REG - S4 Capital PLC - Unaudited 2021 preliminary results
06/05/2022 07:00
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RNS Number : 5387K S4 Capital PLC 06 May 2022
S(4)Capital plc
("S(4)Capital" or "the Company")
Unaudited 2021 preliminary results
Like-for-like gross profit/net revenue up 44% with simple two year stack up
over 63% and three year up over 100%
Significant growth in like-for-like and pro-forma billings, revenue, gross
profit/net revenue and EBITDA in the range of market expectations
2022-24 Three Year Plan calls for a like-for-like doubling of top line and
EBITDA margins returning to prior levels
Market guidance of 25% like-for-like gross profit growth with steady
improvement in EBITDA margins for 2022
2022 Gross profit/net revenue has started ahead of guidance
Significant investment in and tightening of financial controls, risk and
governance being implemented following the unacceptable delay in publishing
the 2021 results
1. Financial highlights
¤ Billings* £1.3 billion, up 99.4% reported, up 66.8%
like-for-like** and pro-forma*** billings £1.4 billion, up 67.1%.
¤ Revenue £686.6 million, up 100.4% reported from £342.7
million, like-for-like up 52.4%, pro-forma up 53.8%.
¤ Gross profit which is equivalent to net revenue £560.3 million, up
89.8% reported from £295.2 million, like-for-like up 43.7%, pro-forma up
45.7%.
¤ Two year simple like-for-like gross profit/net revenue stack up
over 63%******* and three year up over 100%.
¤ Operational EBITDA**** £101.0 million, up 62.4% reported,
like-for-like up 11.9%, pro-forma up 16.8%.
¤ Operational EBITDA margin 18.0%, down 3.0 percentage points on 2020
reported, like-for-like down 5.1 percentage points, pro-forma down 4.6
percentage points driven by investment in major new "whopper******" clients,
new areas of organic growth and the Group's management infrastructure.
Operational EBITDA margin improved from 14.5% in the first half to 20.6% in
the second half.
¤ Adjusted basic net result per share 13.0p versus 7.9p in 2020 up
64.6%.
¤ 2021 results in the range of market expectations of revenue of
£619.0 million to £691.0 million, gross profit/net revenue of 553.6 million
to 572.5 million and Operational EBITDA of £99.7 million to £111.6 million
(consensus of £650.8 million, £559.1 million and £103.8 million
respectively).
¤ Operating loss £42.1 million versus an operating profit of
£8.1 million in 2020. Operating loss is after charging £136.9 million of
Adjusting items relating to acquisitions, amortisation and share based
payments (including £72.3 million in contingent combination consideration
mainly tied to continued employment). Pro-forma operating loss of £83.5
million versus an pro-forma operating loss of £87.9 million in 2020.
¤ Loss before income tax £55.7 million, after charging adjusting
items, versus a profit of £3.1 million in 2020.
¤ Statutory loss for the period £56.7 million, after charging
adjusting items and after taxation, versus £3.9 million (loss) in 2020 and
pro-forma loss for the period of £98.1 million.
¤ Basic and diluted net loss per share 10.3p, after charging
adjusting items and after taxation, versus 0.8p (loss) in 2020.
¤ Year-end net debt***** £18.0 million (2020: net cash £51.6
million), despite making £96.6 million in cash payments for combinations and
increasing working capital investment primarily to fund larger accounts,
reflecting liquidity from operations and EBITDA conversion to cash flow from
operating activities of 54.1% (including £10.0 million relating to contingent
consideration tied to employment) versus 99.2% in 2020.
¤ January and February gross profit/net revenue ahead of targeted
25% like-for-like growth.
¤ Significant increase in financial controls, risk and governance
processes and resources being implemented and planned under guidance of new
Chief Financial Officer, who took over the role on January 3(rd) 2022.
2. Sir Martin Sorrell, Executive Chairman of S(4)Capital Plc said:
"In our third full financial year we almost doubled in size, approximately
half through organic growth and approximately half through combinations and
generated over $900 million of revenue in 33 countries. We continued to
develop conversion at scale with six well established "whoppers" and a further
nineteen clients identified as "whoppertunities" and with approximately half
of our revenues from technology clients. We plan to achieve our ultimate 20(2)
objective, that is twenty clients each generating revenues of over $20 million
per annum, over the period 2022-24. Whilst this growth, both organic and
through business combinations, is very satisfying, the delay in producing our
2021 results is unacceptable and embarrassing and significant changes in our
financial control, risk and governance structure and resources are being
implemented and planned, including several significant additions to the
central and Content practice financial teams and the Audit Committee.
Pride of place for any achievements should go to our (now) over 8,400 Monks
globally, who no sooner than recovering from the strain and challenge of the
pandemic, had to face the impact of the shocking events in Ukraine, but
continue to respond unflinchingly. 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
gained significant traction. The pandemic has, at the same time, accelerated
the drive to create a digital world, together with the 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 continue to grow our top line at industry leading rates, despite Covid-19,
and have exhibited agility in developing new content revenue streams quickly,
in such areas as the Unreal Engine, the Metaverse, blockchain, crypto and NFTs
placing us at the forefront of these significant disruptions. We continued to
broaden and deepen our Content and Data&digital media practices through
organic growth and by the addition of a further five Content, four
Data&digital media and one Technology services companies in 2021 and one
so far in early 2022, in the Data&digital media practice. As a result, we
broadened our services capabilities by expanding into the third practice area
- Technology services - enabling us to engage more deeply with CIOs and CTOs
in addition to CMOs, Chief Sales Officers and CDOs. We further integrated our
unitary client offering around our Content, Data&digital media and
Technology services practices, with the launch mid-year of one operating
brand, Media.Monks, which celebrated our roots in both Content (MediaMonks)
and Data&digital media (MightyHive) and embodied sufficient flexibility to
engage our entrepreneurial talent. We broadened and deepened our client
roster. We continued to embrace our diversity, equity and inclusion
opportunities with unique black-orientated fellowship and female executive
leadership programmes, changed hiring practices and education programmes. In
addition, we continued to make progress in our zero carbon commitments
targeting 2024, earlier than most. We also leveraged our balance sheet to take
advantage of combination opportunities.
2022 has started, more than in line with our latest three year plan to double
gross profit/net revenue organically in three years and we are focused on five
objectives for the year - to continue to develop our six existing "whoppers"
and develop and secure five more this year, one having already been almost
secured, to integrate our three practices and three geographies even more
effectively into an even stronger unitary, one P&L client offering; to
strengthen and deepen our diversity and climate change agenda; to continue to
broaden and deepen our digital client offering through combinations; and
finally, to try to ensure that a results delay does not happen again, we are
making the necessary investments to strengthen and tighten our financial
controls. Although global GDP forecasts have slipped in the past few months
from 4-5% to 3%+, we believe 2022 will generally be a good year economically
overall, with consumers temporarily insulated from an inflationary squeeze by
Covid savings. This, despite the significant inflation, higher interest rates,
continued Covid lockdowns in China, and the bitter, vicious war in Ukraine -
which will raise risk levels for clients in Central and Eastern Europe and to
a lesser extent Asia Pacific, whilst lowering them in North and South America.
As defence budgets are increased, the need for strong technology companies
with a robust surrounding technological eco-system will become more and more
apparent. 2023 may be a different kettle of fish as GDP growth weakens further
and geo-political tensions impact economics more significantly. Although a
bi-polar world and populist forces may check globalisation and free trade and
slow overall global GDP growth, the demand for technological development and
digital transformation will continue to drive the demand for our digital
marketing services. Digital marketing expenditure is closely correlated to,
but not dependent on GDP growth, just as traditional media spending used to be
in the last century."
3. Strategic and operational highlights
¤ 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.
¤ Also, in January 2021, MightyHive announced a combination with
Metric Theory, an integrated performance marketing agency, providing services
across search, social and commerce media. The combinations with Metric Theory
and Decoded Advertising were completed on 31 December, 2020.
¤ In February 2021, MightyHive acquired the assets of Datalicious
Australia, a Sydney, Melbourne and Brisbane-based data & analytics
company.
¤ In March 2021, S(4)Capital announced that it had 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.
¤ In May 2021, MightyHive announced it had entered into a conditional
agreement in relation to a combination of MightyHive with the leading digital
performance agency in Brazil, Raccoon Group.
¤ In July 2021, MightyHive announced a combination with Salesforce
specialist Destined expanding its data and digital media practice in Asia
Pacific.
¤ Also in July 2021, S(4)Capital announced it had engaged Credit
Suisse AG, London branch, HSBC Bank plc and Barclays Bank plc as lead
arrangers for a seven-year €375 million senior secured term loan. In
addition, it negotiated a five-year £100 million equivalent multicurrency
senior secured revolving credit facility with Credit Suisse, HSBC, Barclays,
JP Morgan and BNP Paribas. Both term loan and revolving facility were
successfully completed in early August 2021. This refinanced its existing
€25 million and US$28.9 million term loans and its €35 million and €43.5
million multicurrency revolving credit facilities and provided approximately
£200 million for general corporate purposes, including funding the cash
element of future combinations, which is typically one-half of overall
consideration. The Company will maintain its policy of maximum net leverage
not exceeding 1.5-2x Operational EBITDA.
¤ During the summer functional talent teams in social media and
government communications joined the group from leading competitors.
¤ In August 2021, S(4)Capital launched its unitary brand, by merging
MediaMonks and MightyHive into a single operational brand,
Media.Monks, represented by a dynamic logo mark that features MightyHive's
iconic hexagon. This marked the next step in speedily delivering on its
foundational promise to unify its practices into one P&L.
¤ In September 2021, the new unitary brand Media.Monks announced a
combination with the iconic culture and creative marketing agency Cashmere,
based in Los Angeles.
¤ Also in September 2021, Media.Monks announced a combination with
leading digital transformation services firm Zemoga, headquartered in Los
Angeles, with further US offices as well as delivery centres in Colombia. The
combination expanded the Media.Monks offering into technology services for the
first time.
¤ In November 2021, Media.Monks announced a combination with leading
creative content marketing agency Miyagi. The combination added to
Media.Monks' existing content and data & digital media capabilities in
Italy, Europe's fourth largest advertising market. The acquisition was
completed on 10 November 2021.
¤ In December 2021, Media.Monks announced a combination with
Maverick Digital, expanding its Data&digital media and Technology services
and global Salesforce capabilities. The acquisition was completed on 30
November 2021.
¤ 2021 saw the addition of four new "whoppers" - Meta, Mondēlez,
BMW/MINI and HP - adding to Alphabet and a leading NDA'd telecommunications
company - all of which generate more than $20 million of revenue. A further 19
clients have been identified as "whoppertunities" over the three year period
2022-24 to reach the objective of 20(2) or 20 "whoppers".
¤ Post year end, Media.Monks announced a combination with 4Mile
Analytics, a US based leader in delivery of services on the Looker platform.
¤ Continuation of both the S(4) Fellowship Programme for students
from Historically Black Colleges and Universities and its extension to High
Schools in the United States and the S(4) Women Leadership Programme in
association with UC Berkeley in California.
¤ The Group now has over 8,400 people in 33 countries, trending
towards double where we were at this time last year.
¤ 2021 saw the expansion of our major client relationships with
additional remits and geographies at brands including Google, Meta, Amazon,
Paypal, HP, Netflix, Procter & Gamble, Mondelez and BMW. We also saw
significant new business with engagements from new clients including Allianz,
Miele, Instacart, Pearson, Dropbox, Canva, Constellation Brands and M1.
¤ Our current client activity pipeline is running at a stronger
level than last year.
*Billings is gross billings to client including pass through costs
**Like-for-like relates to 2020 being restated to show the unaudited numbers
for the previous year of the existing and acquired businesses consolidated for
the same months as in 2021 applying currency rates as used in 2021
***Pro-forma numbers relate to unaudited full year non-statutory and non-GAAP
consolidated results in constant currency as if the S(4)Capital Plc Group (the
Group) had existed in full for the year and have been prepared under
comparable GAAP with no consolidation eliminations in the pre-acquisition
period
****Operational EBITDA is EBITDA adjusted for acquisition related expenses,
non-recurring items and recurring share-based payments, and includes
Right-of-use assets depreciation. It is a non-GAAP measure management uses to
assess the underlying business performance (also see note 7). Operational
EBITDA margin is Operational EBITDA as a percentage of Gross Profit/net
revenue.
*****Net debt comprises cash minus gross bank loans (excluding transaction
costs)
****** A "Whopper" is defined as a major client with over $20 million in
revenue and currently number 6 - Google, an NDA'd telecommunications FAANG,
Meta, Mondēlez, BMW/MINI and HP.
******* Two year simple stack is like-for-like 2021 growth added to 2020 and
three year simple stack, 2019 growth added to 2020 and 2021.
This document contains certain forward-looking statements with respect to the
operations, performance and financial condition of the Group, including, among
other things, statements about expected revenues, margins, earnings per share
or other financial or other measures. Although the Group believes its
expectations are based on reasonable assumptions, any forward-looking
statements, by their very nature, involve risks and uncertainties and may be
influenced by factors that could cause actual outcomes and results to be
materially different from those predicted. The forward-looking statements
reflect knowledge and information available at the date of preparation of this
document and the Group undertakes no obligation to update these
forward-looking statements. The Group identifies the forward-looking
statements by using the words 'anticipates', 'believes', 'expects', 'intends',
'estimate', 'expect', 'project', 'plan', 'believe', 'target' and similar
expressions in such statements. Important factors that could cause actual
results to differ materially from those contained in forward-looking
statements, certain of which are beyond the Group's control, include, among
other things: the unanticipated loss of a material client or key personnel,
delays or reductions in client advertising budgets, shifts in industry rates
of compensation, regulatory compliance costs or litigation, natural disasters
or acts of terrorism, the overall level of economic activity in the Company's
major markets etc.
Any forward-looking statements made by or on behalf of the Group speak only as
of the date they are made and are based upon the knowledge and information
available to the Directors on the date of this document.
Results webcast and conference call
A webcast and conference call covering the results will be held today at 08:30
BST in London, followed by another webcast and call at 08:00 EDT / 13:00 BST.
The presentation for these webcasts and conference calls has been posted on
our website www.s4capital.com (http://www.s4capital.com) at the same time as
this announcement.
08:30 BST webcast (watch only) and conference call (for Q&A):
Webcast: https://brrmedia.news/SFOR_FY21_Eur
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 212 999 6659
Confirmation code: 060522
08:00 EDT / 13:00 BST webcast (watch only) and conference call (for Q&A):
Webcast: https://brrmedia.news/SFOR_FY21_US
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 212 999 6659
Confirmation code: 02060522
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
Dowgate Capital Limited (Joint Corporate Broker to S(4)Capital
plc)
James
Serjeant
+44 (0)20 3903 7715
David Poutney
Jefferies International Limited (Joint Corporate Broker to S(4)Capital plc)
Tony
White
+44 (0)207 029 8000
Harry Le May
Morgan Stanley & Co. International plc (Joint Corporate Broker to
S(4)Capital plc)
Paul
Baker
+44 (0)207 425 8000
Alex Smart
Powerscourt (PR Advisor)
Robin
O'Kelly
+44 (0)778 670 2526
Jane Glover
Summary of results (unaudited)
Year ended 31 Dec 2021 Year ended 31 Dec 2020 Like-for-like(1) Year ended 31 December 2020 Proforma(2) Year ended 31 Dec 2021 Proforma
Year ended 31 Dec 2020
Notes £'000 £'000 £'000 £'000 £'000
Revenue 1 686,601 342,687 450,452 740,203 481,139
Cost of sales 126,338 47,505 60,568 131,076 63,173
Gross profit 1 560,263 295,182 389,884 609,127 417,966
Content 385,552 220,497 261,585 408,194 273,872
Data & digital media 167,079 74,685 124,044 180,430 132,662
Technology services 7,632 - 4,255 20,503 11,432
America's 391,117 206,316 283,591 434,112 310,353
EMEA 115,957 58,233 70,511 118,637 69,475
Asia-Pacific 53,189 30,633 35,782 56,378 38,138
Total operating expenses 602,318 287,049 431,090 692,589 505,889
Operating (loss) / profit (42,055) 8,133 (41,206) (83,462) (87,923)
Adjusted operating profit 94,808 57,950 85,225 106,700 91,498
Adjusting items 2 (136,863) (49,817) (126,431) (190,162) (179,421)
Operating (loss) / profit (42,055) 8,133 (41,206) (83,462) (87,923)
Net finance expenses (12,251) (5,037) (4,328) (12,261) (4,523)
Loss on the net monetary position (1,344) - - - -
(Loss) / profit before income tax (55,650) 3,096 (45,534) (95,723) (92,446)
Adjusted profit before income tax 81,213 52,913 80,897 94,439 86,975
Adjusting items 2 (136,863) (49,817) (126,431) (190,162) (179,421)
(Loss) / profit before income tax (55,650) 3,096 (45,534) (95,723) (92,446)
Income tax expense (1,065) (7,025) (11,011) (2,402) (10,739)
(Loss) / profit for the period (56,715) (3,929) (56,545) (98,125) (103,185)
Adjusted profit for the period 71,781 38,892 59,534 82,335 64,548
Adjusting items 2 (136,863) (49,817) (126,431) (190,162) (179,421)
Tax on adjusting items 8,367 6,996 10,352 9,702 11,688
Loss for the period (56,715) (3,929) (56,545) (98,125) (103,185)
Operating (loss) / profit (42,055) 8,133 (41,206) (83,462) (87,923)
Adjusting items 2 136,863 49,817 126,431 190,162 179,421
Depreciation (excl. right-of-use assets) 6,179 4,228 5,036 6,338 5,259
Operational EBITDA 2 100,987 62,178 90,261 113,038 96,757
Central costs 9,410 6,112 5,991 9,410 5,991
Operational EBITDA before central costs 110,397 68,290 96,252 122,448 102,748
Weighted average number of shares in issue for the purpose of basic and 551,752,618 493,290,974 551,752,618 556,142,912 556,142,912
adjusted net result per share
Net loss attributable to equity owners of the company (£'000) (56,715) (3,929) (56,545) (98,125) (103,185)
Basic net loss per share (pence) (10.3) (0.8) (10.2) (17.6) (18.6)
Diluted net loss per share (Pence) (10.3) (0.8) (10.2) (17.6) (18.6)
Adjusted profit for the period 71,781 38,892 59,534 82,335 64,548
Adjusted basic earnings per share (pence) 13.0 7.9 10.8 14.8 11.6
Notes:
1. Like-for-like is a non-GAAP measure and relates to 2020
being restated to show the unaudited numbers for the previous year of the
existing and acquired businesses consolidated for the same months as in 2021
applying currency rates as used in 2021;
2. Proforma numbers relate to unaudited full year
non-statutory and non-GAAP consolidated results in constant currency as if the
Group had existed in full for the year and have been prepared under comparable
GAAP with no consolidation eliminations in the pre-acquisition period.
Chairman's Letter
Dear Shareowner,
My Executive colleagues, Victor Knaap, Wesley ter Haar, Pete Kim, Christopher
Martin, Scott Spirit, Mary Basterfield, and I are delighted to present our
fourth set of results for the year ending 31 December 2021 to our fellow
shareowners. However, the delay in producing these results is totally
unacceptable and embarrassing to all of us and has caused significant concern
to our shareowners (of which management accounts for approximately 40%). In
response, significant financial control, risk and governance changes are being
implemented and planned across the Company under the guidance and leadership
of new Chief Financial Officer, Mary Basterfield, who took over the role at
January 3(rd) 2022 along with a strengthening of the Audit Committee.
2021 saw the expansion of our major client relationships with additional
remits and geographies at brands including Google, Meta, Amazon, Paypal, HP,
Netflix, Procter & Gamble, Mondelez and BMW. We also saw significant new
business with engagements from new clients including Allianz, Miele,
Instacart, Pearson, Dropbox, Canva, Constellation Brands and M1.
Encouragingly, our current pipeline is proportionally ahead of last year's
level following a fast start to 2022.
We had six "whoppers" (clients with revenues over $20 million per annum) in
2021, as opposed to only two in 2020. We have also now identified nineteen
more potential "whoppers", where we currently project $5-15 million of revenue
per annum and which potentially could break through the $20 million per annum
level over the latest three year planning period for 2022-24. We anticipate
that up to a further five clients may well become "whoppers" this year making
a total of eleven in 2022, well on the way to achieving our 20(2) objective
and have already landed an NDA'd consumer goods client at an annual "whopper"
level.
2021 also saw significant strengthening and deepening of our Content and
Data&digital media practices. Our newly launched unitary brand,
Media.Monks, broadened and deepened its geographical footprint in 2021 and so
far in 2022. It added North and South American Content and Data&digital
media capabilities through Jam3, Racoon Group, Cashmere, Maverick Digital and
4Mile. In Europe, the Middle-East and Africa, Media.Monks entered the German
and Italian markets through Staud Studios and Miyagi. In Asia Pacific, we
added Content and Data&digital capabilities through Tomorrow in China and
Datalicious and Destined both in Australia. Media.Monks also added significant
talent from competitors in the areas of new digital media social content and
digital government communications. Finally, Media.Monks entered a third
practice, Technology services, through South-American based Zemoga.
Media.Monks has integrated each combination into our now three practices:
Content, Data&digital media and Technology services. We 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, one of the
consequences of the pandemic was an acceleration in consolidating separate
offices on a city-by-city basis, as existing leases were terminated more
quickly. We are now planning new leases with an approximately 60% pro-rata
capacity floor plate, assuming office occupation of three days a week on
average. There is little doubt that we will not return 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 increasingly consolidating our strategic,
client content, data and programmatic and technology services offer at the
S(4)Capital level.
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 Group in 2021.
Billings were £1.3 billion, up 99.4% on a reported basis, up 66.8%
like-for-like and up 67.1% pro-forma. Controlled Billings, that is billings we
influenced in addition to billings that flowed through our income statement,
were approximately £5.4 billion (2020: £2.3 billion). Revenue was £686.6
million, up 100.4% from £342.7 million on a reported basis, up 52.4%
like-for-like, and up 53.8% on a pro-forma basis. Gross profit was £560.3
million, up 89.8% reported, up 43.7% like-for-like, and up 45.7% pro-forma.
Operational EBITDA was £101.0 million, up 62.4% reported, up 11.9%
like-for-like, and up 16.8% pro-forma. Operational EBITDA margin was 18.0%,
down 3.0 percentage points on 2020, down 5.1 percentage points like-for-like
and 4.6 percentage points pro-forma, reflecting investment ahead of the
revenue curve in major new "whopper" clients, new areas of organic growth,
such as connected tv, and management infrastructure to manage future growth,
in line with our first half statement in September 2021.
Operational EBITDA margin improved in the second half to 20.6% from 14.5% in
the first half giving 18.0% for the full year, as the first half increased
investment in our people yielded higher productivity in the latter half.
Operating loss was £42.1 million, after £136.9 million of adjusting items,
principally acquisition and amortisation expense, versus an operating profit
of £8.1 million in 2020. Adjusted basic net result per share was 13.0p versus
7.9p in 2020. Statutory loss for the period was £56.7 million, versus a
reported £3.9 million (loss) in 2020, after charging under IFRS £72.3
million of combination payments, which were mainly tied to the continued
employment of key share-owning principals in combinations. Although such
contractual provisions impact the income statement, your Board believes this
is a better commercial approach given the professional service nature of our
business. Basic and diluted net loss per share were 10.3p, versus 0.8p (loss)
in 2020.
Year-end net debt was £18.0 million (2020 net cash: £51.6 million), despite
making £96.6 million in cash combination payments and reflecting cash flow
from operating activities with 54.1% operating cash flow conversion from
EBITDA. In line with our first half statement in September 2021, Operational
EBITDA margins improved in the second half from 14.5% in the first half to
20.6% in the second half giving 18.0% for the full year, as the first half
increased investment in our people yielded higher productivity in the second
half.
Pro-forma billings were £1.4 billion. Pro-forma revenue was £740.2 million
and pro-forma gross profit was £609.1 million up 53.8% and 45.7% respectively
on 2020. Pro-forma operational EBITDA was £113.0 million, up 16.8% on 2020,
with operational EBITDA margin at 18.6%, 4.6 percentage points down on the
previous year. Pro-forma adjusted operating profit, excluding adjusting items
of £190.2 million, is £106.7 million, up 16.6% on the previous year.
Pro-forma adjusted pre-tax profits were £94.4 million versus £87.0 million
in the previous year, up 8.6%. Pro-forma adjusted profit for the period was
£82.3 million (2020: £64.5 million), up 27.6%.
By geography, on a pro-forma basis, the Americas accounted for 71.3% of gross
profit against 74.3% in 2020. Europe, the Middle-East and Africa represented
19.4% of gross profit against 16.6% in 2020. Asia-Pacific represented 9.3% of
gross profit against 9.1% in 2020. Pro-forma growth in gross profit/net
revenue was up 39.9% in the Americas, 70.8% in Europe, Middle-East and Africa
and 47.8% in Asia-Pacific. Our long-term objective has been 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 recent US/China trade frictions.
However, the war in Ukraine, has increased concerns about Taiwan and China and
as a result, it is likely that our transition to Asia Pacific will take
longer, with a 60:20:20 geographical split being a more realistic objective,
at least in the medium term.
By practice, on a pro-forma basis, Content accounted for 67.0% of gross
profit/net revenue against 65.5% in 2020. The Data&digital media practice
represented 29.6% of gross profit/net revenue against 31.8% in 2020.
Technology services, a new practice for us in 2021, accounted for the
remaining 3.4%. Pro-forma growth in gross profit/net revenue was up 49.0% at
the Content practice and up 36.0% at the Data&digital media practice.
Technology services was up 79.3%. Our long-term objective now is to achieve a
practice distribution around one-half in Content, one quarter in
Data&digital media and one quarter in Technology services.
Environment, Social and Governance strategy
In 2021, the Company continued to raise the bar in all three areas of our ESG
strategy. We actively track our CO(2) emissions and perform competitively with
a sample of peer companies in the areas of gender and diversity. We have
committed to achieving carbon neutrality by 2024, which we have realised in
2021 by offsetting our 2020 emissions in our S(4) forest. We have planted over
265,000 trees and will officially offset our emission for 2021 in 2022 through
certified forest preservation projects. These actions are taken in response to
the World Economic Forum 2020 Davos Manifesto. We are 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 across the whole Company, not for individual offices, by 2023.
In 2021, we strengthened changes in our hiring and educational policies in
relation to diversity, equity, and inclusion. We have continued to closely
track our numbers and included the option for our people of not declaring
gender or race for the first time in 2021. As a result our diversity numbers
changed slightly compared to 2020 in the United States - 32% People of Colour
and 16% undeclared vs 40% People of Colour and 60% White in 2020. We also
increased our Black representation, from 5% to 6.5%, which, though an
improvement, still shows significant under-representation of the communities
we work in. In California, our percentage is somewhat representative, but
nationally, where the proportion is 13% and in New York, where it is 24%, it
is not acceptable. We have also hired our second year flight of Fellows (and
Fellowesses) for the S(4) Programme, who exclusively come from Historically
Black Colleges and Universities in the United States. The Class of 2021 is
developing very well and about to start new assignments, some of them
international. This is a four-year, multi-practice programme, that will in the
future extend recruitment beyond the borders of the United States. We have
also started to recruit in US High Schools, starting with two, one public and
one charter in New York. With regard to gender diversity, our relative ratio
has also improved, with 43% women globally, 13% undeclared and 44% men
(compared to 45% women and 55% men in 2020). Our second edition of the
S(4)Women Leadership Programme has just launched. While the inaugural
programme was on-line and hosted over 50 global leaders from across the firm,
in 2022 the program will run in person, in May, at UC Berkeley, and will
feature 30 of our global women leaders. Finally, the most important step we
have taken towards keeping diversity efforts front and centre of our everyday
practices has been to hire James Nicholas Kinney as our global Chief Diversity
Officer. His main task is leading our recruiting efforts, so we can discover
and attract the candidates that represent our communities.
Across S(4)Capital we donated 1,460 hours to Community and Charity services
and we continue 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 and aimed to create positive impact. In 2021 we raised our
number of Projects for Good from 41 to 251.
As regards Governance, we continue to try to enhance the capabilities of the
Board with the addition of more diverse talent to add to the existing, four
female and four male Non-Executive Directors based in the Americas, EMEA and
Asia Pacific and will strengthen the Audit Committee given the unacceptable
delay in reporting these results.. We continue to review the recommendations
of Lord Hill's Report to the UK's Chancellor of the Exchequer that provides a
possible pathway to a premium UK listing and the possibilities of a US
listing, where market valuations for comparators are higher.
Outlook and current trading
All-in-all, we continued to fire on almost all cylinders in 2021, with
like-for-like revenue and gross profit/net revenue up 52.4% and 43.7%,
two-year simple stacks for gross profit/net revenue up 63% and three year up
over 100%, the one feature we would have liked to improve on being the
Operational EBITDA margin, which was impacted by the significant investment
required to bed down our growth. Pro-forma revenue and gross profit/net
revenue growth were 53.8% and 45.7% and a pro-forma operational EBITDA margin
was 18.6%, after central costs. Strong performance is planned to continue into
2022, with budgets and plans targeting strong revenue, gross profit/net
revenue growth and improving operational EBITDA margin and the three-year plan
for 2022-24 aiming for a doubling of the group organically, excluding
combinations and EBITDA margins returning to previous levels. January and
February 2022 gross profit/net revenue growth was ahead of guidance. Mary
Basterfield, our new Chief Financial Officer, who took over the role at
January 3(rd) 2022, has had an immediate number of challenges to deal with,
but has responded strongly, already adding new positions at the S(4) Capital
level in the financial control, treasury, risk and governance functions and in
the Content practice. More resources will be added across all three practices
in short order, so as to try to ensure that delays in producing our figures do
not reoccur.
There is no doubt that covid-19 has had a devastating impact on the global
economy and society over the last two years. 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 company, nor rely in any significant way on government
support or funding. Our Content practice, now representing about two-thirds of
our business pivoted very quickly to robotic production and animation and from
orchestrating live events to virtual ones. We, therefore, created significant
new content revenue streams very quickly, with like-for-like gross profit/net
revenue growth of 19.4% in 2020 and 43.7% in 2021, a two year simple growth
stack of 63% and three year over 100%, whilst the analogue advertising and
marketing services industry struggled to find low single digit two- and
three-year simple stack of around 3%. There was steady progression in the
Content and Data&digital media practices with gross profit/net revenue
organic growth rates relatively even across the year, although
Data&digital media had a slightly stronger first half. Technology services
made a blockbuster start as it was included for the first time in the fourth
quarter.
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, despite
recent gyrations. 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 2022
continue to be to greater client conversion at scale and achieving our 20(2)
objective as rapidly as possible; to integrate our three practices even more
effectively; to continue to strengthen our diversity, equity and inclusion and
climate change achievements; to continue to broaden and deepen our service
capability through further combinations; and finally, of course, to try to
ensure we never experience an unacceptable delay in our results again.
Best wishes,
Sir Martin Sorrell
Executive Chairman
About S(4)Capital
S(4)Capital plc (SFOR.L) is the tech-led, new age/new era digital advertising
and marketing services company, established by Sir Martin Sorrell in May 2018.
Its strategy is to build a purely digital advertising and marketing services
business for global, multinational, regional, local clients and
millennial-driven influencer brands. This will be achieved by integrating
leading businesses in three practice areas: Content, Data&digital media
and Technology services, along with an emphasis on "faster, better, cheaper"
executions in an always-on consumer-led environment, with a unitary structure.
Digital is by far the fastest-growing segment of the advertising market.
S(4)Capital estimates that in 2021 digital accounted for over 60% (for the
first time) or $400-450 billion of total global advertising spend of $680-700
billion (excluding over $500 billion of trade promotion marketing, the primary
target of the Amazon advertising platform) and projects that by 2025 total
global advertising spend will expand to $975 billion and digital's share will
grow to approximately 70%, accelerated by the impact of covid-19. In fact 97%
of the projected growth in Advertising spend between 2021 and 2025 will come
from Digital. Global spend on Digital Transformation (the primary addressable
market for Technology Services) is growing at 21% CAGR and projected to be
$879bn by 2025.
In 2018, S(4)Capital combined with MediaMonks, the leading AdAge A-listed
creative digital content production company led by Victor Knaap and Wesley ter
Haar, and then with MightyHive, the market-leading digital media solutions
provider for future thinking marketers and agencies, led by Peter Kim and
Christopher S. Martin.
Since then, MediaMonks and MightyHive combined with more than 25 companies
across Content, Data&digital media and Technology services. For a full
list, please see the S(4)Capital website.
In August 2021, S(4)Capital launched its unitary brand by merging MediaMonks
and MightyHive into Media.Monks, represented by a dynamic logo mark that
features MightyHive's iconic hexagon. As the operational brand, Media.Monks
underpins S(4)Capital's agility, digital knowledge and efficiency and is the
next step in delivering on its foundational promise to unify Content,
Data&digital media and Technology services.
Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Mary Basterfield
and Scott Spirit 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 Peter Rademaker.
The Company now has over 8,400 people in 33 countries across the Americas,
Europe, the Middle East and Africa and Asia-Pacific and a current market
capitalisation of approximately £1.8 billion (c.$2 billion) and would rank in
the FTSE 200. 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, dropping into third place behind both Omnicom
and Publicis for the first time ever. 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 2021
2021 2020
Notes £'000 £'000
Revenue 6 686,601 342,687
Cost of sales 126,338 47,505
Gross profit 6 560,263 295,182
Personnel costs 412,537 205,135
Other operating expenses 49,829 30,561
Acquisition and set-up related expenses 83,496 14,338
Depreciation and amortisation 56,456 37,015
Total operating expenses 602,318 287,049
Operating (loss) / profit (42,055) 8,133
Adjusted operating profit 94,808 57,950
Adjusting items 7 (136,863) (49,817)
Operating (loss) / profit (42,055) 8,133
Finance income 1,032 698
Finance expenses (13,283) (5,735)
Net finance expenses (12,251) (5,037)
Loss on the net monetary position (1,344) -
(Loss) / profit before income tax (55,650) 3,096
Income tax expense 8 (1,065) (7,025)
Loss for the year (56,715) (3,929)
Attributable to owners of the Company (56,715) (3,929)
Attributable to non-controlling interests - -
(56,715) (3,929)
Loss per share is attributable to the ordinary equity holders of the Company
Loss per share (pence) 9 (10.3) (0.8)
Diluted loss per share (pence) 9 (10.3) (0.8)
Unaudited consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
£'000 £'000
Loss for the year (56,715) (3,929)
Other comprehensive (loss) / income
Items that may be reclassified to profit or loss
Foreign operations - foreign currency translation differences (6,358) 2,905
Total other comprehensive (loss) / income (6,358) 2,905
Total comprehensive loss for the year (63,073) (1,024)
Attributable to owners of the Company (63,073) (1,024)
Attributable to non-controlling interests - -
(63,073) (1,024)
Unaudited consolidated balance sheet
as at 31 December 2021
2021 2020
Restated (1)
Notes £'000 £'000
Assets
Non-current assets
Intangible assets 10 980,915 801,066
Right-of-use assets 36,608 26,830
Property, plant and equipment 21,548 14,537
Deferred tax assets 6,526 2,068
Other receivables 3,185 2,125
1,048,782 846,626
Current assets
Trade and other receivables 335,498 181,708
Cash and cash equivalents 301,021 142,052
636,519 323,760
Total assets 1,685,301 1,170,386
Liabilities
Non-current liabilities
Deferred tax liabilities 68,478 59,794
Loans and borrowings 11 308,571 44,819
Lease liabilities 31,423 20,860
Contingent consideration 31,749 32,593
Other payables 2,845 1,941
443,066 160,007
Current liabilities
Trade and other payables 324,059 191,069
Contingent consideration and holdback 86,370 37,330
Loans and borrowings 11 2,523 45,623
Lease liabilities 10,545 8,100
Tax liabilities 17,500 12,480
440,997 294,602
Total liabilities 884,063 454,609
Net assets 801,238 715,777
Equity
Share capital 138,827 135,516
Reserves 662,311 580,161
Attributable to owners of the Company 801,138 715,677
Non-controlling interests 100 100
Total equity 801,238 715,777
1 Restated for the initial accounting for the business combinations of
Decoded, Metric Theory, Orca Pacific and BrightBlue as required by IFRS 3.
Details are disclosed in Note 10.
Company's registered number: 10476913
Unaudited consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
Notes £'000 £'000
Cash flows from operations 12 68,496 72,428
Income taxes paid (13,874) (10,758)
Net cash flows from operating activities 54,622 61,670
Cash flows from investing activities
Investments in intangible assets 10 (3,458) (34)
Investments in property, plant and equipment (11,119) (7,396)
Acquisition of subsidiaries, net of cash acquired (86,604) (124,155)
Tax paid as a result of acquisition (5,116) -
Financial fixed assets (323) 871
Cash flows from investing activities (106,620) (130,714)
Cash flows from financing activities
Proceeds from issuance of shares 1,143 113,386
Additional borrowings during the year 11 342,994 45,622
Payment of lease liabilities (10,903) (12,175)
Repayments of loans and borrowings 11 (110,895) -
Transaction costs paid on borrowings 11 (8,379) (244)
Interest paid 11 (5,530) (742)
Cash flows from financing activities 208,430 145,847
Net movement in cash and cash equivalents 156,432 76,803
Cash and cash equivalents beginning of the year 142,052 66,106
Exchange gain / (loss) on cash and cash equivalents 638 (857)
Cash and cash equivalents at 31 December 299,122 1 142,052
1 Including bank overdrafts of £1.9 million.
Unaudited consolidated statement of changes in equity
For the year ended 31 December 2021
Equity Number of shares Share capital Share premium Merger reserves Other reserves(2) Foreign exchange reserves Accumulated losses Total Non-controlling interests Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2020 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
Loss 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
Balance as previously reported 542,065,458 135,516 364,195 205,717 27,041 (15,845) (3,181) 713,443 100 713,543
Restatement1 - - - - 2,234 - - 2,234 2,234
Balance as at 31 December 2020 542,065,458 135,516 364,195 205,717 29,275 (15,845) (3,181) 715,677 100 715,777
Comprehensive loss for the year
Loss for the year - - - - - (56,715) (56,715) - (56,715)
Foreign currency translation differences - - - - - (6,358) - (6,358) - (6,358)
Hyperinflation revaluation - - - - 1,633 - - 1,633 - 1,633
Total comprehensive loss for the year - - - - 1,633 (6,358) (56,715) (61,440) - (61,440)
Transactions with owners of the Company
Issue of Ordinary Shares - - - - - - - - - -
Business combinations 13,242,114 3,311 82,715 - 45,856 - - 131,882 - 131,882
Employee share schemes - - - - (110) - 15,129 15,019 - 15,019
Balance at 31 December 2021 555,307,572 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
Notes:
1. Restated deferred equity consideration for the business
combination of Decoded as required by IFRS 3. Details are disclosed in Note
10.
2. Other reserves include the deferred equity consideration of
£77.0 million, made up of the following: Decoded for £47.9 million, Raccoon
for £16.8 million, Cashmere for £6.9 million and Zemoga £5.4 million (2020:
£28.9 million), the treasury shares issued in the name of S(4)Capital Group
to an employee benefit trust for the amount of £2.5 million (2020: £ 3.8
million), and hyperinflation impact in Argentina of £1.6m (2020: nil).
1.
Notes to the unaudited consolidated financial statements
For the year ended 31 December 2021
1. General information
S(4)Capital Plc ('S(4)Capital' or 'Company') is a public limited company
incorporated on 14 November 2016 in the United Kingdom. The Company has its
registered office at 12 St James's Place, London, SW1A 1NX, United Kingdom.
The unaudited consolidated financial statements represent the results of the
Company and its subsidiaries (together referred to as 'S(4)Capital Group' or
the 'Group'). An overview of the subsidiaries is provided in note 14 on page
128 of the Annual Report and Accounts 2020 and note 4 for the combinations
made during the year.
S(4)Capital Group is a new age/new era digital advertising and marketing
services company.
2. Basis of preparation
A. Statement of compliance
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
S4 Capital transitioned to UK-adopted International Accounting Standards in
its company financial statements on 1 January 2021. This change constitutes a
change in accounting framework. However, there is no impact on recognition,
measurement or disclosure in the period reported as a result of the change in
framework.
The financial statements of S(4)Capital plc have been prepared in accordance
with UK-adopted International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2021. The statutory
accounts for 2021 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.
B. Functional and presentation currency
The unaudited consolidated financial statements are presented in Pound
Sterling (£ or GBP), the Company's functional
currency. All financial information in Pound Sterling has been rounded to the
nearest thousand unless otherwise indicated.
3. Significant accounting policies
The unaudited consolidated financial statements have been prepared on a
consistent basis with the accounting policies of the Group which were set out
on pages 105 to 114 of the Annual Report and Accounts 2020. No changes have
been made to the Group's accounting policies in the year ended 31 December
2021.
Certain new accounting standards and interpretations have been published that
are not mandatory for the 31 December reporting periods and have not yet been
early adopted by the Group. These standards are not expected to have a
material impact on the Group in the current or future reporting periods and on
foreseeable future transactions. Amendments to IFRS effective in the year do
not have a material effect on the Group's financial statements.
4. Critical accounting estimates and judgements
The critical accounting estimates and judgments will be included in the Annual
Report and Accounts 2021. These are consistent with those described in the
Annual Report and Accounts 2020, which were set out on pages 106 and 107, with
the addition of revenue recognition for fixed fee contracts where revenue is
recognised over time.
5. Statutory information
The unaudited consolidated financial statements for the year ended 31 December
2021 and the financial information for the year ended 31 December 2021 do not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006. The statutory accounts for the year ended 31 December 2020
have been delivered to the Registrar of Companies and received an unqualified
auditors' report, did not include a reference to any matters to which the
auditors drew attention by way of an emphasis of matter and did not contain a
statement under sections 498 (2) or (3) of the Companies Act 2006.
6. Operating segments
A. Revenue from operations
Year ended 31 Dec 2021 Year ended 31 Dec 2020
£'000 £'000
Services 686,601 342,687
Total 686,601 342,687
B. Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision maker has been identified as the Board of Directors of S⁴Capital
Group.
During the year, S⁴Capital Group has been active in three 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.
// Technology Services: digital transformation services in delivering advanced
digital product design, engineering services and delivery services.
The customers are primarily businesses across technology, FMCG and media &
entertainment. Any intersegment transactions are based on commercial terms.
The Board of Directors 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:
2021 Content Practice Data & Digital media Technology Services Total
£'000 £'000 £'000 £'000
Gross profit 385,552 167,079 7,632 560,263
Segment profit(1) 52,286 55,024 3,087 110,397
Overhead costs (9,410)
Adjusted non-recurring and acquisition related expenses (97,372)
Depreciation(2) and amortisation (45,670)
Net finance expenses and loss on net monetary position (13,595)
Loss before income tax (55,650)
(1) Including £ 10.8 million depreciation on right-of-use assets
(2) Excluding £ 10.8 million depreciation on right-of-use assets
2020 Content Data & Digital media Total
£'000 £'000 £'000
Gross profit 220,497 74,685 295,182
Segment profit(1) 46,687 21,603 68,290
Overhead costs (6,112)
Adjusted non-recurring and acquisition related expenses (26,669)
Depreciation(2) 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
The Board of S(4)Capital Group use gross profit rather than revenue to manage
the Company due to the fluctuating amounts of third-party costs and/or
pass-through expenses, which form part of revenue. The revenue amounted to
£686.6 million, 75% from Content Practice, 24% from Data & Digital media
and 1% from Technology Services. In 2020 the revenue amounted to £342.7
million, 78% from Content Practice and 22% from Data & Digital media.
No analysis of the assets and liabilities of each operating segment is
provided to the chief operating decision maker ("CODM") in the monthly
management accounts; therefore, no measure of segmental assets or liabilities
is disclosed in this Note.
7. Adjusted 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 adjusted to an allow a clearer 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 £136.9 million for the financial year ended 31
December 2021 (for the financial year ended 31 December 2020: £49.8 million).
The tables below provide a reconciliation of the Group's reported statutory
earnings measures to its adjusted measures.
January to December 2021 Reported Amortisation(1) Acquisition and set-up related expenses(2) Share based compensation Adjusted
£'000 £'000 £'000 £'000 £'000
Operating (loss) / profit (42,055) 39,491 83,496 13,876 94,808
Net finance expenses and loss on net monetary position (13,595) - - - (13,595)
(Loss) / profit before income tax (55,650) 39,491 83,496 13,876 81,213
Income tax expense (1,065) (6,941) (1,426) - (9,432)
(Loss) / profit for the year (56,715) 32,550 82,070 13,876 71,781
(1) Amortisation relates to the amortisation of intangible assets recognised
as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to acquisition related
advisory fees of £10.5 million, bonuses of £0.8 million, contingent
consideration as remuneration of £70.5 million (out of which £10.0 million
is cash) and remeasurement loss on contingent considerations of £1.7
million.
January to December 2020 Reported Amortisation(1) Acquisition and set-up related expenses(2) 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 credit / (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 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, transaction related advisory fees of £13.6 million
and a remeasurement gain on contingent consideration of £1.5 million.
8. Income tax expense
The corporate income tax charge comprises the following:
2021 2020
£'000 £'000
Current tax for the year (12,638) (12,970)
Adjustments for current tax of prior years 620 (203)
Total current tax (12,018) (13,173)
Movement in deferred tax liabilities 6,594 5,699
Movement in deferred tax assets 4,359 449
Income tax expense in profit or loss (1,065) (7,025)
2021 2020
£'000 £'000
Income (Loss) before income taxes (55,650) 3,098
Tax credit at the UK rate of 19% (2020:19%) 10,574 (589)
Tax effect of amounts which are non-deductible (taxable) (12,840) (4,245)
Differences in overseas tax rates 581 (1,988)
Adjustment for current taxes of prior years 620 (203)
Income tax expense in profit or loss (1,065) (7,025)
9. Earnings per share
2021 2020
Loss attributable to shareowners of the Company (£'000) (56,715) (3,929)
Weighted average number of ordinary shares 551,752,618 493,290,974
Basic loss per share (pence) (10.3) (0.8)
Diluted loss per share (pence) (10.3) (0.8)
Earnings per share is calculated by dividing the net result attributable to
the shareowners of the S(4)Capital Group by the weighted average number of
Ordinary Shares in issue during the year.
10. Intangible assets
Goodwill Customer relationships Brands Order Backlog Other Total
£'000 £'000 £'000 £'000 £'000 £'000
Net book value at 1 January 2020 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 as previously reported 559,922 218,340 13,678 1,201 5,988 799,129
Restatement(1) (61,809) 56,537 1,758 2,989 2,462 1,937
Net book value at 31 December 2020 498,113 274,877 15,436 4,190 8,450 801,066
Acquired through business combinations 134,975 86,552 2,804 3,547 829 228,707
Addition - - - - 3,458 3,458
Amortisation charge for the year - (26,762) (3,312) (6,380) (3,037) (39,491)
Foreign exchange differences (8,462) (3,790) (431) (28) (114) (12,825)
Total transactions during the year 126,513 56,000 (939) (2,861) 1,136 179,849
Cost 624,626 389,040 20,883 14,987 15,203 1,064,739
Accumulated amortisation - (58,163) (6,386) (13,658) (5,617) (83,824)
Net book value at 31 December 2021 624,626 330,877 14,497 1,329 9,586 980,915
(1) Restated for the initial accounting for the business combinations of
Decoded, and Metric Theory (completed and control passed on 31 December 2020)
as required by IFRS 3.
A. Acquistions 2021
Details of the fair value of identifiable assets and liabilities acquired,
purchase consideration and goodwill of the subsidiaries acquired in the
financial year 2021 are as follows:
Jam3 Raccoon Cashmere Zemoga Others Total
£'000 £'000 £'000 £'000 £'000 £'000
Intangible assets - Customer relationships 20,713 14,907 17,703 26,053 7,176 86,552
Intangible assets - Brand names 573 553 535 638 505 2,804
Intangible assets - Order Backlog 1,243 - 466 1,252 586 3,547
Intangible assets - Software 661 168 - - - 829
Property, plant and equipment and ROU assets 832 1,175 2,670 954 3,218 8,849
Cash and cash equivalents 3,233 546 8,611 1,393 2,056 15,839
Trade and other receivables 4,513 3,719 2,885 4,874 4,927 20,918
Other non-current assets 38 9 145 369 142 703
Trade and other payables (3,871) (695) (8,629) (4,003) (4,699) (21,897)
Current taxation (6,550) (865) (322) (37) (665) (8,439)
Lease liabilities (461) (684) (2,697) (125) (2,387) (6,354)
Other non-current liabilities - (25) - (792) (1,471) (2,288)
Deferred taxation (1,178) - (5,237) (7,790) (2,132) (16,337)
Net assets 19,746 18,808 16,130 22,786 7,256 84,726
Goodwill 18,564 14,955 29,308 41,069 31,079 134,975
Total purchase consideration 38,310 33,763 45,438 63,855 38,335 219,701
Payment in kind (common stock) 16,176 - 16,647 12,509 10,904 56,236
Cash 10,785 16,862 19,843 16,216 13,498 77,204
Deferred consideration - 16,834 6,156 5,454 - 28,444
Contingent consideration 11,349 67 2,792 29,676 13,933 57,817
Total purchase consideration 38,310 33,763 45,438 63,855 38,335 219,701
Cash purchase consideration 10,785 16,862 19,843 16,216 13,498 77,204
Cash and cash equivalents 3,233 546 8,611 1,393 2,056 15,839
Cash outflow on acquisition (net of cash acquired) 7,552 16,316 11,232 14,823 11,442 61,365
With all business combinations 100% of the voting equity interest has been
acquired. In 2021, S(4)Capital Group combined with the following businesses:
Content Practice
Jam3
On 25 March 2021, S(4)Capital plc announced (completed and control passed on 4
May 2021) the combination of MediaMonks with Jam3, a Toronto-based design and
experience agency, for a total consideration of £38.3 million. Since the
acquisition date, Jam3 contributed £19.9 million to the Group's revenue and
£2.7 million of profit for the year ended 31 December 2021.
Cashmere
On 3 September 2021, S(4)Capital plc announced (completed and control passed
on 3 September 2021) the combination of Media.Monks with Cashmere, an iconic
and creative marketing agency based in Los Angeles, for a total consideration
of £45.4 million. Since the acquisition date, Cashmere contributed £13.5
million to the Group's revenue and £0.9 million of profit for the year ended
31 December 2021. Once the opening balance sheet is finalized the purchase
price allocation can be concluded and therefore the calculated goodwill is
provisional. During the measurement period in 2022, S(4)Capital plc will
obtain the information necessary to identify and measure the assets and
liabilities and retrospectively adjust the provisional amounts recognised at
the acquisition date.
Other Content Practice
Other combinations in 2021 of the Group's Content Practice are:
// On 11 January 2021, S(4)Capital plc announced the combination with
Tomorrow, an award-winning Shanghai-based creative
agency.
// On 20 January 2021, S(4)Capital Plc announced the combination with Staud
Studios, a German high-end creative production studio specializing in the
automotive industry.
// On 15 November 2021, S(4)Capital Plc announced the combination with Miyagi,
a leading creative content marketing agency, integrating strategy, creativity
and production, further expending its content practice into Italy Europe.
The total consideration for the above three transactions all due to contingent
are expected to be approximately £20.2 million. These acquisitions
contributed £11 million revenue and £1.9 million profit.
Data & digital media practice
Raccoon
On 26 May 2021, S(4)Capital plc announced (completed and control passed on 26
May 2021) the combination of its Data & digital media practice with
Raccoon Group, a leading digital performance agency in Brazil, for total
consideration of £33.8 million. Since the acquisition date, Raccoon Group
contributed £11.8 million to the Group's revenue and £4.3 million of profit
for the year ended 31 December 2021. Once the opening balance sheet is
finalized the purchase price allocation can be concluded and therefore the
calculated goodwill is provisional. During the measurement period in 2022,
S(4)Capital Group will obtain the information necessary to identify and
measure the assets and liabilities and retrospectively adjust the provisional
amounts recognised at the acquisition date.
Other Data & digital media practice
Other combinations in 2021 of the Group's Data & digital media practice
are:
// On 1 February 2021, S(4)Capital Plc announced that MightyHive has acquired
the assets of Datalicious, a leading Google Marketing Platform, Google Cloud
and Google Analytics partner in Asia Pacific.
// On 29 July 2021, S(4)Capital Plc announced the combination with Salesforce
specialist Destined expanding its data and digital media practice in Asia
Pacific.
// On 1 December 2021, S(4)Capital Plc announced the combination with Maverick
Digital, a leader in digital transformation strategy, Salesforce platform
implementation, integration strategy & execution and managed services.
The total consideration for the above three transactions is expected to be
approximately £18.1 million. These acquisitions contributed £2.7 million
revenue and £0.1 million profit.
Technology services practice
Zemoga
On 17 September 2021, S(4)Capital plc announced (completed and control passed
on 15 September 2021) the combination of Media.Monks with Zemoga, a US-based
leading digital transformation services firm specialising in providing product
design, engineering and delivery services to enterprise clients across
multiple verticals, for a total consideration of £63.9 million. Since the
acquisition date, Zemoga contributed £7.8 million to the Group's revenue and
£2.4 million of profit for the year ended 31 December 2021. Once the opening
balance sheet is finalized the purchase price allocation can be concluded and
therefore the calculated goodwill is provisional. During the measurement
period in 2022, S4Capital Group will obtain the information necessary to
identify and measure the assets and liabilities and retrospectively adjust the
provisional amounts recognised at the acquisition date.
Goodwill and other disclosures
The goodwill represents the potential growth opportunities and synergy effects
from the acquisitions. The goodwill is not deductible for tax purposes. Trade
receivables, net of expected credit losses, acquired are considered to be fair
value and are expected to be collectable in full. The gross contractual
amounts receivable of the acquired companies at the acquisition date are
£14.7 million and the best estimate at the acquisition date of the
contractual cash flows not expected to be collected is £0.4 million. At the
end of the reporting period the purchase price allocations for Tomorrow,
Staud, Jam3, Raccoon, Destined, Cashmere, Zemoga, Miyagi and Maverick have
not been fully finalised and therefore the assets and liabilities remain
provisional. During the remaining measurement period in 2022, S(4)Capital
Group will obtain the information necessary to identify and measure the assets
and liabilities and retrospectively adjust the provisional amounts recognized
at the acquisition date.
Contingent consideration arising from business combinations is fair valued,
with key inputs including the probability of success of the combinations
achieving target, consideration of potential delays and the expected levels of
future revenues. The contingent consideration is contingent on the acquired
companies achieving their 2021 results and, in some cases their 2022 and 2023
results, as forecasted upon acquiring the subsidiary. The contingent
considerations are included for the maximum amount of the consideration
expected to be paid which is in line with management's estimate of expected
pay-out. Contingent consideration classified as a liability is subject to
remeasurement at each reporting date until its ultimate settlement
date. Deferred considerations are commonly expected to be paid on the
second-year anniversary of the acquisition date. Holdbacks as part of the
purchase consideration are generally held in escrow accounts and are expected
to be released within two years of the acquisition date. Any change in the
fair value of the liability due to events that occur after the acquisition
date would be recognized in the profit or loss. The contingent consideration
and holdback liabilities of £118.1 million as at 31 Dec 2021 includes £67.9
million of employment linked consideration and £16.8 million of holdbacks.
During 2021, an amount of £25.2 million of contingent consideration and
holdback have been paid.
The total acquisition costs of £8.1 million (2020: £10.8 million) have been
recognised under acquisition and set-up related expenses in the statement of
profit or loss.
Since the acquisition date, the acquired companies contributed £66.7 million
(Jam3 £19.9 million, Raccoon £11.8 million, Cashmere £13.5 million, Zemoga
£7.8 million and the others £13.7 million) to the Group's revenue and £12.3
million (Jam3 £2.7 million, Raccoon £4.3 million, Cashmere £0.9 million,
Zemoga £2.4 million and the others £2.0 million) into the Group's profit for
the year ended 31 December 2021.
If the acquisitions had occurred on 1 January 2021, the Group's revenue would
have been £740.2 million and the Group's loss for the year would have been
£98.1 million.
B. Restatements
As stated on page 116 of the Group's 2020 annual report and accounts, the
initial accounting for the business combinations of Decoded, Metric Theory,
BrightBlue and Orca Pacific, acquired as of 31 December 2020, was incomplete
by the end of the reporting period ending 31 December 2020. At the end of the
reporting period, the identifiable intangibles acquired were not identified,
were consequently not measured and were therefore not deducted from goodwill
as at 31 December 2020.
During the reporting period ended 31 December 2021, S(4)Capital Group has
obtained the information necessary to identify and measure the identifiable
intangible assets for the business combinations of Decoded Advertising, Metric
Theory, BrightBlue and Orca Pacific and has adjusted its intangible assets,
deferred tax liabilities and reserves as of 31 December 2020, as required by
IFRS 3, as follows:
31 Dec 20 Adjustment 31 Dec 20
restated
Restatement Note £'000 £'000 £'000
Intangible assets - Customer relationships 39,379 56,537 95,916
Intangible assets - Brand names 1,059 1,758 2,817
Intangible assets - Order backlog 3,065 2,989 6,054
Intangible assets - Software 2,269 2,462 4,731
Property, plant and equipment, ROU assets 2,453 5,175 7,628
Financial fixed assets 267 - 267
Cash and cash equivalents 19,814 - 19,814
Trade and other receivables 38,160 317 38,477
Trade and other payables (40,026) 56 (39,970)
Current taxation (418) (418)
Lease liabilities (674) (5,971) (6,645)
Other non-current liabilities (1,937) (1,937)
Deferred taxation (11,664) 2,306 (9,358)
Net assets 51,747 65,629 117,376
Goodwill 228,376 (61,807) 166,569
Total purchase consideration 280,123 3,822 283,945
Payment in kind (common stock) 73,671 (2,234) 71,437
Cash 123,442 - 123,442
Deferred consideration 35,111 - 35,111
Contingent consideration 47,899 (1,588) 46,311
-
Total purchase consideration 280,123 (3,822) 276,301
Purchase consideration - cash 123,442 - 123,442
Cash and cash equivalents 19,814 - 19,814
Cash outflow on acquisition (net of cash acquired) 103,628 - 103,628
11. Loans and borrowings
Loans and borrowings Bank loans Senior secured term loan B (TLB) Transaction costs Total
Loan interest
£'000 £'000 £'000 £'000
Balance at 1 January 2020 43,215 - (841) - 42.374
Additions 45,623 - (244) - 45,379
Acquired through business combinations 1,958 - - - 1,958
Repayments - - - - -
Charged to profit-or-loss - - 286 - 286
Exchange rate differences 489 - (45) - 444
Total transactions during the year 48,070 - (3) - 48,067
Principal amount 93,083 - (1,442) - 91,641
Accumulated repayments (1,798) - - - (1,798)
Accumulated charges to profit or loss - - 598 - 598
Balance at 31 December 2020 91,285 - (844) - 90,441
Additions 24,632 318,938 (8,379) - 335,191
Acquired through business combinations 2,760 - - - 2,760
Waived loans (1,592) - - - (1,592)
Repayments (110,895) - - (5,530) (116,425)
Charged to profit-or-loss - - 1,283 6,169 7,452
Exchange rate differences (2,864) (3,833) (21) (15) (6,733)
Total transactions during the year (87,959) 315,105 (7,117) 624 220,653
Principal amount 117,308 315,105 (9,789) - 422,624
Accumulated repayments (112,390) - - (5,488) (117,878)
Accumulated charges to profit-or-loss (1,592) - 1,828 6,112 6,348
Balance at 31 December 2021 3,326 315,105 (7,961) 624 311,094
Repayment obligations coming year 1,899 - - 624 2,523
Long-term balance as at 31 December 2021 1,427 315,105 (7,961) - 308,571
A. New facility agreement
On 6 August 2021, S(4) Capital Group signed a new facility agreement,
consisting of a Term Loan B (TLB) of EUR 375 million and a multicurrency
Revolving Credit Facility (RCF) of £100 million. During 2021 the RCF remained
fully undrawn. The interest on the facilities is the aggregate of the variable
interest rate (EURIBOR, LIBOR or, in relation to any loan in GBP, SONIA) and a
margin based on leverage (between 2.25% and 3.75%). The duration of the
facility agreement is seven years in relation to the TLB, therefore the
termination date is August 2028, and five years in relation to the RCF,
therefore the termination date is August 2026.
During the reporting period, the average carried interest rate of the
outstanding loans amounts 2.96% (2020: 1.42%) The average effective interest
rate for the outstanding loans is 2.93% (2020: 1.38%) and during the period
interest expense of £ 6.2 million was recognised on a monthly basis.
B. Prepayment of previous facilities
On 9 August 2021, S(4) Capital Group has prepaid its previous facilities,
consisting of a EUR 25.0 million term loan, USD 28.9 million term loan, a
multicurrency Revolving Credit Facility (RCF) of EUR 35 million, which was
fully drawn at the end of the prior reporting period, and a multicurrency
Revolving Credit Facility (RCF) of EUR 43.5 million, which was fully drawn at
the end of the prior reporting period. The repayments of these facilities
amounted to £110.6 million. The capitalized transactions costs for these
repaid facilities, which amounted £1.0 million on 9 August 2021 were charged
to profit-or-loss.
The new facility agreement imposes certain covenants on the Group. The loan
agreement states that (subject to certain exceptions) S(4) Capital Group will
not provide any other security over its assets and receivables and will ensure
that the net debt will not exceed 4.50:1 of the proforma earnings before
interest, tax, depreciation and amortisation, measured at the end of any
relevant period of 12 months ending each semi-annual date in a financial year.
During the year S(4) Capital Group complied with the covenants set in the loan
agreement.
12. Cashflow from operations
2021 2020
£'000 £'000 £'000 £'000
Cash flows from operating activities
(Loss)/ profit before income tax (55,650) 3,096
Financial income and expenses 12,251 5,038
Depreciation and amortisation 56,456 37,015
Share based compensation 13,876 12,331
Acquisition and set-up related expenses 83,496 14,338
Contingent consideration paid(1) (9,985) -
73,511 14,338
Loss on the net monetary position 1,344 -
Increase in trade and other receivables (131,662) (29,282)
Increase in trade and other payables 98,370 29,892
Cash flows from operations 68,496 72,428
(1) Contingent consideration tied to employment is deemed remuneration
expenses according to IFRS 3.
13. Events occurring after the reporting period
On 12 January 2022, S(4)Capital plc announced that 4 Mile Analytics, a
California-based full-service data consultancy specializing in custom data
experience powered by the Looker platform, combined with Media.Monks. The
combination significantly expands Media.Monks' capabilities of its
Data&Digital media practice. The merger augments its global analytics
capabilities and expands its client base. 4 Mile Analytics is a leader in data
analytics, data engineering, data governance, software engineering, UX design
and project & product management.
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