £171.3 million, like-for-like up 19.4%, pro-forma up 23.7%.
·      Operational EBITDA**** £62.2 million, up 86.1% reported, like-for-like up 18.3%, pro-forma up 30.6%.
·      Operational EBITDA margin 21.1%, up 1.6 margin points on 2019 reported, like-for-like down 0.2 margin points, pro-forma up 1.2 margin points.
·      Operating profit £8.1million versus an operating loss of £3.8 million in 2019. Operating profit is after charging £49.9 million of Adjusting Items relating to acquisitions, amortisation and share based payments (including £7.4 million in deferred, contingent combination payments tied to continued employment). Pro-forma operating profit of £16.9 million versus an operating loss of £1.2 million in 2019.
·      Profit before income tax £3.1 million, after charging adjusting items, versus a loss of £9.2 million in 2019 and pro-forma profit before income tax of £12.1 million
·      Statutory result for the period £3.9 million (loss) after charging adjusting items after taxation versus £10.0 million (loss) in 2019 and pro-forma result for the period of £1.2 million (loss)
·      Adjusted basic net result per share 7.9p versus 5.2p in 2019 and 9.8p pro-forma
·      Basic and diluted net result per share 0.8p (loss) which includes adjusting items after tax versus 2.7p (loss) in 2019 and pro-forma adjusted basic net result per share 0.2p (loss)
·      Year-end net cash***** £51.6 million, even after significant combination payments since £113 million net fundraising in July 2020, reflecting strong liquidity from operations and EBITDA conversion to cash flow from operating activities of 99% versus 74% in 2019
·      Good start to 2021 with like-for-like January gross profit well ahead of budget and with budgeted gross profit growth like-for-like for 2021 of 25%
 
 
 
*Billings is gross billings to client including pass through costs
**Pro-forma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the group had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations
***like-for-like relates to 2019 being restated to show the unaudited numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2020 applying currency rates as used in 2020
****Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to assess the underlying business performance. Operational EBITDA margin is operational EBITDA divided by Gross Profit.
*****Net cash including bank loans
 
Strategic and operational Highlights
·      In January, MediaMonks announced a combination with Circus Marketing, a fully integrated digital agency, based in the Americas and Spain (consolidated as from March 2020).
·      In May, MightyHive announced a combination with Digodat, a leading Latin American data & analytics consultancy (consolidated as from July).
·      In June, MightyHive announced a combination with Lens 10, a leading Australian digital strategy & analytics consultancy (consolidated as from October).
·      In July, MightyHive announced a combination with Orca Pacific, a Seattle-based, Amazon-managed service provider (consolidated as from August) and raised £113 million net proceeds from a placing.
·      In August, MightyHive, announced a combination with BrightBlue Consulting, an award-winning UK-based, data analytics and measurement consultancy (consolidated as from September).
·      In September, BMW/MINI announced a new agency partner network in Europe, called THE MARCOM ENGINE which included MediaMonks, which would be "at the heart of the new constellation". On the same day, MediaMonks announced a combination with Dare.Win, an award-winning, Paris-based, digital creative agency.
·      In November, Mondēlez International confirmed that MediaMonks had won its competitive pitch to manage its tech infrastructure and websites globally, plus content production for North America, Latin America, Asia, Middle-East and Africa.
·      Post year end:
o    In January 2021, MediaMonks announced combinations with Decoded Advertising, an integrated, creative, technology and media agency, based in New York and also combined with Tomorrow, an award-winning, Shanghai-based, creative agency and with Staud Studios, a high-end creative, production studio, specialising in the automotive industry. 
o    Also, in January, MightyHive announced a combination with Metric Theory, an integrated performance marketing agency, providing services across search, social and commerce media. Metric Theory and Decoded Advertising were completed on 31 December, 2020 after the market was closed. As a result, the balance sheets of both combinations are included in the consolidated balance sheet of the Group. 
o    In February, MightyHive acquired the assets of Datalicious Australia, a Sydney, Melbourne and Brisbane-based data & analytics company.
o    Today, S4Capital announced that it has entered into a conditional agreement in relation to a combination of MediaMonks with highly awarded design and experience agency, Jam3, based in Toronto with offices in Amsterdam, Los Angeles and Uruguay.
o    The pace of on-boarding both the new BMW/MINI and Mondēlez "Whoppers" has intensified during the first and second quarters of 2021.
·      Addition of functional talent teams in fashion and luxury, social media and government communications from leading competitors, the first during 2020 and the last two in 2021.
·      Launch of both S4 Fellowship Programme for students from Historically Black Colleges and Universities and in due course, High Schools in the United States and S4 Women Leadership Programme in association with UC Berkeley in California.
·      The Group now has approximately 4,400 people in 31 countries, trending towards double where we were this time last year.
·      In addition to new client BMW/MINI and the significant broadening of our relationship with Mondēlez, there were major new remits from clients such as Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer & HP and major new assignments from Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon amongst others, reflecting the strong tech orientation of the Company's client base and the growing healthcare and FMCG focus.
·      Current pipeline running at stronger level than last year
·      Appointment of Miles Young, a leading, industry-knowledgeable Non-Executive Director, to the Board.
Sir Martin Sorrell, Executive Chairman of S4Capital plc said:
"Our second full financial year was again outstandingly successful. Having established brand awareness and secured brand trial in the back end of 2018 and in 2019, we set about converting client relationships at scale and now have five "Whoppers" secure or in sight, in line with our ultimate 20 squared objective, that is 20 clients each generating revenues of over $20 million per annum.
 
Pride of place for these achievements should go to our (now) over 4,400 people in 31 countries, who have responded unflinchingly to the colossal strain and challenge of the pandemic. Their creativity, adaptability, resilience and hard work have made this success possible and have started to prove the potency of our new age/new era, digital, data-driven, unitary model, which has started to gain significant traction. The pandemic has, at the same time, accelerated adoption of digital transformation amongst consumers, across all media and within enterprises and, in turn, stimulated the demand from clients for digital marketing expertise.
 
We continued to grow our top line and bottom line at industry leading rates, despite covid-19 and exhibited agility in developing new content revenue streams quickly, such as robotic production, animation and on-line events and driving data & digital marketing net revenues, particularly in the fourth quarter and into this year. We continued to broaden and deepen our Content and Data & digital media practices through organic growth and by the addition of a further four Content and six Data & digital media companies in 2020 and so far in early 2021. We further integrated our unitary client offering around our Content and Data & digital media practices. We broadened and deepened our client roster. We embraced the diversity, equity and inclusion and ESG opportunities and challenges with unique black-orientated fellowship and female executive leadership programmes, changed hiring practices and education programmes and made zero carbon commitments targeting 2024. We achieved double $ and £ Unicorn status in terms of stock market value, in only our second full year, while strengthening our balance sheet to take advantage of short-term opportunities. 
 
2021 has started strongly, well in line with our latest three year plan to double organically in three years and we are focused on three objectives for the year - to bed down our two new "Whoppers" and develop and identify five more; to roll-out our unitary branding; and to continue to broaden and deepen our digital client offering by combination. We believe 2021 and 2022 will be very strong years economically, as the world rebounds from the pandemic and spends and invests the huge pandemic-driven fiscal and monetary stimulus. Digital marketing expenditure is closely correlated, but not dependent on GDP growth, just as traditional media spending used to be in the last century."


 
Results webcast and conference call
A webcast will be held at 8.00am GMT. A live webcast of the presentation will be available during the event at: https://brrmedia.news/9ms2h
 
For Q&A: 
UK: +44 (0)330 336 9125
US: +1 323-794-2093
Confirmation code: 6050306
 
A further live webcast conference call to cover the results will be held today at 9.00am EDT / 13.00pm GMT and will be available at: https://brrmedia.news/9fjjd
 
For Q&A
US: +1 323-794-2093
UK: +44 (0)330 336 9434
Confirmation code: 2926753
 
 
Enquiries to:
 




S4Capital plc


+44 (0)20 3793 0003




Sir Martin Sorrell, Executive Chairman


 




Peter Rademaker, Chief Financial Officer


 




Scott Spirit, Chief Growth Officer


 




Dowgate Capital Limited 
(Joint Corporate Broker to S4 Capital plc)


+44 (0)20 3903 7715




James Serjeant 


 




David Poutney


 




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


+44 (0)20 7029 8000




Tony White


 




Harry Le May


 




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


+44 (0)20 7425 8000




Paul Baker


 




Alex Smart


 




Powerscourt (PR Advisor)


+44 (0)7970 246 725 / (0)7917 886 576




Elly Williamson


 




Jack Shelley


 




 
 
 
Chairman's Letter
 
Dear Shareowner,
 
My Executive colleagues, Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Peter Rademaker, Scott Spirit, Michel de Rijk and I are delighted to present our third full year results for the period ending 31 December 2020 to our fellow shareowners.
 
In 2020, we continued to build our existing relationships with clients such as Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer and Mondēlez and won significant new business from BMW/MINI, Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon. Tech clients account for around 55% of revenues, with a growing cadre of healthcare and FMCG clients.
 
We now project five "Whoppers" (clients with revenues over $20 million per annum), as opposed to only two at this time last year. We have also now identified five more potential "Whoppers", where we currently project $5-15 million of revenue per annum and potentially could break through the $20 million per annum level. We are also in the process of identifying five more potential "Whoppers" currently generating under $10 million per annum, bringing the total actual and potential "Whoppers" to 15 out of the target of 20.
 
2020 also saw significant strengthening and deepening of our Content and Data & digital media practices. MediaMonks broadened and deepened its geographical footprint in 2020 and so far in 2021, adding North and Latin American and Spanish content capabilities with Circus Marketing, entering the French market with Dare.Win, combining with Decoded in the United States, doubling up in Shanghai with Tomorrow and opening up in Germany with Staud Studios to build on the BMW/MINI relationship. MediaMonks also added significant talent from competitors in the areas of fashion and luxury, new digital media social content and digital government communications. MightyHive was even more active in 2020 and so far in 2021, building its data & analytics capability inside and outside the United States through the addition of Digodat in Latin America, Lens 10 in Australia and New Zealand, Orca Pacific specialising in the Amazon platform in Seattle, BrightBlue Consulting in the UK and a second Datalicious operation in Australia to complement South Korea. MightyHive also stepped up its performance media capabilities adding Metric Theory. 
 
Both MediaMonks and MightyHive have integrated each combination into our Content and Data & digital media practices and brands and we are starting to roll out our unitary brand. We already operated as a single P&L, pretty much from inception, so as to develop and maintain a seamless, fully integrated offer for our clients. In addition, although nothing good can be said to have come from it, the pandemic did enable us to consolidate separate offices on a city-by-city basis faster, as existing leases were terminated more quickly. In addition, property consolidation will be assessed faster as vaccinations start to kick-in and lockdowns ease, starting in the second quarter of 2021. There is little doubt that we will not go back to the old normal in terms of office location, layout and use. There will be more flexible working from home, probably about 40% of the working week, with more flexible commuting times, more dispersed working and living patterns and different office layouts, with separate spaces for our people to meet, to work and to engage with clients. We are also starting to increasingly consolidate our strategic, client content and data and programmatic offer at the S4Capital level.
 
Our focus on both developing our advertising and marketing services know how and geographical expansion, particularly in Asia Pacific, was further underlined by the appointment of Miles Young, Warden of New College, Oxford University as a non-executive director. He was formerly my colleague at WPP, where he was at Ogilvy for 35 years and ran it very successfully for eight years until 2016, expanding their footprint aggressively in growth areas such as digital content and media and Asia Pacific, particularly China and India - truly one of David Ogilvy's "Gentlemen with Brains".
 
 
Summary of results
 
 




 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Condensed Consolidated Income Statement


 


 


 


 


 


 


 


 


 


 


 




For the period ended 31 Dec 2020 (unaudited)


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




  


 


 


 


Year ended


 


Year ended


 


 


 


Like for like cc


 


 


Proforma


 


Proforma


 


 




 


 


 


 


31 Dec 2020


 


31 Dec   2019


 


 


 


Year ended 31 Dec 2019


 


 


Year ended 31 Dec 2020


 


Year ended 30 Dec 2019


 


 




For the period ended 31 December


 


 


 


₤'000


 


₤'000


 YoY%


 


₤'000


 YoY%


₤'000


 


₤'000


 
 
YoY%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Revenue 


 


 


 


342,687


 


215,132


59%


 


297,410


15%


421,092


 


350,576


 
 
20%


 




Cost of sales


 


 


 


47,505


 


43,814


8%


 


50,129


-5%


52,137


 


52,324


 
 
0%


 




Gross profit


 


 


 


295,182


 


171,318


72%


 


247,281


19%


368,955


 


298,252


 
 
24%


 




Net operating expenses


 


 


 


287,049


 


175,153


64%


 


247,079


16%


352,008


 


299,422


 
 
18%


 




Operating profit/ (loss)


 


 


 


8,133


 


(3,835)


-


 


202


3919%


16,948


 


(1,170)


 
 
-


 




Adjusted operating profit


 


 


 


57,950


 


31,148


86%


 


50,019


16%


80,453


 


62,335


 
 
29%


 




Adjusting items


 


 


 


(49,817)


 


(34,983)


-


 


(49,817)


-


(63,505)


 


(63,505)


 
 
-


 




Operating profit/ (loss)


 


 


 


8,133


 


(3,835)


-


 


202


3919%


16,948


 


(1,170)


 
 
-


 




Net finance expense


 


 


 


(5,037)


 


(5,360)


-


 


(5,672)


-


(4,821)


 


(5,530)


 
 
-


 




Profit / (loss) before income tax


 


 


 


3,096


 


(9,195)


-


 


(5,469)


-


12,126


 


(6,700)


 
 
-


 




Income tax expense


 


 


 


(7,025)


 


(845)


-


 


(3,436)


-


(13,323)


 


(6,543)


 
 
-


 




Loss for the period


 


 


 


(3,929)


 


(10,040)


-


 


(8,905)


-


(1,197)


 


(13,243)


 
 
-


 




 
 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Reconciliation to operational EBITDA


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Operating profit / (loss)


 


 


 


8,133


 


(3,835)


 


 


202


 


16,948


 


(1,170)


 
 
 


 




Adjusting items


 


 


 


49,817


 


34,983


 


 


49,817


 


63,505


 


63,505


 
 
 


 




Depreciation (excluding right-of-use asset depreciation)


 


4,228


 


2,260


 


 


2,520


 


4,679


 


2,829


 
 
 


 




Operational EBITDA


 


 


 


62,178


 


33,408


 86%


 


52,539


18%


85,132


 


65,164


 
 
31%


 




Central costs


 


 


 


6,112


 


5,817


 


 


5,859


 


6,112


 


5,859


 
 
 


 




Operational EBITDA before central costs


 


68,290


 


39,225


 74%


 


58,398


17%


91,244


 


71,023


 
 
28%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Reconciliation to adjusted operating profit


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Operating profit / (loss)


 


 


 


8,133


 


(3,835)


 


 


202


 


16,948


 


(1,170)


 
 
 


 




Adjusting items


 


 


 


49,817


 


34,983


 


 


49,817


 


63,505


 


63,505


 
 
 


 




Adjusted operating profit


 


 


 


57,950


 


31,148


 86%


 


50,019


16%


80,453


 


62,335


 
 
29%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Reconciliation to adjusted result before income tax


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Result before income tax


 


 


 


3,096


 


(9,195)


 


 


(5,469)


 


12,126


 


(6,700)


 
 
 


 




Adjusting items


 


 


 


49,817


 


34,983


 


 


49,817


 


63,505


 


63,505


 
 


 




Adjusted result before income tax


 


 


 


52,913


 


25,788


105%


 


44,348


19%


75,631


 


56,805


 
 
33%


 




 
 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Reconciliation to adjusted result for the period


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Result for the period


 


 


 


(3,929)


 


(10,040)


 


 


(8,905)


 


(1,197)


 


(13,243)


 
 


 




Adjusting items


 


 


 


49,817


 


34,983


 


 


49,817


 


63,505


 


63,505


 
 
 


 




Tax on adjusting items


 


 


 


(6,996)


 


(5,957)


 


 


(6,996)


 


(10,401)


 


(10,401)


 
 
 


 




Adjusted result for the period


 


 


 


38,892


 


18,986


 105%


 


33,916


15%


51,907


 


39,861


 
 
30%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Earnings per share


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




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


493,290,974


 


368,067,662


 


 


493,290,974


 


529,788,744


 


529,788,744


 
 
 


 




Net result attributable to equity owners of the Company (£'000)


(3.929)


 


(10,040)


 


 


(8,905)


 


(1,197)


 


(13,243)


 
 
 


 




Basic net result per share (pence)


 


 


 


-0.8


 


-2,7


 


 


-1.8


 


-0.2


 


-2.5


 
 
 


 




Diluted net result per share (pence)


 


 


 


-0.8


 


-2,7


 


 


-1.8


 


-0.2


 


-2.5


 
 
 


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Adjusted non-recurring expenses and acquisition related expenses


15,768


 


12,806


 


 


15,768


 


15,768


 


15,768


 
 
 


 




Share based compensation


 


 


 


12,331


 


7,177


 


 


12,331


 


12,331


 


12,331


 
 
 


 




Revaluation contingent considerations


(1,430)


 


0


 


 


(1,430)


 


(1,430)


 


(1,430)


 
 
 


 




Adjusted amortisation of intangible assets related to acquisitions


23,148


 


15,000


 


 


23,148


 


36,836


 


36,836


 
 
 


 




Adjusted tax on adjustments


 


 


 


(6,996)


 


(5,957)


 


 


(6,996)


 


(10,401)


 


(10,401)


 
 
 


 




Adjusted net result 


 


 


 


38,892


 


18,986


 


 


33,916


 


51,907


 


39,861


 
 
 


 




Adjusted Basic net result per share (pence)


 


7.9


 


5.2


 53%


 


6.9


15%


9.8


 


7.5


 
 
30%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Gross margin per territory


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Americas


 


 


 


206,316


 


117,062


 76%


 


173,258


19%


270,550


 


216,543


 
 
25%


 




EMEA


 


 


 


58,233


 


40,765


 43%


 


52,776


10%


65,216


 


58,618


 
 
11%


 




Asia-Pacific


 


 


 


30,633


 


13,490


 127%


 


21,248


44%


33,190


 


23,091


 
44%


 




Total


 


 


 


295,182


 


173,318


 72%


 


247,281


19%


368,955


 


298,252


 
 
24%


 




 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Gross margin per practice


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




Content


 


 


 


220,497


 


113,365


 95%


 


182,792


21%


264,671


 


210,117


 
 
26%


 




Programmatic


 


 


 


74,685


 


57,953


 29%


 


64,489


16%


104,285


 


88,135


 
18%


 




Total


 


 


 


295,182


 


171,318


 72%


 


247,281


19%


368,955


 


298,252


 
 
24%


 



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 
 
Turning to the results themselves, we thought it would be most useful to compare the reported results not only with last year's reported results, but also on an unaudited like-for-like and unaudited pro-forma basis, particularly given the continued rapid inorganic expansion of the Company in 2020. 


Billings were £653.4 million, up 43.4% on a reported basis, up 19.6% like-for-like and up 22.3% pro-forma. Controlled Billings, that is billings we influenced in addition to billings that flowed through our income statement, were approximately £2.3 billion (2019: £1.9 billion). Revenue was £342.7 million, up 59.3% from £215.1 million on a reported basis, up 15.2% like-for-like, and up 20.1% on a pro-forma basis. Gross profit was £295.2 million, up 72.3% reported, up 19.4% like-for-like, and up 23.7% pro-forma. Operating profit was £8.1 million versus an operating loss of £3.8 million in 2019. Operational EBITDA was £62.2 million, up 86.1% reported, up 18.3% like-for-like, and up 30.6% pro-forma. Operational EBITDA margin was 21.1%, up 1.6 margin points versus 19.5% reported in 2019, down 0.2 margin points like-for-like and, up 1.2 margin points pro-forma. Adjusted basic net result per share was 7.9p versus 5.2p in 2019, 6.9p like-for-like and 9.8p pro-forma. Statutory result for the period was £3.9 million (loss), versus a reported £10.0 million (loss) in 2019, after charging under IFRS £7.4 million of combination payments, which were tied to the continued employment of key merger share-owning principals. Although such contractual provisions result in a non-cash charge to the income statement, your Board believes this is a better commercial approach given the nature of our business. Basic and diluted net result per share were 0.8p (loss) per share, versus 2.7p (loss) in 2019, like-for-like 1.8p (loss) per share and pro-forma 0.2p (loss) per share. Year-end net cash was £51.6 million, despite making £83 million in cash combination payments, since the £113 million gross equity fundraising in July 2020 and reflecting strong cash flow from operating activities with 99% operating cash flow conversion from EBITDA. In line with our first half statement in September 2020, Operational EBITDA margins improved significantly in the second half from 14.5% to 25.8%, as the first half increased investment in people yielded higher productivity in the second half.
 
Pro-forma billings were £768.4 million. Pro-forma revenue was £421.1 million and pro-forma gross profit was £369.0 million up 20.1% and 23.7% respectively in 2019. Pro-forma operational EBITDA was £85.1 million, up 30.6% on 2019, with operational EBITDA margin at 23.1%, up 1.2 margin points on the previous year. Pro-forma adjusted operating profit excluding adjusting items of £63.5 million, is £80.5 million, up 29.1% on the previous year. Pro-forma adjusted pre-tax profits were £75.6 million versus £56.8 million in the previous year, up 33.1%. Pro-forma adjusted result for the period was £51.9million, up 30.2%. Adjusted pro-forma basic earnings per share before exceptional items were 9.8p, up from 7.5p in the previous year. The Board continues to recommend no dividend given the growth opportunities that beckon.
 
By geography, on a pro-forma basis, the Americas accounted for 73.3% of gross profit against 72.6% in 2019.  Europe, the Middle-East and Africa represented 17.7% of gross profit against 19.7% in 2019. Asia-Pacific represented 9.0% of gross profit against 7.7% in 2019. Growth in gross profit was up 24.9% in the Americas, 11.3% in Europe, Middle-East and Africa and 43.7% in Asia-Pacific. Our long-term objective is to achieve a geographic distribution of 40% in the Americas, 20% in Europe, the Middle-East and Africa and 40% in Asia-Pacific, particularly given the likely continuing rise of China and India and despite the US/China trade frictions.
 
By practice, on a pro-forma basis, Content accounted for 71.7% of gross profit against 70.4% in 2019. The Data & digital media practice represented 28.3% of gross profit against 29.6% in 2019. Growth in gross profit was up 26.0% like-for-like at the Content practice and up 18.3% at the Data & digital media practice. Our long-term objective is to achieve a practice distribution around two-thirds Content and one-third Data & digital media, emphasising the growing importance of digital video.
 
Significant new business wins include assignments from Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer, HP, Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon amongst others as we expanded our tech client portfolio and presence in healthcare and FMCG. Encouragingly, our current pipeline is proportionally ahead of last year's level.
 
The Environment, Social and Governance
 
In 2020, the Company upped its game significantly in all three areas. We actively track our CO2.emissions and perform competitively with a sample of other similar companies in the areas of gender and diversity. We have committed to achieving zero greenhouse gas emissions by 2024, in response to the World Economic Forum 2020 Davos Manifesto and were the first advertising and marketing firm to commit to the Amazon Climate Challenge, which has a longer term objective in relation to zero emissions. We are seeking B Corp status by the end of the year.
 
Last year, we averaged a 0.82 female to male ratio across the firm, representing a significant improvement over last year's ratio of 0.47. In response to the tragic killing of George Floyd and the surge behind the Black Lives Matter movement, we organised a firm-wide, matched contribution campaign, which raised $0.3 million for four key black charities. We, immediately, also began to intensify changes in our hiring and educational policies in relation to diversity, equality and inclusion, with a public commitment to publish annually and improve our diversity numbers so as to be representative of the communities we work in. We are already approximately 40% People of Colour in the United States, with strong Hispanic and Asian representation, in particular. In the markets we can legally measure, we are approximately 5% Black, which, for example in the United States, still represents significant under-representation of the communities we work in. In California, such a percentage may be representative, but nationally, where the proportion is 13% and in New York, where it is 25%, it is unacceptable. These are our objectives. We have also hired our first Fellows (and Fellowesses) in the S4 Fellowship Programme, who exclusively come from Historically Black Colleges and Universities in the United States. We have outstanding recruits for this four-year, multi-practice programme, who will be evangelising the programme across the United States shortly into High Schools too. Finally, we have just started the S4 Women Leadership Programme, identifying 50 female leaders from across the firm to study on-line with UC Berkeley, California for the next 18 months.
 
Across S4Capital we donated an additional $0.4 million to charities and also aim to contribute to society and the needs of the planet with our Projects for Good, which are all related to the United Nations Sustainable Development Goals. In 2020, we delivered 41 Projects for Good. 
 
We also launched S4 Impact Day globally, a volunteering day when all our 4,400 people in 31 countries can tangibly give back to the communities of which they are a part.
 
As regards Governance, we continued to enhance the Board with the addition of one new Director, now with four female and four male Non-Executive Directors. The recommendations of Lord Hill's Report to the UK's Chancellor of the Exchequer also provides a possible pathway to a premium or standard listing with fund indexation, if, of course, the recommendations are accepted.
 
Outlook and current trading
All-in-all, we continued to fire on all cylinders in 2020, with like-for-like revenue and gross profit up 15.2% and 19.4% and pro-forma revenue and gross profit growth of 20.1% and 23.7% and a pro-forma operational EBITDA margin of over 23%, after central costs. January 2021 like-for-like gross profit growth was strong and ahead of budget. This performance is planned to continue into 2021, with budgets and plans targeting strong revenue, gross profit growth and improving operational EBITDA margin and the three-year plan for 2021-3 targeting a doubling of the firm organically, excluding combinations.
 
There is no doubt that covid-19 has had a devastating impact on the global economy and society. Our people have been put under immense strain, particularly with the illness and loss of family members. We applaud their resilience, hard work and success and thank them for all their efforts. We took the view that we would not make significant reductions in the number of people in the firm, nor rely in any significant way on government support or funding. This was a bold thing to do, particularly in the pressure cooker of the end of the first quarter and beginning of the second quarter in 2020. Our Content practice, representing about three quarters of our business pivoted very quickly to robotic production and animation and converting live events to virtual ones. We, therefore, created significant new content revenue streams very quickly, with April 2020 being the weakest like-for-like growth month, but still a growth month. There was then a steady progression in the Content practice gross profit organic growth rate through 2020 and into 2021. The Data & digital media practice was more impacted by covid-19 in Quarters 2 and 3 2020, but still grew gross profit organically significantly over those quarters, with the growth accelerating markedly in Quarter 4 and into 2021. 
 
Overall, it is clear that covid-19 has accelerated the adoption of digital transformation and digital media at three levels. Firstly, at the consumer level, with consumers buying groceries and essentials on-line, educating their kids on-line, using financial services on-line and gorging on on-line entertainment and gaming. Secondly, media trends have been accelerated, with the streamers like Netflix and Disney+ gaining on free to air tv, traditional newspapers and magazines under greater pressure from digital alternatives and traditional outdoor being increasingly eclipsed by digital outdoor. Finally, enterprise adoption of digital transformation has accelerated, as covid-19 disrupted steady state growth and during that disruption "change agents" have been given more oxygen to implement digital organisational change.
 
It is also clear that the Company's purely digital model based on first party data (reinforced by the recent privacy policy decisions by Apple and Google) fuelling the creation, production and distribution of digital advertising content and distributed by digital media is increasingly resonating with clients. Our tag line "faster, better, cheaper" or "speed, quality, value" and unitary, one P&L structure also appeal strongly. The imperatives for 2021 continue to be to move beyond brand awareness and brand trial to greater client conversion at scale and achieving our 20 squared objective as rapidly as possible; to roll out our unitary branding; and to broaden and deepen our service capability through mergers and combination.
 
 
Best wishes,
 
Sir Martin Sorrell 
Executive Chairman
 
 
About S4Capital
S4Capital plc (SFOR.L) is the tech-led, new age/new era digital advertising and marketing services company, established by Sir Martin Sorrell in May 2018.
 
Its strategy is to build a purely digital advertising and marketing services business for global, multinational, regional, local clients and millennial-driven influencer brands. This will be achieved initially by integrating leading businesses in two practice areas: Data & digital media and Content, along with an emphasis on "faster, better, cheaper" executions in an always-on consumer-led environment, with a unitary structure.
 
Digital is by far the fastest-growing segment of the advertising market. S4Capital estimates that in 2020 digital accounted for over 50% (for the first time) or $290 billion of total global advertising spend of $525 billion (excluding over $500 billion of trade promotion marketing, the primary target of the Amazon advertising platform), and projects that by 2022 this share will grow to approximately 60% and by 2024 to approximately 66%, accelerated by the impact of covid-19. 
 
S4Capital combined with MediaMonks, the leading AdAge A-listed creative digital content production company led by Victor Knaap and Wesley ter Haar, in July 2018 and with MightyHive, the market-leading digital media solutions provider for future thinking marketers and agencies, led by Peter Kim and Christopher S. Martin, in December 2018.
 
In April 2019, MightyHive combined with ProgMedia to expand operations into Latin America and MediaMonks acquired film studio Caramel Pictures to expand content studio capabilities. In June 2019, MediaMonks announced a planned combination with Australia-based BizTech, a leading marketing transformation and customer experience company. In August 2019, MediaMonks combined with Amsterdam-based digital influencer marketing agency IMA. In October 2019, MediaMonks combined with Firewood Marketing, the largest digital marketing agency based in Silicon Valley, that was recently ranked, along with MediaMonks and Circus (see below), as one of the fastest growing agencies by Adweek, and MightyHive combined with award-winning UK-based digital analytics, biddable media and data science company ConversionWorks and South Korea-based data and analytics consultancy MightyHive Korea. In November 2019, MediaMonks announced its combination with Delhi-based content creation and production company WhiteBalance (completed in August 2020 - the delay due to necessary merger clearance procedures) and then with fully integrated digital agency Circus Marketing in January 2020 (completed in March 2020). 
 
In May 2020, MightyHive announced a combination with Digodat, one of the leading Latin American data and analytics consultancies, and in June 2020, MightyHive announced its combination with Lens10, a leading Australian digital strategy and analytics consultancy. In July 2020, MightyHive announced a combination with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle. In August 2020, MightyHive announced a combination with London-based Brightblue, an econometric and media optimisation consultancy. In September 2020, MediaMonks announced its combination with Dare.Win, expanding its geographical presence to France. In January 2021, MediaMonks announced its combination with integrated creative, technology and media agency Decoded Advertising, Shanghai based creative agency TOMORROW and Stuttgart based automotive specialist STAUD STUDIOS. MightyHive also announced its combination with integrated digital performance marketing agency Metric Theory. In February 2021, MightyHive acquired the assets of Datalicious, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific.
 
On 16 July 2020, S4Capital announced the successful placing of 36,766,642 new ordinary shares at a price of 315p raising approximately £116 million gross proceeds which will be used for further expansion and combination purposes.
 
Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Peter Rademaker and Scott Spirit all joined the S4Capital Board as Directors. The S4Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly and Miles Young.
 
The Company now has over 4,400 people in 31 countries across the Americas, Europe, the Middle East and Africa and Asia-Pacific and a current market capitalisation of approximately £2.5 billion (c.$3.5 billion), and would rank around the FTSE 150. It achieved Unicorn status in a little over one year, unique in the advertising and marketing services industry
 
Sir Martin was CEO of WPP for 33 years, building it from a £1 million "shell" company in 1985 into the world's largest advertising and marketing services company with a market capitalisation of over £16 billion on the day he left. Today its market capitalisation is £11 billion. Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi Company Plc for nine years.
 
 
 
Unaudited consolidated statement of profit or loss
For the year ended 31 December 2020




 


 


 


 


 


2020

Unaudited


2019

Unaudited




 


Notes


 


 


£'000


£'000




 


 


 


 


 


 


 




Revenue


 


 


 


 


342,687


215,132




Cost of sales


 


 


 


 


47,505


43,814




 


 


 


 


 


 


 




Gross profit


 


 


 


 


295,182


171,318




 


 


 


 


 


 


 




Personnel costs


 


 


 


 


205,135


111,572




Other operating expenses


 


 


 


 


30,561


25,803




Acquisition and set-up related expenses


 


 


 


 


14,338


12,806




Depreciation and amortisation


 


 


 


 


37,015


24,972




 


 


 


 


 


 


 




Total operating expenses


 


 


 


 


287,049


175,153




 


 


 


 


 


 


 




Operating profit (loss)


 


 


 


 


8,133


(3,835)




 


 


 


 


 


 


 




Adjusted operating profit


 


 


 


 


57,950


31,148




Adjusting items


 


 


 


 


(49,817)


(34,983)




Operating profit (loss)


 


 


 


 


8,133


(3,835)




 


 


 


 


 


 


 




Finance income


 


 


 


 


698


20




Finance expenses


 


 


 


 


(5,735)


(5,380)




 


 


 


 


 


 


 




Net finance expenses


 


 


 


 


(5,037)


(5,360)




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Profit (loss) before income tax


 


 


 


 


3,096


(9,195)




 


 


 


 


 


 


 




Income tax expense


 


5


 


 


(7,025)


(845)




 


 


 


 


 


 


 




Loss for the year


 


 


 


 


(3,929)


(10,040)




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Attributable to owners of the Company


 


 


 


(3,929)


(10,040)




Attributable to non-controlling interests


 


 


 


-


-




 


 


 


 


 


 


 




 


 


 


 


 


(3,929)


(10,040)




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




Basic loss per share (pence)


 


3


 


 


(0.8)


(2.7)


 




Diluted loss per share (pence)


 


3


 


 


(0.8)


(2.7)


 




 
 
 
 
 
Unaudited consolidated statement of comprehensive income
For the year ended 31 December 2020




 


 


 


 


2020

Unaudited


2019

Unaudited




 


 


 


 


£'000


£'000




 


 


 


 


 


 


 




Profit (loss) for the year


 


 


 


 


(3,929)


(10,040)




 


 


 


 


 


 


 




Other comprehensive income (loss)


 


 


 


 


 




Items that may be reclassified to profit or loss


 


 


 


 


 




Foreign operations - foreign currency translation differences


 


 


 


2,905


(20,620)




 


 


 


 


 


 


 




Total other comprehensive income (loss)


 


 


 


 


2,905


(20,620)




 


 


 


 


 


 


 




Total comprehensive loss for the year


 


 


 


 


(1,024)


(30,660)




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Attributable to owners of the Company


 


 


 


(1,024)


(30,660)




Attributable to non-controlling interests


 


 


 


-


-




 


 


 


 


 


 


 




 


 


 


 


 


(1,024)


(30,660)




 
 
 
Unaudited consolidated balance sheet
At 31 December 2020
 




 


 


 


 


 


2020

Unaudited


2019

Unaudited




 


Notes


 


 


£'000


£'000




 


 


 


 


 


 


 




Assets


 


 


 


 


 


 




 


 


 


 


 


 


 




Non-current assets


 


 


 


 


 


 




  Intangible assets


 


4


 


 


799,129


540,129




  Right-of-use assets


 


 


 


 


21,653


25,779




  Property, plant and equipment


 


 


 


 


14,537


9,730




  Deferred tax assets


 


 


 


 


2,068


1,086




  Other receivables


 


 


 


 


2,125


2,731




 


 


 


 


 


 


 




 


 


 


 


 


839,512


579,455




Current assets


 


 


 


 


 


 




  Trade and other receivables


 


 


 


 


181,391


126,353




  Cash and cash equivalents


 


 


 


 


142,052


66,106




 


 


 


 


 


 


 




 


 


 


 


 


323,443


192,459




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Total assets


 


 


 


 


1,162,955


771,914




 


 


 


 


 


 


 




Liabilities


 


 


 


 


 


 




 


 


 


 


 


 


 




Non-current liabilities


 


 


 


 


 


 




  Deferred tax liabilities


 


 


 


 


62,100


54,834




  Loans and borrowings


 


 


 


 


44,819


42,374




  Lease liabilities


 


5


 


 


15,942


18,787




  Contingent consideration


 


 


 


 


32,593


3,669




  Other payables


 


 


 


 


1,941


2,007




 


 


 


 


 


 


 




 


 


 


 


 


157,395


121,671




Current liabilities


 


 


 


 


 


 




  Trade and other payables


 


 


 


 


191,125


118,014




  Contingent consideration and holdback


 


 


 


 


35,742


51,202




  Loans and borrowings


 


 


 


 


45,623


-




  Lease liabilities


 


 


 


 


7,047


7,975




  Tax liabilities


 


 


 


 


12,480


6,751




 


 


 


 


 


 


 




 


 


 


 


 


292,017


183,942




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Total liabilities


 


 


 


 


449,412


305,613




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Net assets


 


 


 


 


713,543


466,301




 


 


 


 


 


 


 




Equity


 


 


 


 


 


 




 


 


 


 


 


 


 




Attributable to owners of the Company


 


 


 


 


 




  Share capital


 


 


 


 


135,516


117,307




  Reserves


 


 


 


 


577,927


348,894




 


 


 


 


 


 


 




 


 


 


 


 


713,443


466,201




  Non-controlling interests


 


 


 


 


100


100




 


 


 


 


 


 


 




Total equity


 


 


 


 


713,543


466,301




 
 
 
Unaudited consolidated statement of cash flows
For the year ended 31 December 2020




 


 


 


 


2020

Unaudited


2019

Unaudited




 


 


 


 


£'000


£'000




 


 


 


 


 


 


 




Cash flows from operating activities


 


 


 


 


 


 




  Profit (loss) before income tax


 


 


 


 


3,096


(9,195)




  Financial income and expenses


 


 


 


 


5,037


5,360




  Depreciation and amortisation


 


 


 


 


37,015


24,972




  Share based compensation


 


 


 


 


12,331


7,177




  Acquisition and set-up related expenses


 


 


 


 


14,338


12,806




  Increase in trade and other receivables


 


 


 


 


(29,282)


(31,288)




  Increase in trade and other payables


 


 


 


 


29,893


22,310




 


 


 


 


 


 


 




Cash flows from operations


 


 


 


 


72,428


32,142




  Income taxes paid


 


 


 


 


(10,758)


(7,571)




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Net cash flows from operating activities


 


 


 


 


61,670


24,571




 


 


 


 


 


 


 




Cash flows from investing activities


 


 


 


 


 


 




  Investments in intangible assets


 


 


 


(34)


(1,578)




  Investments in property, plant and equipment


 


 


 


(7,396)


(7,865)




  Acquisition of subsidiaries, net of cash acquired


 


 


 


(124,155)


(56,954)




  Financial fixed assets


 


 


 


 


871


(779)




 


 


 


 


 


 


 




Cash flows from investing activities


 


 


 


 


(130,714)


(67,176)




 


 


 


 


 


 


 




Cash flows from financing activities


 


 


 


 


 




  Proceeds from issuance of shares


 


 


 


 


113,386


97,451




  Additional borrowings 


 


 


 


 


45,378


22,418




  Payment of lease liabilities and interest


 


 


 


 


(12,175)


(6,687)




  Repayments of loans and borrowings


 


 


 


 


 


(24,119)




  Interest paid


 


 


 


 


(742)


(4,744)




 


 


 


 


 


 


 




Cash flows from financing activities


 


 


 


 


145,847


84,319




 


 


 


 


 


 


 




Net movement in cash and cash equivalents


 


 


 


76,803


41,714




  Cash and cash equivalents beginning of the year


 


 


 


66,106


25,005




  Exchange gain/(loss) on cash and cash equivalents


 


 


 


(857)


(613)




 


 


 


 


 


 


 




Cash and cash equivalents at 31 December


 


 


 


 


142,052


66,106




 


Unaudited consolidated statement of changes in equity
For the year ended 31 December 2020




Equity


Number of shares


Share   capital


Share premium


Merger reserves


Other reserves1


Foreign exchange reserves


Accumulated losses


Total


Non-controlling interests


Total    equity




 


£'000


£'000


£'000


£'000


£'000


£'000


£'000


£'000


£'000




 


 


 


 


 


 


 


 


 


 


 




Balance at 1 January 2019


363,396,923


90,849


52,871


205,717


(847)


1,870


(8,266)


342,194


100


342,294




 


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Comprehensive loss for the year


 


 


 


 


 


 


 


 


 


 




  Loss for the year


-


-


-


-


-


-


(10,040)


(10,040)


-


(10,040)




  Foreign currency translation differences


-


-


-


-


-


(20,620)


-


(20,620)


-


(20,620)




Total comprehensive loss for the year


 


-


-


-


-


(20,620)


(10,040)


(30,660)


 


(30,660)




 


 


 


 


 


 


 


 


 


 


 




Transactions with owners of the Company


 


 


 


 


 


 


 


 


 


 




  Issue of Ordinary Shares


105,324,634


26,331


121,182


-


-


-


-


147,513


-


147,513




  Employee share schemes


505,702


127


249


-


(313)


-


7,091


7,154


-


7,154




 


 


 


 


 


 


 


 


 


 


 




Balance at 31 December 2019


469,227,259


117,307


174,302


205,717


(1,160)


(18,750)


(11,215)


466,201


100


466,301




 


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Comprehensive loss for the year


 


 


 


 


 


 


 


 


 


 




  Profit for the year


-


-


-


-


 


 


(3,929)


(3,929)


-


(3,929)




  Foreign currency translation differences


-


-


-


-


 


2,905


-


2,905


-


2,905




Total comprehensive loss for the year


 


-


-


-


 


2,905


(3,929)


(1,024)


-


(1,024)




 


 


 


 


 


 


 


 


 


 


 




Transactions with owners of the Company


 


 


 


 


 


 


 


 


 


 




  Issue of Ordinary Shares


36,766,642


9,192


103,995


 


 


 


 


113,187


-


113,187




  Business combinations


34,744,022


8,686


84,564


 


28,655


 


 


121,905


-


121,905




  Employee share schemes


1,327,535


331


1,334


 


(454)


 


11,963


13,174


-


13,174




 


 


 


 


 


 


 


 


723,729


 


 




Balance at 31 December 2020


542,065,458


135,516


364,195


205,717


27,041


(15,845)


(3,181)


713,443


100


713,543




 


Notes to the consolidated financial statements
 
General information
S4Capital plc ('S4Capital' or 'Company'), is a public Company, limited by shares, 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 preliminary consolidated condensed financial statements represent the results of the Company and its subsidiaries (together referred to as 'S4Capital Group' or the 'Group').
 
S4Capital Group is a new age/new era digital advertising and marketing services company.
 
Basis of preparation
The financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. They have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU.
 
On 31 December 2020 EU-adopted IFRS was brought into UK law and became UK-adopted international accounting standards, with future changes to IFRS being subject to endorsement by the UK Endorsement Board. The Consolidated Financial Statements will transition to UK-adopted international accounting standards for financial periods beginning 1 January 2021.
 
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2020. The statutory accounts for 2020 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course. The unaudited financial information is prepared under the historical cost basis, unless stated otherwise in the accounting policies.
 
Accounting policies 
The accounting policies will be included in the Annual Report and Accounts 2020. The accounting policies are materially consistent with those described in the Annual Report and Accounts 2019, which were set out on pages 87 to 95.
 
New and amended standards adopted by the Group
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.
 
Critical accounting estimates and judgements 
The critical accounting estimates and judgments will be included in the Annual Report and Accounts 2020. These are consistent with those described in the Annual Report and Accounts 2019, which were set out on pages 87 and 89.
                
1.   Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Directors and executive management of S⁴Capital Group. 
 
During the year, S⁴Capital Group has been active in two segments.
// Content Practice: Creative content, campaigns and assets at a global scale for paid, social and earned media - from digital platforms and apps to brand activations that aim to convert consumers at every possible touchpoint.
// Data & Digital media: this technology and services practice encompasses full-service campaign management analytics, creative production and ad serving, platform and systems integration and transition and training and education.
 
The customers are primarily businesses across technology, FMCG and media & entertainment.
 
The Directors and executive management monitor the results of the operating segments separately for the purpose of making decisions about resource allocation and performance assessment prior to charges for tax, depreciation and amortisation.
 
Operating segment information under the primary reporting format is disclosed below:
 
 




2020


 


 


 


Content Practice


Data & Digital media


Total




 


 


 


£'000


£'000


£'000




 


 


 


 


 


 


 




Gross profit


 


 


 


220,497


74,685


295,182




 


 


 


 


 


 


 




Segment profit1


 


 


 


45,609


21,603


67,212




 


 


 


 


 


 


 




Overhead cost


 


 


 


 


 


(5,034)




Adjusted non-recurring and acquisition related expenses


 


 


 


 


(26,669)




Depreciation2 and amortisation


 


 


 


 


 


(27,376)




Net finance expenses


 


 


 


 


 


(5,037)




 


 


 


 


 


 


 




Profit before income tax


 


 


 


 


 


3,096




 
1 Including £ 9.6 million depreciation on right-of-use assets 
2 Excluding £ 9.6 million depreciation on right-of-use assets
 




2019


 


 


 


Content


Data & Digital media


Total




 


 


 


£'000


£'000


£'000




 


 


 


 


 


 


 




Gross profit


 


 


 


113,365


57,953


171,318




 


 


 


 


 


 


 




Segment profit1


 


 


 


25,570


13,654


39,224




 


 


 


 


 


 


 




Overhead cost


 


 


 


 


 


(5,817)




Adjusted non-recurring and acquisition related expenses


 


 


 


 


(19,983)




Depreciation2 and amortisation


 


 


 


 


 


(17,259)




Net finance expenses


 


 


 


 


 


(5,360)




 


 


 


 


 


 


 




Loss before income tax


 


 


 


 


 


(9,195)




 
1 Including £ 7.7 million depreciation on right-of-use assets
2 Excluding £ 7.7 million depreciation on right-of-use assets
 
Key management of S4Capital Group uses gross profit rather than revenue to manage the Group due to the fluctuating amounts of third-party costs and/or pass-through expenses, which form part of revenue.
 
2.   Adjusting items
S⁴Capital Group uses certain adjusted earnings measures to provide additional clarity about the performance of the business. Therefore, the operating profit in the condensed consolidated income statement is also adjusted for the following items, which comprise:
// Acquisition and set-up related expenses are not considered part of underlying trading and are material one-off expense or income, which are relevant to an understanding of the underlying performance of the Group.
// Amortisation of certain fair value adjustments recorded in respect of finite-life intangible assets recognised in the purchase price allocation of the acquisitions.
// Share based compensation.
 
The adjusting items amount to £49.8 million for the financial year ended 31 December 2020 (for the financial year ended 31 December 2019: £35.0 million). The tables below provide a reconciliation of the Group's reported statutory earnings measures to its adjusted measures




January to December 2020


 


Reported


Amortisation1


Acquisition and set-up related expenses2


Share based compensation


Adjusted




 


£'000


£'000


£'000


£'000


£'000




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Operating profit


8,133


23,148


14,338


12,331


57,950




Net finance expenses


(5,037)


-


-


-


(5,037)




 


 


 


 


 


 


 




Profit before income tax


3,096


23,148


14,338


12,331


52,913




Income tax expense


(7,025)


(5,758)


(1,238)


-


(14,021)




 


 


 


 


 


 


 




(Loss) profit for the year


 


(3,929)


17,390


13,100


12,331


38,892




1 Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.
2 Acquisition and set-up related expenses relate to acquisition related bonuses of £2.2 million and transaction related advisory fees of £13.6 million and the accounting for contingent considerations of £1.4 million.
 




January to December 2019


 


Reported


Amortisation1


Acquisition and set-up related expenses2


Share based compensation


Adjusted




 


£'000


£'000


£'000


£'000


£'000




 


 


 


 


 


 


 




Operating (loss) profit


(3,835)


15,000


12,806


7,177


31,148




Net finance expenses


(5,360)


-


-


-


(5,360)




 


 


 


 


 


 


 




(Loss) profit before income tax


(9,195)


15,000


12,806


7,177


25,788




Income tax credit / (expense)


(845)


(3,893)


(2,064)


-


(6,802)




 


 


 


 


 


 


 




(Loss) profit for the year


 


(10,040)


11,107


10,742


7,177


18,986




1 Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.
2 Acquisition and set-up related expenses relate to acquisition related bonuses of £7.2 million and transaction related advisory fees of £5.7 million.
 
3.   Earnings per share




 


 


 


 


 


2020


2019




 


 


 


 


 


 


 




Income (Loss) attributable to shareowners of the Company (£'000)


 


 


 


(3,929)


(10,040)




Weighted average number of ordinary shares


 


 


 


493,290,974 
 


368,067,622




 


 


 


 


 


 


 




Basic loss per share (pence)


 


 


 


 


(0.8)


(2.7)




 


 


 


 


 


 


 




Diluted loss per share (pence)


 


 


 


 


(0.8)


(2.7)




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




 


Goodwill


Customer relationships


Brands


Order Backlog


Other


Total




£'000


£'000


£'000


£'000


£'000


£'000




 


 


 


 


 


 


 




Net book value at 1 January 2019


238,237 


148,085


13,697


180


1,937


402,136




 


 


 


 


 


 


 




Acquired through business combinations


106,610


66,231


2,082


1,098


2,590


178,611




Additions


-


-


-


-


1,578


1,578




Amortisation charge for the year


-


(12,017)


(1,117)


(1,212)


(654)


(15,000)




Foreign exchange differences


(16,011)


(10,191)


(681)


(66)


(247)


(27,196)




 


 


 


 


 


 


 




Total transactions during the year


90,599


44,023


284


(180)


3,267


137,993




 


 


 


 


 


 


 




Cost


328,836


206,706


15,276


5,464


6,364


562,646




Accumulated amortisation


-


(14,598)


(1,295)


(5,464)


(1,160)


(22,517)




 


 


 


 


 


 


 




Net book value at 31 December 2019


328,836


192,108


13,981


-


5,204


540,129




 


 


 


 


 


 


 




 


 


 


 


 


 


 




Acquired through business combinations


228,376


39,379


1,059


3,065


2,269


274,148




Addition


 


 


 


 


34


34




Reclassifications


(2,793)


2,298


211


 


 


(284)




Amortisation charge for the year


 


(17,747)


(1,866)


(1,919)


(1,616)


(23,148)




Foreign exchange differences 


5,503


2,303


294


56


94


8,250




 


 


 


 


 


 


 




Total transactions during the year


231,086


26,233


(302)


1,202


781


259,000




 


 


 


 


 


 


 




Cost


559,922


250,583


16,799


8,805


8,745


844,854




Accumulated amortisation


-


(32,243)


(3,121)


(7,604)


(2,757)


(45,725)




 


 


 


 


 


 


 




Net book value at 31 December 2020


559,922


218,340


13,678


1,201


5,988


799,129




 


 


 


 


 


 


 




 
Acquisitions 2020
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and provisional goodwill of the subsidiaries acquired in financial year 2020 are as follows:
 
 




 


 


 


 


 


 


Content Practice


Data & digital media practice


Total
Fair value




 


 


 


 


 


£'000


£'000


£'000




 


 


 


 


 


 


 


 


 




Intangible assets - Customer relationships


 


 


 


 


21,836


17,543


39,379


 




Intangible assets - Brand names


 


 


 


 


663


396


1,059


 




Intangible assets - Order backlog


 


 


 


 


1,652


1,413


3,065


 




Intangible assets - Software 


 


 


 


 


-


2,269


2,269


 




Property, plant and equipment


 


 


 


 


2,110


343


2,453


 




Financial fixed assets


 


 


 


 


165


102


267


 




Cash and cash equivalents


 


 


 


 


12,259


7,555


19,814


 




Trade and other receivables


 


 


 


 


30,753


7,408


38,160


 




Trade and other payables


 


 


 


 


(34,601)


(5,423)


(40,026)


 




Current taxation


 


 


 


 


567


(985)


(418)


 




Lease liabilities


 


 


 


 


(674)


-


(674)


 




Other non-current liabilities


 


 


 


 


(385)


(1,553)


(1,937)


 




Deferred taxation


 


 


 


 


(6,619)


(5,045)


(11,664)


 




 


 


 


 


 


 


 


 


 




Net assets


 


 


 


 


27,726


24,023


51,749


 




Goodwill


 


 


 


 


126,908


101,469


228,376


 




 


 


 


 


 


 


 


 


 




Total purchase consideration


 


 


 


 


 


154,634


125,492


280,125




 


 


 


 


 


 


 


 


 




Payment in kind (common stock)


 


 


 


 


24,293


49,379


73,671


 




Cash


 


 


 


 


73,361


50,079


123,442


 




Deferred consideration


 


 


 


 


29,222


5,890


35,111


 




Contingent consideration


 


 


 


 


27,757


20,143


47,899


 




 


 


 


 


 


 


 


 


 




Total purchase consideration


 


 


 


 


 


154,634


125,492


280,125




 


 


 


 


 


 


 


 


 




Purchase consideration - cash 


 


 


 


 


73,361


50,079


123,440


 




Cash and cash equivalents


 


 


 


 


12,259


7,555


19,814


 




 


 


 


 


 


 


 


 


 




Cash outflow on acquisition

(net of cash acquired)


 


 


 


 


61,102


42,524


103,626


 



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
In 2020, S4Capital Group combined with the following businesses:
 
Content Practice
Combinations in 2020 of the Group's Content Practice are:
// On 8 January 2020, S4Capital plc announced (completed and control passed on 12 March 2020) the combination of MediaMonks with the fully integrated digital agency Circus Network.
// On 10 September 2020, S4Capital plc announced that MediaMonks has entered into exclusivity in relation to a combination with Dare.Win, an award-winning Paris based digital creative agency. The combination expands MediaMonks' geographical presence to France, Europe's third largest advertising market. At the end of the reporting year, the opening balance sheet has not been agreed upon and therefore the calculated goodwill is provisional.
// In November 2019, S4Capital plc announced (completed and control passed on 27 August 2020) the combination of MediaMonks with WhiteBalance, Indian-based digital creative and production agency.
// On 4 January 2021, S4Capital plc announced (completed and control passed on 31 December 2020) the combination of MediaMonks with Decoded Advertising, a San Francisco-based marketing agency. Decoded Advertising buys media across search, social and ecommerce properties.
 
Data & digital media practice
Combinations in 2020 of the Group's Data & digital media practice are:
// On 26 May 2020, S4Capital plc announced (completed and control passed on 10 July 2020) the combination of MightyHive with Digodat, a leading Latin American data and analytics consultancy.
// On 30 June 2020, S4Capital plc announced the combination of MightyHive with Lens10, a leading Australian digital strategy and analytics consultancy, pending Foreign Investment Review Board and Australian Competition and Consumer Commission.
// On 29 July 2020, S4Capital plc announced the combination of MightyHive with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle.
// On 27 August 2020, S4Capital plc announced the combination of MightyHive with Brightblue Consulting, an award-winning UK based data analytics and measurement consultancy
// On 4 January 2021, S4Capital plc announced (completed and control passed on 31 December 2020) the combination of MightyHive with Metric Theory, an US-based agency fully integrated agency covering creative, media and technology
 
The goodwill represents the potential growth opportunities and synergy effects from the acquisition. The goodwill is not deductible for tax purposes. Trade receivables net of expected credit losses acquired are considered to be fair value and are expected to be collectable in full.
 
The contingent considerations are contingent on the acquired companies achieving their 2020 results and, in some cases their 2021 and 2022 results, as determined upon acquiring the subsidiary. The contingent considerations are included for the maximum amount of the consideration expected.
 
The total acquisition costs of £10.8 million (2019: £4.7 million) have been recognised under acquisition and set-up related expenses in the statement of profit or loss. 
 
Firewood
Contingent consideration arising from business combinations is fair valued, with key inputs including the probability of success, consideration of potential delays and the expected levels of future revenues. In 2020, Management has identified changes in certain key assumptions with respect to the acquisition of Firewood Marketing Inc that caused the calculated fair value to vary compared to the initial calculated fair value. Revaluations of Contingent consideration are recognised in Selling, general and administrative costs and include a decrease of £8.8 million in 2020 (2019: nil) based on revised milestone probabilities, and revenue forecasts, relating mainly to the acquisition of Firewood Marketing.
 
Events occurring after the reporting period
On 11 January 2021, S4Capital plc announced that TOMORROW, an award-winning Shanghai-based creative agency, is combined with MediaMonks, S4Capital's Content Practice. The combination expands MediaMonks' existing capabilities and presence in China, the world's second largest advertising market.  
 
On 20 January 2021, S4Capital plc announced a combination with Staud Studios, a German high-end creative production studio specialising in the automotive industry. Pursuant to the terms of the Transaction, we have agreed to issue 661,927 ordinary shares of 25 pence each in the capital of the Company, credited as fully paid, as initial consideration. The Initial Consideration Shares will be subject to a restriction on sale until 22 January 2023. 
 
On 1 February 2021, S4Capital plc announced that MightyHive has acquired the assets of Datalicious, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific. Datalicious is a specialised data and analytics consultancy, helping marketers make sense of their data. Datalicious tracks and analyzes customer interactions across multiple marketing channels, so clients can drive the most impact from their marketing dollars and create targeted and personalised customer experiences and staff and clients in the financial services, telecommunications and media industries will become part of S4Capital's expanding Data and Digital media practice at MightyHive.
 
On 25 March 2021, S4Capital announced that it has entered into a conditional agreement in relation to a combination of MediaMonks with the highly awarded design and experience agency, Jam3, based in Toronto with offices in Amsterdam, Los Angeles and Uruguay
 
5.   Income tax expense
The corporate income tax charge comprises the following:




 


 


 


 


 


2020


2019




 


 


 


 


£'000


£'000




 


 


 


 


 


 


 




Current tax for the year


 


 


 


(12,970)


(4,022)




Adjustments for current tax of prior years


 


 


 


(203)


(36)




 


 


 


 


 


 


 




Total current tax


 


 


 


(13,173)


(4,058)




Movement in deferred tax 


 


 


 


6,148


3,213




 


 


 


 


 


 


 




Income tax expense in profit or loss


 


 


 


(7,025)


(845)




 




 


 


 


 


 


2020


2019




 


 


 


 


£'000


£'000




 


 


 


 


 


 


 




Income (Loss) before income taxes


 


 


 


3,096


(9,195)




 


 


 


 


 


 


 




Tax credit at the UK rate of 19% (2019:19%)


 


 


 


(589)


1,747




Tax effect of amounts which are non-deductible (taxable)


 


 


 


(4,245)


(2,074)




Differences in overseas tax rates


 


 


 


(1,988)


(554)




Adjustment for current taxes of prior years


 


 


 


(203)


36




 


 


 


 


 


 


 




Income tax expense in profit or loss


 


 


 


 


(7,025)


(845)




 
The applicable tax rate is based on the proportion of the contribution to the result by the Group entities and the tax rate applicable in the respective countries. The applicable tax rate in the respective countries ranges from 17% to 35%. The effective tax rate used to calculate the actual tax charge for the year deviates from the applicable tax rate mainly because of non-deductible items, amortisation, accelerated capital allowances over depreciation on plant, property and equipment and differences in overseas tax rates.
 

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