REG - S4 Capital PLC - Unaudited 2022 preliminary results
29/03/2023 17:00
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RNS Number : 6672U S4 Capital PLC 29 March 2023
S(4)Capital plc
("S(4)Capital" or "the Company" or "the Group")
Unaudited 2022 preliminary results
Full year net revenue like-for-like growth of 26% slightly ahead of guidance
Operational EBITDA £124 million slightly ahead of guidance and up sharply in
H2 to over £90 million versus £30 million in H1
Operational EBITDA margin improved significantly in H2 to 18% versus 8% in H1
Net debt at £110 million, better than guidance of £130-170 million
Continued client conversion at scale, with 10 'whoppers' and a further 14 in
sight
Despite volatile economic environment expect continued progress in 2023
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2022 31 Dec 2021
Billings(1) 1,890.5 1,296.9 45.8% 23.5% 24.3%
Revenue 1,069.5 686.6 55.8% 24.3% 25.8%
Net revenue(2) 891.7 560.3 59.1% 25.9% 27.1%
Operational EBITDA(5) 124.2 101.0 23.0% -16.4% -11.8%
Operational EBITDA margin(5) 13.9% 18.0% -410bps -710bps -650bps
Adjusted(6) operating profit 114.1 94.8 20.4%
Adjusting(6) items (249.4) (136.9) -82.2%
Operating loss (135.3) (42.1) -221.4%
Loss for period (159.6) (56.7) -181.5%
Basic loss per share (pence) (27.0)p (10.3)p -16.7p
Adjusted(6) basic earnings per share (pence) 11.8p 13.0p -1.2p
Number of people 8,891 7,700
Net debt(7) 110.2 18.0
Financial highlights
¤ Billings(1) were £1,890.5 million, up 46% on a reported basis, up 24%
like-for-like(3).
¤ Revenue £1,069.5 million, crossing £1 billion for the first time, up
56% reported, 24% like-for-like and up 26% pro-forma.
¤ Net revenue(2) £891.7 million, up 59% reported, and 26% like-for-like
and 27% pro-forma, as the Group continued to outperform both the digital
advertising and transformation markets. Two year and three-year stacks
(like-for-like growth stacks for the last two and three years) are 70% and
89%.
¤ Operational EBITDA(5) £124.2 million, up 23% reported and down 16%
like-for-like reflecting investment in hiring in the first half ahead of net
revenue growth, partly offset by the benefit from increased focus on people
investment and cost management in the second half.
¤ Operating loss £135.3 million, after £249.4 million of primarily
combination related expense, being payments linked to continued employment and
the associated expenses and amortisation totalling £229.8 million versus
£123.0 million in 2021.
¤ Basic loss per share of 27.0p, down 16.7p versus 10.3p basic loss per
share in 2021.
⁄ Adjusted(6) basic earnings per share, which excludes adjusting items
after tax, of 11.8p per share, down 9% versus 13.0p per share last year.
¤ Net debt(7) ended the period at £110.2 million, or 0.8x net
debt/pro-forma operational EBITDA, reflecting combination payments made in
2022, principally for TheoremOne and XX Artists, both 2022 combinations and
Raccoon, a combination in 2021. Net debt was well below the bottom end of the
guidance range of £130 - 170 million reflecting better working capital
management.
¤ The balance sheet remains strong with sufficient liquidity and
long-dated debt maturities to facilitate growth. Pro-forma operational EBITDA
was £136.3 million.
Strategic and operational highlights
¤ In 2022 we secured 10 'whopper' relationships, up from 6 in 2021 and 2
in 2020. We have identified a further 14 clients which are trending towards
'whopper' status (i.e. revenue of over $20m per annum) making a potential
total of 23, despite scaling down some of our work for one of them (Mondelez)
in early 2023, having mutually chosen not to renew a contract. We remain on
track to reach our 20(2) objective (20 clients with revenue of $20m per
annum).
¤ We had a challenging first half of 2022, despite H1 net revenue growth
of 28% like-for-like, as hiring ahead of the revenue and net revenue growth
impacted profitability particularly in the Content practice.
¤ Profit performance in the second half was much improved, with
significant cost management measures implemented, including a brake on hiring
and discretionary cost controls. These controls had the desired effect, with
the number of people at year-end being around 8,900, similar to over 9,000 at
the half-year. A more balanced approach to our investment in people will be
maintained going forward.
¤ Major progress has been made in improving financial controls, treasury,
risk and governance and these improvements are now included in our processes
and practices. These include significant additions to the team and
organisational and reporting changes.
¤ The Content practice posted 24% like-for-like net revenue(2) growth,
with Data&Digital Media up 17% and Technology Services up 72%.
Data&Digital Media had a more challenging second half, with net revenue
growth lower than the first half and corrective actions have been taken to
align the cost base with activity levels. Content significantly improved on
the first half, particularly in operational EBITDA margin delivery, as a
result of the improved controls and cost management. Technology Services
remained strong.
¤ Geographically, on a like-for-like basis, the Americas net revenue
growth was up 27% and now accounts for 75.6% of the total, EMEA, accounting
for 17.5% grew at 31% and Asia Pacific, accounting for the remaining 6.9% grew
at 4.8%, chiefly reflecting the impact of covid-19 lockdowns in China on the
region in 2022.
¤ Three new combinations were added to the Group in 2022, with total
initial payments of £89.2 million.
¤ In January Data&Digital Media practice combined with 4Mile
Analytics, a data consultancy specialising in custom data experiences powered
by the Looker platform. 4Mile has faced significant challenges since joining
the Group and has performed below expectations.
¤ In May the Technology Services practice made a large and significant
combination with TheoremOne, a leader in agile, full stack innovation,
engineering and design, which helps major enterprises achieve strategic
digital transformation. TheoremOne has performed well since joining the Group.
¤ In July the Content practice combined with XX Artists, a Los Angeles
based digital marketing agency. XX Artists has performed well since joining
the Group.
¤ Colin Day was appointed as a Non-Executive Director and Chair of the
Audit and Risk Committee in August 2022.
Outlook
¤ Our two major addressable markets, first the digital platforms, which
drive 90% of our net revenues, are forecast to grow advertising revenue by
around 7-8% in 2023 and the second, technology services, which accounts for
about 10% of our net revenue, by 8-10%. We expect to grow faster than these
markets, as in previous years, and set a like-for-like net revenue(2) growth
target for 2023 of 8-12%, after taking into account the pro-forma impact of
one 'whopper' account reduction on net revenue(10). The pipeline remains
healthy.
¤ The operational EBITDA margin is targeted to be in the range of
15-16%(8) for the full year, with the performance for the full year weighted
to the second half as normal.
¤ Our net debt is anticipated to rise in 2023 reflecting combination
payments for prior year combinations, after which virtually all of the
existing contingent consideration due will have been satisfied. Our expected
range is £180-220 million. We maintain our maximum leverage target of 1.5-2
times operational EBITDA.
¤ Over the longer term we expect our growth to outperform our market and
competition and operational EBITDA margins to return to historic levels of
20%+.
Sir Martin Sorrell, Executive Chairman of S(4)Capital plc said:
"The Company continued to outperform the growth of the digital advertising and
transformation markets in 2022, crossing £1 billion revenue for the first
time and to broaden and deepen relationships with its largest clients,
continuing conversion at scale. The actions taken by our management and the
positive response by our people to the first half challenge of balancing
growth in net revenue with growth in costs, have delivered a much improved
second half performance. This really reflects what the Company is capable of
achieving. We have momentum going into 2023 and are cautiously optimistic,
despite the slowdown of growth in our major addressable markets. We expect to
make continued progress, stimulated, in particular, by the early and rapid
implementation of revolutionary new technologies such as AI."
Notes:
1. Billings is unaudited gross billings to client including pass through
costs.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2021 being
restated to show the unaudited numbers for the previous year of the existing
and acquired businesses consolidated for the same months as in 2022 applying
currency rates as used in 2022.
4. 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 in the pre-acquisition period.
5. Operational EBITDA is 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. Operational EBITDA margin is
operational EBITDA as a percentage of net revenue.
6. Adjusted for acquisition related expenses, non-recurring items and
recurring share-based payments.
7. Net debt excludes lease liabilities.
8. This is a target and not a profit forecast.
9. Controlled billings are unaudited billings we influenced in addition
to billings that flowed through our income statement.
10. For guidance purposes 2022 pro-forma net revenue is £907 million,
including the full year impact of 2022 combinations TheoremOne and XX Artists
and a small adjustment for reduced activity on Mondelēz.
Disclaimer
This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives relating to the Company's services) are
forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These forward- looking
statements speak only as at the date of this announcement. S(4)Capital
expressly disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of the Company for the current or future years would necessarily match
or exceed the historical published earnings per share of the Company.
Neither the content of the Company's website, nor the content on any website
accessible from hyperlinks on its website for any other website, is
incorporated into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any such
content be relied upon in reaching a decision as to whether or not to acquire,
continue to hold, or dispose of, shares in the Company.
Results webcast and conference call
A webcast and conference call covering the results will be held today at 17:30
BST/12:30 EDT. A webcast of the presentation will be available at www.s
(http://www.s4capital.com) (4 (http://www.s4capital.com) )capital.com
(http://www.s4capital.com) during the event.
17.30 BST webcast (watch only) and conference call (for Q&A):
Webcast:
https:// (https://brrmedia.news/SFOR_FY22)
brrmedia.news/SFOR_FY22 (https://brrmedia.news/SFOR_FY22)
Conference call:
UK: +44 (0)330 551 0200
USA: +1 786 697 3501
Enquiries to
S(4)Capital plc
Sir Martin Sorrell, Executive Chairman +44 (0)20 3793 0003/ +44 (0)20 3793 0007
Mary Basterfield, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)
Elly Williamson 44 (0)7970 246 725
Ollie Simmonds
Preliminary results statement overview
2022 was good in parts, with continued strong, client conversion and top-line
like-for-like growth offset by weaker than expected operational EBITDA
margins. We ended the year with good momentum, with the second half delivering
three times the operational EBITDA of the first half. The much improved second
half performance reflected the expected market leading net revenue growth,
tighter cost management and better cash generation, underpinned by enhanced
commercial discipline and financial processes. These will remain the core
focus.
2022 was our fourth full financial year, with revenue of over £1 billion for
the first time. Net revenue of nearly £900 million was up 26% on a
like-for-like basis ahead of our 2022 target of 25%. The growth rate achieved
was well ahead of those generated by our two main addressable markets -
digital media and transformation. Operational EBITDA of £124.2 million was
also slightly ahead of the revised guidance of £120 million. We delivered an
overall operational EBITDA margin of 13.9%, with a H2 margin of 18.2%. We are
encouraged by the improved profitability in the second half, which represented
c.75% of the full year operational EBITDA. The Company has a strong balance
sheet, with net debt ending lower than we had anticipated at £110 million or
0.8x pro-forma operational EBITDA. The net debt outperformance is due to
better working capital management and reflects our strengthened financial
discipline around billing and receivables.
We made two important, large, combinations with TheoremOne and XX Artists,
both of which performed well in their first year with the Company. We also
merged with a smaller firm, 4 Mile Analytics, built around Google's Looker
platform, that has disappointed and accordingly we have written down the
goodwill and the majority of the assets and are executing a reorganisation. In
2023 there will be a cash outflow relating to 2022 and prior year
combinations, with net debt expected to rise as a result. We will maintain a
conservatively levered balance sheet and the focus for the time being will be
on maximising value from our existing businesses.
Both digital media and transformation growth rates remain well above those of
traditional, analogue markets. We are mainly focused on the digital media and
transformation markets and are at the heart of developing trends around
Blockchain, the Metaverse and AI. We are already starting to use Artificial
Generative Intelligence in improving copywriting productivity, in delivering
more empathetic hyper-personalisation (better targeted content at greater
scale), more automated media planning and buying and ensuring our people have
access to what we term AI's 'superpowers'. We do, however, expect our markets
and clients to grow more slowly in 2023, reflecting the weaker global economic
conditions which have been impacted by inflation and higher interest rates,
and general geopolitical uncertainty around US/China relations, the war in
Ukraine and relations with Iran.
The Company reports in three well defined practices Content, Data&Digital
Media and Technology Services. Content, which had a challenging first half,
had much improved operational EBITDA delivery in the second half with net
revenue growth converting to the bottom line reflecting a more tightly managed
cost base. Data&Digital Media saw operational EBITDA reduce significantly
in 2022 against a strong comparative in 2021. Net revenue growth, although
good, was lower than expected in the second half and costs ran ahead of
growth. Corrective actions are being taken. In Technology services both
Zemoga and TheoremOne performed strongly in the year. As expected and
reflecting the need to improve the Company's financial management, central
costs grew significantly in 2022 with investment in people and processes to
strengthen finance, legal, governance and assurance.
ESG
2022 was a year of focus, concentrated around the three areas of our ESG
strategy: Zero Impact Workspaces, Sustainable Work, and Diversity, Equity and
Inclusion (DE&I). We are adopting new tools to help us move towards
increased transparency and measuring of CO2 emissions. We continue to engage
with leading stakeholders, industry efforts and global initiatives - like the
World Economic Forum and Shanghai Municipality's International Business
Leaders' Advisory Council (IBLAC). After signing The Climate Pledge in 2021
with a goal to reach Net Zero by 2040, we took full inventory of our
emissions, using the Greenhouse Gas (GHG) Protocol standards to understand the
reduction opportunities within the Company. We submitted our SBTi letter of
commitment and are developing a detailed roadmap in 2023. Across the Company,
we donated 4,090 hours for community and charity services and increased our
For Good projects from 251 to 445.
We focused on our people and people experience with the launch of our DE&I
platform, Diversity in Action, which touches
all aspects of our business. Embedding a greater understanding of diversity
and cultural fluency into the Company is also a top priority. We signed the
United Nations (UN) Women's Empowerment Principles and continue to focus on
closing the representation gap in our industry by providing training to
underserved and/or underrepresented talent. We also enhanced our ESG
governance structure, updated our global policies and compliance, completed
our Task Force on Climate-related Financial Disclosures (TCFD) risk assessment
and entered our ESG data into the CDP global disclosure system for the first
time.
Board update
In 2022 the Company strengthened its Board with a number of senior
appointments.
In January 2022 we were pleased to welcome Mary Basterfield as our new Group
Chief Financial Officer and Director. Mary has over 20 years of extensive
financial experience and, since joining, Mary has appointed several
experienced finance professionals within the Group and practice finance teams.
The team has made significant progress in the year allowing the Company to
deliver its full year 2022 results in a timely manner.
On 2 August 2022, Colin Day was appointed to S(4)Capital's Board as a
Non-Executive Director including as the new Chair of the Audit and Risk
Committee. Colin has decades of experience in both management and governance
roles.
In addition, Christopher S. Martin, one of the founders of MightyHive Inc.,
has been appointed Chief Operating Officer, to scale the Company's
organisational structure and processes.
We now have a Board of 15 directors, nine Non-Executive Directors of which
four are women and five are men, and six Executive Directors.
Summary and outlook
The strategy of S(4)Capital remains the same. The Company's purely digital
transformation model, based on first-party data fuelling the creation,
production and distribution of digital advertising content, distributed by
digital media and built on technology platforms to ensure success and
efficiency, resonates with clients. Our tagline 'faster, better, cheaper,
more' or 'speed, quality, value, more' (to which with the arrival of AI we
have added 'more') and a unitary structure both appeal strongly, even more so
in challenging economic times.
For 2023 we target our net revenue growth rate to reflect those of the two
main addressable digital markets we serve. We estimate this as around 8-12%
like-for-like, after reflecting the pro-forma impact of one 'whopper'
reduction on net revenue. We will continue to manage costs tightly and target
an operational EBITDA margin of 15-16%(8). As in previous years, given our
seasonality, 2023 will again be second half weighted. Longer term we expect to
continue to be able to deliver strong net revenue growth with operational
EBITDA margins returning to historic levels.
Financial review
Summary of results
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2022 31 Dec 2021
Billings(1) 1,890.5 1,296.9 45.8% 23.5% 24.3%
Revenue 1,069.5 686.6 55.8% 24.3% 25.8%
Net revenue(2) 891.7 560.3 59.1% 25.9% 27.1%
Operational EBITDA(5) 124.2 101.0 23.0% -16.4% -11.8%
Operational EBITDA margin(5) 13.9% 18.0% -410bps -710bps -650bps
Adjusted(5) operating profit 114.1 94.8 20.4%
Adjusting(6) items (249.4) (136.9) -82.2%
Adjusted(5) operating profit margin 12.8% 16.9% -410bps
Net finance expenses and loss on net monetary position (24.4) (13.6) -79.4%
Adjusted(6) result before income tax 89.7 81.2 10.5%
Adjusted(6) Income tax expenses (20.0) (9.4) -112.8%
Adjusted(6) result for the period 69.7 71.8 -2.9%
Adjusted(6) basic earnings per share (pence) 11.8p 13.0p -1.2p
A full list of alternative performance measures and non-IFRS measures together
with reconciliations to IFRS or GAAP measures are set out in the Alternative
Performance Measures.
Financial summary
It has been encouraging to see the progress made during the year, given the
challenges of the first half, including the delay to the 2021 results and
profit underperformance, as we delivered a much stronger second half. The
second half performance reflected enhanced financial processes and controls,
supported by a strengthened finance team, an improved operational EBITDA
margin, also reflecting tighter cost controls and better cash generation
centred around working capital. While we are pleased with the second half
performance, we will continue to focus on all of these areas throughout 2023
to support the Company as it continues to grow and scale profitably.
Billings(1) were £1.9 billion, up 46% on a reported basis, up 24% on a
like-for-like(3) and pro-forma(4) basis. Controlled billings(9), that is
billings we influenced in addition to billings that flowed through our income
statement, increased to approximately £5.7 billion (2021: £3.9 billion).
Revenue was £1,069.5 million, up 56% from £686.6 million on a reported
basis, up 24% like-for-like, and up 26% on a pro-forma basis.
Net revenue was £891.7 million, up 59% reported, up 26% like-for-like, and
27% pro-forma. Throughout the year our addressable markets remained reasonably
strong, and we continued to outperform them.
Reported operational EBITDA was £124.2 million compared to £101.0 million in
the prior year, an increase of 23%. Operational EBITDA was down 16% on a
like-for-like basis and down 12% on a pro-forma basis. The like-for-like
growth reflects challenges in our Data&Digital Media practice after a
strong 2021, particularly in the second half, and also hiring ahead of the net
revenue growth in Content in the first half. The Technology practice
performed strongly. The outturn was modestly ahead of our revised Operational
EBITDA target of £120 million.
Operational EBITDA margin was 13.9%, down 410 basis points versus 18.0% in
2021, down 710 basis points like-for-like and 650 basis points pro-forma
impacted by the speed of headcount growth ahead of net revenue growth in the
Content and Data&Digital Media practices, particularly in the first half.
We implemented tighter controls from the end of the first half which are
having the desired effect. The second half operational EBITDA margin was
18.2%. Our ambition remains to return the margins to historic levels, above
20%, over the medium term.
Adjusted operating profit was up 20% on a reported basis to £114.1 million
from £94.8 million, before adjusting items of £249.4 million, including
combination payments tied to continued employment, share-based compensation,
restructuring costs primarily related to headcount and amortisation of
business combination intangible assets. Like-for-like adjusted operating
profit was down 20% and pro-forma adjusted operating profit was down 15%.
The reported operating loss of £135.3 million, was £93.2 million higher than
in 2021, reflecting an increase in the amortisation of intangible assets,
accounting for combinations including those made in 2022, the write down of
4Mile and the impact of increased personnel costs. Loss for the year was
£159.6 million (2021: £56.7 million).
Adjusted basic earnings per share was 11.8p, versus adjusted basic earnings
per share of 13.0p in 2021.
The Board has decided that no dividends will be declared in 2022, as was the
case in 2021, given the focus is on profitable growth and reducing the level
of net debt.
Practice and Geographic Performance
£ millions Year ended Year ended change Reported change change
Like-for-like(3)
Pro-forma(4)
31 Dec 2022 31 Dec 2021
Content 582.7 385.6 51.1% 24.1% 25.6%
Data&Digital Media 216.8 167.1 29.7% 17.3% 17.4%
Technology Services 92.2 7.6 1,113.2% 72.3% 62.4%
Net revenue(2) 891.7 560.3 59.1% 25.9% 27.1%
Americas 673.8 391.1 72.3% 27.1% 28.6%
EMEA 156.2 116.0 34.7% 31.2% 31.2%
Asia-Pacific 61.7 53.2 16.0% 4.8% 4.8%
Net revenue(2) 891.7 560.3 59.1% 25.9% 27.1%
Content 74.1 52.3 41.7% -0.3% 6.0%
Data&Digital Media 39.9 55.0 -27.5% -39.9% -39.8%
Technology Services 36.1 3.1 1,064.5% 109.9% 87.8%
S(4) central (25.9) (9.4) -175.5% -172.6% -172.6%
Operational EBITDA 124.2 101.0 23.0% -16.4% -11.8%
Practice performance
Content practice operational EBITDA was £74.1 million, up 42% on a reported
basis versus last year, down 0.3% on a like-for-like basis and up 6% on a
pro-forma basis. The Content practice operational EBITDA margin was 12.7%,
compared to 13.6% last year, reflecting increased investment in people in the
first half of the year to staff newly secured 'whoppers'. The investment in
hiring ran further ahead of net revenue growth than planned. The Company
responded to this and the H2 2022 operational EBITDA margin improved to 18.1%.
Data&Digital Media practice operational EBITDA was £39.9 million, down
28% on a reported basis from last year, down 40% on a like-for-like and
pro-forma basis. Data&Digital Media practice operational EBITDA margin was
18.4%, compared to a strong performance in 2021 of 32.9%, reflecting the
significantly increased investment in people to drive future growth and an
increase in travel and office costs post covid-19. We were concerned by the H2
2022 performance for Data&Digital Media and corrective actions have been
taken to improve operational EBITDA delivery.
Technology Services, which now includes Zemoga and TheoremOne, performed
strongly with operational EBITDA of £36.1 million representing an operational
EBITDA margin of 39.2%.
Geographic performance
The Americas (75.6% of total) net revenue was £673.8 million, up 72% on a
reported basis from last year. On a like-for-like and pro-forma basis the
Americas net revenue was up 27% and 29% respectively, reflecting continued
outperformance of the market given growth in our 'whoppers' and major clients.
EMEA (17.5% of total) net revenue was £156.2 million, up 35% from last year
on a reported basis. On both a like-for-like and pro-forma basis EMEA net
revenue was up 31% primarily reflecting 'whopper' growth and market
outperformance.
Asia Pacific (6.9% of total) net revenue was £61.7 million, up 16% on a
reported basis. On both a like-for-like and pro-forma basis Asia Pacific net
revenue was up 4.8% reflecting continued organic growth, despite the impact of
covid-19 lockdowns in China on the region.
Cash flow
£ millions Year ended Year ended
31 Dec 2022
31 Dec 2021
Operational EBITDA 124.2 101.0
Capital expenditure (16.1) (14.9)
Interest paid (14.2) (5.5)
Income tax paid (19.0) (13.9)
Change in working capital (5.1) (33.4)
Free cashflow 69.8 33.3
Mergers & Acquisitions (162.6) (101.7)
Other 0.6 (1.2)
Movement in net debt (92.2) (69.6)
Opening (net debt)/net cash (18.0) 51.6
Net debt (110.2) (18.0)
The table reflects how the business is managed and this is a non-statutory
cash flow format.
Free cash flow for 2022 was £69.8 million, an increase of £36.5 million
compared to 2021. This was driven by an improvement in operational EBITDA and
the benefits of the focus on working capital management, with only a small
outflow of £5.1 million in year (in contrast to an outflow of £33.4 million
in 2021). This was partially offset by increased cash interest costs
reflecting the term loan being in place for the full year and the increase in
interest rates during the year.
Cash paid in relation to combinations (M&A) increased £60.9 million year
on year to £162.6 million reflecting payments made in relation to 2022
combinations and prior year activity.
Treasury and net debt
2022 2021
Net debt reconciliation
£ millions
Cash and cash equivalents 223.6 301.0
Loans and borrowings (excluding bank overdraft) (333.8) (317.1)
Bank overdraft - (1.9)
Net debt (110.2) (18.0)
The year-end net debt was £110.2 million (2021: £18.0 million) or 0.8x net
debt/pro-forma operational EBITDA, after the initial 2022 combination payments
and contingent consideration related to prior year combinations. The balance
sheet remains strong with sufficient liquidity and long dated debt maturities.
During the year S(4)Capital Group complied with the covenants set in its loan
agreement.
Interest and tax
Income statement net financing costs were £25.7 million (2021: £12.3
million), an increase of £13.4 million due to increased levels of borrowing,
to finance the in-year combinations, increased in interest rates, increased
lease costs and the discounting of contingent consideration. The income
statement tax credit for the year was £0.1 million (2021: £1.1 million
charge) reflecting higher losses in the year.
Balance sheet
Overall the Group reported net assets of £849.6 million as at 31 December
2022, which is an increase of £48.4 million compared to 31 December 2021,
driven mainly by the combinations made in the year increasing the goodwill
balance, partially offset by increased contingent consideration and holdbacks.
Acquisitions
Content practice
¤ On 1 July 2022, S(4)Capital plc announced the business combination
between Media.Monks and XX Artists, an award-winning social media marketing
agency, headquartered in Los Angeles, with a competitive talent edge, for an
expected total consideration of approximately £20.5 million. XX Artists
performed well in the year.
Data&Digital Media practice
¤ On 11 January 2022, S(4)Capital plc announced the business
combination between Media.Monks and 4 Mile Analytics, a California-based data
analytics, data engineering, data governance, software engineering, UX design
and project & product management business, for an expected total
consideration, including performance linked contingent consideration, of
approximately £25.1 million. The business has performed well below our
expectations and accordingly we have written down the goodwill and the
majority of the assets.
Technology Services practice
¤ On 16 May 2022, S(4)Capital plc announced the business combination
between Media.Monks and TheoremOne, a California-based leader in agile,
full-stack, innovation, engineering, and design and helps major enterprises
achieve strategic achieve strategic digital transformation. The expected total
consideration is approximately £143.0 million and the business performed well
in the year.
About S(4)Capital
S(4)Capital plc (SFOR.L) is the tech-led, new age/new era digital advertising,
marketing and technology services company, established by Sir Martin Sorrell
in May 2018.
Our strategy is to build a purely digital advertising and marketing services
business for global, multinational, regional, and local clients, and
millennial-driven influencer brands. This will be achieved by integrating
leading businesses in three practices: Content, Data&Digital Media and
Technology Services, along with an emphasis on 'faster, better, cheaper, more'
execution in an always-on consumer-led environment, with a unitary structure.
Victor Knaap, Wesley ter Haar, Christopher S. Martin, Scott Spirit and Mary
Basterfield all joined the S(4)Capital Board as Executive Directors. The
S(4)Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto,
Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly, Miles
Young and Colin Day.
The Company now has approximately 8,900 people in 31 countries with
approximately 70% of revenue across the Americas, 20% across Europe, the
Middle East and Africa and 10% across Asia-Pacific. The longer-term objective
is a geographic split of 60%:20%:20%. Content currently accounts for
approximately 60% of revenue, Data&Digital Media 30% and Technology
Services 10%. The long-term objective for the practices is a split of
50%:25%:25%.
Sir Martin was CEO of WPP for 33 years, building it from a £1 million 'shell'
company in 1985 into the world's largest advertising and marketing services
company, with a market capitalisation of over £16 billion on the day he left.
Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi
Company Plc for nine years.
Unaudited consolidated statement of profit or loss
for the year ended 31 December 2022
2022 2021
Unaudited Unaudited
Note £'000 £'000
Revenue 7 1,069,489 686,601
Direct costs (177,797) (126,338)
Net revenue 7 891,692 560,263
Personnel costs (682,072) (412,537)
Other operating expenses (83,327) (49,829)
Acquisition, restructuring and other expenses (155,873) (83,496)
Depreciation, amortisation and impairment (105,711) (56,456)
Share of loss of joint ventures (5) -
Total operating expenses (1,026,988) (602,318)
Operating loss (135,296) (42,055)
Adjusted operating profit 114,096 94,808
Adjusting items(1) (249,392) (136,863)
Operating loss (135,296) (42,055)
Finance income 1,493 1,032
Finance costs (27,200) (13,283)
Net finance costs (25,707) (12,251)
Gain / (loss) on the net monetary position 1,337 (1,344)
Loss before income tax (159,666) (55,650)
Income tax credit / (expense) 32 (1,065)
Loss for the year (159,634) (56,715)
Attributable to owners of the Company (159,634) (56,715)
Attributable to non-controlling interests - -
(159,634) (56,715)
Loss per share is attributable to the ordinary equity holders of the Company (27.0) (10.3)
Basic loss per share (pence)
Diluted loss per share (pence) (27.0) (10.3)
1. Adjusting items comprises amortisation and impairment of
intangibles of £78.8 million (2021: £39.5 million) , acquisition and
restructuring expenses of £155.9 million (2021: £83.5 million) and
share-based payments of £14.7 million (2021: £13.9 million).
The results for the year are wholly attributable to the continuing operations
of the Group.
Unaudited consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
Unaudited Unaudited
£'000 £'000
Loss for the year (159,634) (56,715)
Other comprehensive (expense)/income
Items that will not be reclassified to profit or loss
Remeasurement of net defined benefit pension liabilities (1) -
Items that may be reclassified to profit or loss
Foreign operations - foreign currency translation differences 70,673 (6,358)
Other comprehensive income/(expense) 70,672 (6,358)
Total comprehensive expense for the year (88,962) (63,073)
Attributable to owners of the Company (88,962) (63,073)
Attributable to non-controlling interests - -
(88,962) (63,073)
Unaudited consolidated balance sheet
as at 31 December 2022
2021
2022 Unaudited Restated(1) £'000
Unaudited
Note £'000
Assets
Goodwill 8 720,365 624,989
Intangible assets 9 445,161 356,289
Right-of-use assets 55,703 36,608
Property, plant and equipment 29,701 21,548
Deferred tax assets 16,827 6,526
Other receivables 12,208 3,185
Non-current assets 1,049,145
1,279,965
Trade and other receivables 440,799 335,498
Cash and cash equivalents 223,574 301,021
Current assets 664,373 636,519
Total assets 1,944,338 1,685,664
Liabilities
Deferred tax liabilities (65,960) (68,627)
Loans and borrowings 11 (326,225) (308,571)
Lease liabilities (43,122) (31,423)
Contingent consideration and holdbacks 12 (11,278) (31,749)
Other payables (5,687) (2,845)
Non-current liabilities (443,215)
(452,272)
Trade and other payables (443,171) (334,916)
Contingent consideration and holdbacks 12 (177,329) (86,677)
Loans and borrowings 11 (674) (2,523)
Lease liabilities (15,274) (10,545)
Tax liabilities (6,009) (6,550)
Current liabilities (642,457) (441,211)
Total liabilities (1,094,729) (884,426)
Net assets 849,609 801,238
Equity
Share capital 141,958 138,827
Share premium 5,866 446,910
Merger reserves - 205,717
Other reserves 175,192 76,654
Foreign exchange reserves 48,469 (22,203)
Retained earnings/(accumulated losses) 478,024 (44,767)
Attributable to owners of the Company 849,509 801,138
Non-controlling interests 100 100
Total equity 849,609 801,238
Notes:
1. The comparatives as at 31 December 2021 have been restated for
measurement period adjustments in respect of business combinations and
re-presented to split out certain balance sheet items and provide more clarity
for the year ended 31 December 2022. See Note 2.
Unaudited consolidated statement of changes in equity
For the year ended 31 December 2022
Equity Share capital Share premium Merger reserves Other reserves Foreign exchange reserves Retained earnings/ (accumulated losses) Total Non-controlling interests Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 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)
Other comprehensive - - - - (6,358) - (6,358) - (6,358)
income
Total comprehensive loss - - - - (6,358) (56,715) (63,073) - (63,073)
for the year
Hyperinflation revaluation - - - 1,633 - - 1,633 - 1,633
Transactions with owners of the Company
Issue of Ordinary Shares - - - - - - - - -
Business combinations 3,311 82,715 - 45,856 - - 131,882 - 131,882
Share-based payments - - - (110) - 15,129 15,019 - 15,019
At 31 December 2021 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
At 1 January 2022 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
Hyperinflation restatement - - - 3,266 - - 3,266 - 3,266
Adjusted 138,827 446,910 205,717 79,920 (22,203) (44,767) 804,404 100 804,504
opening balance
Comprehensive loss for the year
Loss for the year - - - - - (159,634) (159,634) - (159,634)
Other comprehensive - - - - 70,672 - 70,672 - 70,672
income
Total comprehensive income/ (loss) - - - - 70,672 (159,634) (88,962) - (88,962)
for the year
Transactions with owners of the Company
Issue of Ordinary Shares - - - - - - - - -
Realised merger reserve - (462,705) (205,717) - - 668,422 - - -
Business combinations 3,131 21,661 - 94,852 - - 119,644 - 119,644
Share-based payments - - - 420 - 14,003 14,423 - 14,423
At 31 December 2022 141,958 5,866 - 175,192 48,469 478,024 849,509 100 849,609
Notes:
1. Other reserves include the deferred equity consideration of £171.8
million (2021: £77.0 million), made up of the following: TheoremOne for
£55.0 million, Raccoon for £43.0 million, Decoded for £48.0 million, XX
Artists for £7.8 million, Cashmere for £6.9 million, Zemoga £8.7 million,
4Mile for £2.3 million and Destined for £0.1 million, the treasury shares
issued in the name of S(4)Capital plc to an employee benefit trust for the
amount of £1.8 million (2021: £2.5 million), and hyperinflation impact in
Argentina of £4.9 million (2021: £1.6 million).
2. During the year ended 31 December 2022, the Group undertook a reduction
of capital to effect the cancellation of the C ordinary shares resulting from
the capitalisation of the sum of £205,717,000 standing to the credit of the
Company's merger reserve.
Unaudited consolidated statement of cashflows
For the year ended 31 December 2022
2022 2021
Note £'000 £'000
Cash flows from operations 13 97,250 68,496
Income taxes paid (18,988) (13,874)
Net cash flows from operating activities 78,262 54,622
Cash flows from investing activities
Investments in intangible assets (1,512) (3,458)
Investments in property, plant and equipment (16,379) (11,119)
Acquisition of subsidiaries, net of cash acquired 6 (123,655) (86,604)
Tax paid as result of acquisition - (5,116)
Financial fixed assets 1,755 (323)
Cash flows from investing activities (139,791) (106,620)
Cash flows from financing activities
Proceeds from issuance of shares 206 1,143
Additional borrowings during the year 11 - 342,994
Payment of lease liabilities (17,534) (10,903)
Repayments of loans and borrowings 11 (891) (110,895)
Transaction costs paid on borrowings - (8,379)
Interest paid (14,166) (5,530)
Cash flows from financing activities (32,385) 208,430
Net movement in cash and cash equivalents (93,914) 156,432
Cash and cash equivalents beginning of the year(1) 299,122 142,052
Exchange gain/(loss) on cash and cash equivalents 18,350 638
Cash and cash equivalents at the end of the year(1) 223,558 299,122
Note:
1 Including bank overdrafts £nil (2021: £1.9m).
Notes to the unaudited consolidated financial statements
for the year ended 31 December 2022
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').
S(4)Capital Group is a new age/new era digital advertising and marketing
services company.
2. Basis of preparation
A. Statement of compliance
The financial statements of S(4)Capital plc have been prepared in accordance
with UK-adopted International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards.
The financial information set out above does not constitute the company's
statutory accounts for the year ended 31 December 2022. The statutory accounts
for 2022 will be finalised based on the financial information presented by the
directors in this preliminary announcement and will be delivered to the
Registrar of Companies in due course. The unaudited financial information is
prepared under the historical cost basis, unless stated otherwise in the
accounting policies.
The Group has undertaken a detailed going concern assessment, reviewing its
current and projected financial performance and position. The Directors
believe that the Group's forecasts have been prepared on a prudent basis. On 6
August 2021, S(4)Capital Group signed a new facility agreement, consisting of
a Term Loan B of EUR 375 million (expiring August 2028) and a multicurrency
Revolving Credit Facility (RCF) of £100 million (expiring August 2026).
Considering the Group's bank covenant and liquidity headroom, the Directors
have concluded that the Group will be able to operate within its facilities
and comply with its banking covenants for at least 12 months and therefore
believe it is appropriate to prepare the financial statements of the Group on
a going concern basis and that there are no material uncertainties which gives
rise to a significant going concern risk. Given its debt maturity profile and
available facilities, the Directors believe the Group has sufficient liquidity
to fulfil financial obligations as they become due for at least 12 months.
B. Restatement and re-presentation
The changes made to the fair value of the net identifiable assets acquired and
the consideration during the Measurement Period resulted in an increase in the
goodwill balance of £363,000 which has been retrospectively adjusted (see
Note 6).
The impact of the retrospective adjustment on the consolidated balance sheet
at 31 December 2021 is shown below. The consolidated balance sheet has also
been re-presented to provide consistently with the presentation of balances
for the year ended 31 December 2022 and provide further clarity by splitting
out specific balance sheet items.
31 December 2021
As reported Restated Re-presented As restated
£'000 £'000 £'000 £'000
Goodwill - 363 624,626 624,989
Intangible assets 980,915 - (624,626) 356,289
Total non-current assets 1,048,782 363 - 1,049,145
Total assets 1,685,301 363 - 1,685,664
Deferred tax liabilities (68,478) (149) - (68,627)
Total non-current liabilities (443,066) (149) - (443,215)
Trade and other payables (324,059) 93 (10,950) (334,916)
Contingent consideration and holdbacks (86,370) (307) - (86,677)
Tax liabilities (17,500) - 10,950 (6,550)
Total current liabilities (440,997) (214) - (441,211)
Total liabilities (884,063) (363) - (884,426)
Net assets 801,238 - - 801,238
C. Functional and presentation currency
The unaudited consolidated financial statements are presented in Pound
Sterling (GBP or £), the Company's functional currency. All financial
information in Pound Sterling has been rounded to the nearest 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 113 to 123 of the Annual Report and Accounts 2021. No changes have
been made to the Group's accounting policies in the year ended 31 December
2022.
A number of amended standards became applicable for the current reporting
period. The Group did not have to change its accounting policies or make
retrospective adjustments as a result of adopting these amended standards.
4. Critical accounting judgements and estimates
The following are the critical accounting judgements and estimates, made by
management in the process of applying the Group's accounting policies, that
have the most significant effect on the amounts recognised in the Group's
unaudited consolidated financial statements.
Judgements
The judgments and estimates that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Revenue recognition
The Group's revenue is earned from the provision of data and digital media
solutions and technology services. Under IFRS 15, revenue from contracts with
customers is recognised as, or when, the performance obligation is satisfied.
Specifically for the Content segment, due to the size and complexity of
contracts, management is required to form a number of judgements in the
determination of the amount of revenue to be recognised including the
identification of performance obligations within the contract and whether the
performance obligation is satisfied over time or at a point in time. The key
judgment is whether revenue should be recognised over time or at point in
time. Where revenue is recognised over time, an estimate must be made
regarding the progress towards completion of the performance obligation.
Impairment of goodwill and intangible assets
The Group applies judgement in determining whether the carrying value of
goodwill and intangible assets have any indication of impairment on an annual
basis, or more frequently if required. Both external and internal factors are
monitored for indicators of impairment. When performing the impairment review,
management's approach for determining the recoverable amount of a
cash-generating unit is based on the higher of value in use or fair value less
cost to dispose. In determining the value in use, estimates and assumptions
are used to derive cashflows, growth rates and discount rates. The recoverable
amount is compared with the carrying amount of the cash generating units. See
Note 8 and 9 for further information.
Tax positions
The Group is subject to sales tax in a number of jurisdictions. Judgement is
required in determining the provision for sales taxes due to uncertainty of
the amount of tax that may be payable. Provisions in relation to uncertain tax
positions are established on an individual rather than portfolio basis,
considering whether, in each circumstance, the Group considers it is probable
that the uncertainty will crystallise.
Use of alternative performance measures
In establishing which items are disclosed separately as adjusting items to
enable a better understanding of the underlying financial performance of the
Group, management exercise judgement in assessing the size and nature of
specific items. The Group uses alternative performance measures as we believe
these measures provide additional useful information on the underlying trend,
performance, and position of the Group. These underlying measures are used by
the Group for internal performance analyses, and credit facility covenants
calculations. The alternative performance measures include 'adjusted operating
profit', 'adjusting items', 'EBITDA' (earnings before interest, tax,
depreciation) and 'operational EBITDA'. The terms 'adjusted operating profit',
'adjusting items', 'EBITDA' and 'operational EBITDA' are not defined terms
under IFRS and may therefore not be comparable with similarly titled profit
measures reported by other companies. The measures are not intended to be a
substitute for, or superior to, GAAP measures. A full list of alternative
performance measures and non-IFRS measures together with reconciliations to
IFRS or GAAP measures are set out in the Alternative Performance Measures.
Estimates
Fair value of assets and liabilities acquired and measurement of consideration
on business combinations
During the year, the Group acquired 4Mile on 11 January 2022, TheoremOne on 16
May 2022 and XX Artists on 1 July 2022. The most significant fair value
adjustments arising on the acquisitions were in relation to allocating the
purchase price to the acquired intangibles recognised in the form of customer
relationships.
In determining the fair value of the customer relationships to be recognised,
estimates and assumptions are used in deriving the cashflows, renewal rates
and discount rates. The cashflows include estimates of revenue growth,
attrition rates, profit margins, contract durations, discount rates.
Management involves external advisors on the valuation techniques used in
determining the fair value of customer relationships. These inputs, combined
with our internal knowledge and expertise on the relevant market growth
opportunities, enabled management to determine the appropriate value of
customer relationships. See Note 6 for further details.
The Group recognises contingent consideration on acquisitions, which comprise
both performance and employment linked contingent consideration. The fair
value of contingent consideration is based on management's best estimate of
achieving future targets to which the contingent consideration is linked to,
which is the most significant unobservable input. See Note 6 and 12 for
further information.
5. Statutory information and independent review
The unaudited consolidated financial statements for the year ended 31 December
2022 and the financial information for the year ended 31 December 2022 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 2021
have been delivered to the Registrar of Companies and received an unqualified
auditors' report, did not include a reference to any matters to which the
auditors drew attention by way of an emphasis of matter and did not contain a
statement under sections 498 (2) or (3) of the Companies Act 2006.
6. Acquisitions
Current year acquisitions
Content Practice
On 1 July 2022, S(4)Capital plc announced the business combination between
Media.Monks and XX Artists LLC (known as XX Artists), an award winning Social
Media Marketing agency, headquartered in Los Angeles, with a competitive
talent edge, for an expected total consideration of approximately £20.5
million, including initial cash consideration of £11.8 million. The initial
£11.8 million cash outlay was funded through the Group's own cash resources
for the entire issued share capital of XX Artists. The acquisition will
augment the Group's Social Media Marketing capabilities. Since the acquisition
date, XX Artists contributed £25.3 million to the Group's revenue and £4.6
million to the Group's operational EBITDA for the year ended 31 December 2022.
Included within the total purchase consideration is deferred consideration of
£7.8 million and holdbacks of £0.8 million. The deferred consideration
relates to the share issuances which have been deferred with no element
contingent on future events. The holdbacks relate to amounts held back due to
cover and indemnify the Group against certain acquisition costs and damages.
The Group currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs and
damages, with the minimum amount payable being nil.
In relation to XX Artists, the employment linked contingent consideration due
to the sellers who remain employees of the business is deemed to represent
employee remuneration given that it will be forfeited in the event of a seller
being a bad leaver and therefore should be excluded from the total purchase
consideration. At 31 December 2022, £35.8 million was included within the
employment linked contingent consideration (see Note 12) with no additional
amounts to be accrued in future periods as the liability had been accrued in
full. The employment linked contingent consideration is payable on the basis
that XX Artists achieved agreed post acquisition EBITDA targets for the 12
month period ended 31 December 2022. This represents the maximum amount
payable as at the date of the acquisition. The business is expected to achieve
the performance targets in full. If the business does not achieve the minimum
performance target the amount payable would be nil.
The assets and liabilities in the table below remain provisional as the
purchase price allocation have not been fully finalised at the end of the
reporting period.
Fair value adjustments Provisional fair value
Book value £'000 £'000
£'000
Intangible assets - Customer relationships - 15,402 15,402
Intangible assets - Brand names - 990 990
Property, plant and equipment 388 - 388
Right-of-use asset - 709 709
Other non-current assets 42 - 42
Cash and cash equivalents 96 - 96
Trade and other receivables 9,898 - 9,898
Trade and other payables (8,122) - (8,122)
Lease liabilities - (709) (709)
Net identifiable assets 2,302 16,392 18,694
Goodwill 18,192 (16,392) 1,800
Total 20,494 - 20,494
Cash 11,880
Deferred consideration 7,786
Holdback obligations 828
Total purchase consideration 20,494
Cash consideration 11,880
Cash and cash equivalents acquired (96)
Cash outflow on acquisition (net of cash acquired) 11,784
Data&Digital Media practice
On 11 January 2022, S(4)Capital plc announced the business combination between
Media.Monks and 4Mile LLC (known as 4Mile), a California-based leader in data
analytics, data engineering, data governance, software engineering, UX design
and project & product management, for an expected total consideration,
including performance linked contingent consideration, of approximately £25.1
million including initial cash consideration of £7.0 million. The initial
cash outlay was funded through the Group's own cash resources for the entire
issued share capital of 4Mile. This will enhance the Group's global analytics
capabilities and expands its client base. Since the acquisition date, 4Mile
contributed £8.0 million to the Group's revenue and £0.7 million to the
Group's operational EBITDA for the year ended 31 December 2022.
Included within the total purchase consideration is performance linked
contingent consideration of £12.5 million, deferred consideration of £2.3
million and holdbacks of £3.4 million. The performance linked contingent
consideration is payable on the basis that 4Mile achieved agreed post
acquisition Gross Margin targets for the 12 months ending 31 December 2022.
The deferred consideration of £2.3 million relates to the share issuances
which have been deferred with no element contingent on future events.
The assets and liabilities recognised as a result of the acquisition is as
follows:
Fair value adjustments
Book value £'000 Fair value
£'000 £'000
Intangible assets - Customer relationships - 7,725 7,725
Intangible assets - Brand names - 366 366
Intangible assets - Order backlog - 822 822
Intangible assets - Software - 325 325
Property, plant and equipment 42 - 42
Other non-current assets 1 - 1
Cash and cash equivalents 2,334 - 2,334
Trade and other receivables 1,674 - 1,674
Trade and other payables (1,525) - (1,525)
Other non-current liabilities (258) - (258)
Net identifiable assets 2,268 9,238 11,506
Goodwill 22,812 (9,238) 13,574
Total 25,080 - 25,080
Cash 6,964
Deferred consideration 2,264
Performance linked contingent consideration 12,450
Holdback obligations 3,402
Total purchase consideration 25,080
Cash consideration 6,964
Cash and cash equivalents acquired (2,334)
Cash outflow on acquisition (net of cash acquired) 4,630
As part of the 4Mile acquisition, the Group is also contracted to pay
employment linked contingent consideration due to sellers who remain employees
of the business, which is deemed to represent employee remuneration given that
it will be forfeited in the event of a seller being a bad leaver. The full
amount of employment linked contingent consideration, of £6.5 million, had
been accrued by 31 December 2022.
During the period, £6.8 million of the performance linked contingent
consideration which had been recognised on acquisition and £2.8 million
relating to employment linked contingent consideration which had been accrued
in the post acquisition period was released into the consolidated statement of
profit or loss respectively as performance targets were not expected to be
achieved in full. At 31 December 2022, the performance linked and employment
linked contingent consideration remaining on the balance sheet is £8.8
million and £3.7 million respectively. The amounts held at 31 December 2022
represent the maximum amount payable as the performance targets have not been
met in full. If the business does not achieve the minimum performance target
the amounts payable would be nil. Given the performance of the business we
expect to have commercial discussions with the sellers regarding the
outstanding consideration.
At 31 December 2022, the £5.0 million of holdbacks relates to amounts held
back due to cover and indemnify the Group against certain acquisition costs
and damages. The Group currently expects to settle the maximum holdback
amount. The amount payable would be dependent on the acquisition costs and
damages, with the minimum amount payable being nil.
Technology Services practice
On 16 May 2022, S(4)Capital plc announced the business combination between
Media.Monks and Citrusbyte LLC, Proof LLC, Technical Performance Services LLC,
Lemma Solutions LLC and Formula Partners LLC (collectively known as
TheoremOne), a California-based leader in agile, full-stack innovation,
engineering, and design and helps major enterprises achieve strategic digital
transformation, for an expected total consideration of approximately £143.0
million. The initial consideration of £78 million was funded through the
Group's own cash resources for the entire share capital of TheoremOne. The
acquisition augments the Group's Technology Services and consulting
capabilities and expands its client base. Since the acquisition date,
TheoremOne contributed £59.0 million to the Group's revenue and £22.5
million operational EBITDA for the year ended 31 December 2022.
Included within the total purchase consideration is deferred consideration of
£55.0 million and holdbacks of £10.0 million. The deferred consideration
relates to the share issuances which have been deferred with no element
contingent on future events. The holdbacks relate to amounts held back due to
cover and indemnify the Group against certain acquisition costs and damages.
The Group currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs and
damages, with the minimum amount payable being nil.
In relation to TheoremOne, the employment linked contingent consideration due
to sellers who remain employees of the business is deemed to represent
employee remuneration given that it will be forfeited in the event of a Seller
being a bad leaver and therefore should be excluded from the total purchase
consideration. At the 31 December 2022, £54.2 million was included within
employment linked contingent consideration. A further £28.9 million will be
accrued during the year ended 31 December 2023. The employment linked
contingent consideration is payable on the basis that TheoremOne achieves post
acquisition EBITDA targets for the 12 month period ended 31 December 2022.
This represents the maximum amount payable as at 31 December 2022. The
business is expected to achieve the performance targets in full. If the
business did not achieve the minimum performance target the amount payable
would be nil.
The assets and liabilities in the table below remain provisional as the
purchase price allocation have not been fully finalised at the end of the
reporting period.
Book value Fair value adjustments Provisional fair value
£'000 £'000 £'000
Intangible assets - Customer relationships - 81,102 81,102
Intangible assets - Brand names - 1,881 1,881
Intangible assets - Order backlog - 7,023 7,023
Property, plant and equipment 553 - 553
Other non-current assets 140 - 140
Cash and cash equivalents 5,238 - 5,238
Trade and other receivables 12,780 (1,978) 10,802
Trade and other payables (1,753) - (1,753)
Net identifiable assets 16,958 88,028 104,986
Goodwill 126,034 (88,028) 38,006
Total 142,992 - 142,992
Cash 77,975
Deferred consideration 55,016
Holdbacks 10,001
Total purchase consideration 142,992
Cash consideration 77,975
Cash and cash equivalents acquired (5,238)
Cash outflow on acquisition (net of cash acquired) 72,737
The goodwill represents the potential growth opportunities and synergy effects
from the acquisitions. The goodwill for 4Mile, TheoremOne and XX Artists is
deductible for US 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 £18.6 million of which £2.0 million
was expected to be uncollectable at the date of acquisition.
The total acquisition costs of £13.2 million (2021: £8.1 million) have been
recognised under acquisition and set-up related expenses in the consolidated
statement of profit or loss.
Since the acquisition date, the acquired companies, XX Artists, 4Mile and
TheoremOne, contributed £92.3 million to the Group's revenue and £27.8
million operational EBITDA to the Group's results for the year ended 31
December 2022. If the acquisitions had occurred on 1 January 2022, the Group's
revenue would have been £1,108.7 million and the Group's operational EBITDA
for the year would have been £136.3 million.
Prior year acquisitions
The initial accounting for the business combination of Raccoon, Zemoga,
Cashmere and Maverick were incomplete by the 31 December 2021. As required by
IFRS 3, the following fair value adjustments have been made during the
measurement period, which had no material impact on the profit and loss
statement.
As disclosed at 31 December 2021 At 31 December 2022
Provisional fair Fair value
value adjustments Fair value
£'000 £'000 £'000
Intangible assets - Customer relationships 86,552 - 86,552
Intangible assets - Brand names 2,804 - 2,804
Intangible assets - Order backlog 3,547 - 3,547
Intangible assets - Software 829 - 829
Property, plant and equipment 2,827 - 2,827
Right-of-use asset 6,022 - 6,022
Other non-current assets 703 - 703
Cash and cash equivalents 15,839 - 15,839
Trade and other receivables 20,918 - 20,918
Trade and other payables (21,897) 91 (21,806)
Current taxation (8,439) - (8,439)
Lease liabilities (6,354) - (6,354)
Other non-current liabilities (2,288) - (2,288)
Deferred taxation (16,337) (160) (16,497)
Net identifiable assets 84,726 (69) 84,657
Goodwill 134,975 365 135,340
Total 219,701 296 219,997
Payment in kind (common stock) 56,236 - 56,236
Cash 77,204 - 77,204
Deferred consideration 28,444 - 28,444
Performance linked contingent consideration 45,672 296 45,968
Holdback obligations 12,145 - 12,145
Total purchase consideration 219,701 296 219,997
Cash consideration 77,204 - 77,204
Cash and cash equivalents acquired (15,839) - (15,839)
Cash outflow on acquisition (net of cash acquired) 61,365 - 61,365
Raccoon Group (raccoon)
Included within the total purchase consideration is deferred consideration of
£16.8 million and holdbacks of £0.1 million. The deferred consideration
relates to the share issuances which have been deferred with no element
contingent on future events. The holdbacks relate to amounts held back due to
cover and indemnify the Group against certain acquisition costs and damages.
The Group currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs and
damages, with the minimum amount payable being nil.
In relation to Raccoon, the contingent consideration linked to employment due
to sellers who remain employees of the business is deemed to represent
employee remuneration given that it will be forfeited in the event of a Seller
being a bad leaver and therefore should be excluded from the total purchase
consideration. At the 31 December 2022, the payable balance is £55.1 million
with no additional amounts to be accrued in future period as the liability had
been accrued in full.
The contingent consideration linked to employment is payable on the basis that
Raccoon achieved agreed post-acquisition EBITDA targets for the 12 month
period ended 31 December 2022. This represents the maximum amount payable as
at the date of the acquisition. The business is expected to achieve the
performance targets in full. If the business did not achieve the minimum
performance target the amount payable would be nil.
Zemoga Group (Zemoga)
The total purchase consideration within the provisional fair value for the
year ended 31 December 2021, included performance linked contingent
consideration of £22.0 million (restated to £22.2 million), deferred
consideration of £5.5 million and holdbacks of £7.7 million. During the year
ended 31 December 2022, the Group settled the performance linked contingent
consideration and partially settled the holdbacks. The performance linked
contingent consideration represents the maximum amount payable and has been
paid during the year as the business achieved post acquisition EBITDA targets
for the 12 months ending 31 December 2021.
The deferred consideration of £5.5 million relates to the share issuances
which have been deferred with no element contingent on future events. The
remaining £6.3 million, as at 31 December 2022, of holdbacks relates to
amounts held back due to cover and indemnify the Group against certain
acquisition costs and damages. The Group currently expects to settle the
maximum holdback amount. The amount payable would be dependent on the amount
of these acquisition costs and damages, with the minimum amount payable being
nil.
Cashmere Agency Inc (Cashmere)
Included within the total purchase consideration is deferred consideration of
£6.2 million and holdbacks of £2.8 million. The deferred consideration
relates to the share issuances which have been deferred with no element
contingent on future events. The holdbacks relates to amounts held back due to
cover and indemnify the Group against certain acquisition costs and damages.
The Group currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs and any
damages, with the minimum amount payable being nil.
7. Segment information
A. Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker (CODM). The CODM has
been identified as the Board of Directors of S(4)Capital Group.
During the year, S(4)Capital Group has three reportable segments as follows:
· Content practice: Creative content, campaigns, and assets at a global
scale for paid, social and earned media - from digital platforms and apps to
brand activations that aim to convert consumers at every possible touchpoint.
· Data&Digital Media practice: Full-service campaign management
analytics, creative production and ad serving, platform and systems
integration and transition and training and education.
· Technology Services practice: digital transformation services in
delivering advanced digital product design, engineering services and delivery
services.
The customers are primarily businesses across technology, FMCG and media and
entertainment. Any intersegment transactions are based on commercial terms.
The Board of Directors monitor the results of the reportable segments
separately for the purpose of making decisions about resource allocation and
performance assessment prior to charges for tax, depreciation and
amortisation.
The Board of S(4)Capital Group uses net revenue rather than revenue to manage
the Company due to the fluctuating amounts of direct costs, which form part of
revenue.
The following is an analysis of the Group's net revenue and results by
reportable segments:
Data&Digital Media Technology services
2022 Content £'000 £'000 Total
£'000 £'000
Revenue 755,422 220,498 93,569 1,069,489
Net revenue 582,713 216,818 92,161 891,692
Segment profit(1) 74,053 39,870 36,137 150,060
Overhead costs (25,888)
Adjusted non-recurring and acquisition related expenses(3) (170,533)
Depreciation, amortisation and impairments(2) (88,935)
Net finance costs and gain on net monetary position (24,370)
Loss before income tax (159,666)
Data&Digital Media Technology services
2021 Content £'000 £'000 Total
£'000 £'000
Revenue 513,433 165,646 7,522 686,601
Net revenue 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(3) (97,372)
Depreciation, amortisation and impairments(2) (45,670)
Net finance costs and loss on net monetary position (13,595)
Loss before income tax (55,650)
Notes:
1 Including £16.8m (2021: £10.8m) depreciation and impairment on
right-of-use assets.
2 Excluding £16.8m (2021: £10.8m) depreciation and impairment on
right-of-use assets.
3 Consisting of acquisition and restructuring expenses of £155.9m
(2021: £83.5m) and share-based payment costs of £14.7m (2021: £13.9m).
Segment profit represents the profit earned by each segment without allocation
of the share of loss of joint ventures, central administration costs including
directors' salaries, finance income, non-operating gains and losses, and
income tax expense. This is the measure reported to the Group's Board of
Directors for the purpose of resource allocation and assessment of segment
performance.
B. Information about major customers
S(4)Capital Group has an attractive and expanding client base with seven
clients providing more than £20 million of revenue per annum representing 39%
of the Group's revenue. During the year ended 31 December 2021 five clients
provided more than £20 million of revenue representing 31% of the Group's
revenue.
One customer accounted for more than 10% of the Group's revenue during the
year, contributing £187.5 million. The revenue from this customer was
attributable to both the Content and Data&Digital Media segments. For the
prior year, one customer accounted for more than 10% of the Group's revenue,
contributing £94.2 million. The revenue from this customer was attributable
to both the Content and Data&Digital Media segments.
8. Goodwill
Net book value 2022 2021(1)
£'000 £'000
At 1 January 624,989 498,113
Acquired through business combinations 53,380 135,338
Impairments (15,165) -
Foreign exchange differences 57,161 (8,462)
At 31 December 720,365 624,989
1. Restated for the business combinations. Refer to Note 2.
During the year an amount of £53.4 million has been acquired through business
combinations. See Note 6.
Goodwill represents the excess of consideration over the fair value of the
Group's share of the net identifiable assets of the acquired subsidiary at the
date of acquisition.
Goodwill - impairment testing
Goodwill acquired through business combinations is allocated to CGUs for
impairment testing. The goodwill balance is allocated to the following CGUs:
2022 2021(1)
£'000 £'000
Content 393,252 372,305
Data&Digital Media 241,014 210,347
Technology Services 86,099 42,337
Total 720,365 624,989
1. Restated for the initial accounting for business combinations. Refer to
Note 2.
The recoverable amount for each CGU is determined using a value-in-use
calculation. In determining the value in use, the Group uses forecasted
revenue and profits adjusted for non-cash transactions to generate cash flow
projections. The forecasts are prepared by management based on Board approved
business plans for each CGU which reflect result expectations, including the
impact of inflation, cash performance and historic trends.
An underlying revenue growth rate of 14.5% to 57.6% (2021: 21% to 45%) per
annum depending on the practice in years one to three have been used
accordingly. Beyond the explicit three year forecast period, a two year
transition period bridging the revenue growth to the assessed long term growth
rate has been used. Following the fourth year, a long term growth rate has
been applied in perpetuity. A terminal value has been applied using an
underlying long term growth rate of 2.0% (2021: 2.0%). The cash flows have
been discounted to present value using a pre-tax discount rate which was
between 11.2% and 11.9% (2021: 9.4% and 9.8%) depending on the CGU. The
value-in-use exceeds the carrying amount of the CGUs by two to three times.
Sensitivity analysis has been carried out by adjusting the respective CGU
discount rates and growth rates. Based on the Group's sensitivity analysis, no
indicators of impairment have been identified. In carrying out the impairment
review, management believes that there are no CGUs where reasonably possible
changes to the underlying assumptions exist that would give rise to an
impairment.
During the end of the reporting period, the Group assessed there to be an
indicator of impairment in relation to the goodwill, customer relationships
and brand names relating to 4Mile. The indicator of impairment was as a result
of the actual performance of 4Mile being significantly lower than forecasted.
As a result of the impairment review, the Group recognised an impairment of
goodwill of £15.2 million for 4Mile. 4Mile is part of the DDM segment but the
business has not yet been integrated and is monitored separately by the Group.
The intangible assets relating to customer relationships, brand names and
other intangible assets were also impaired by £6.1 million, £0.3 million and
£0.3 million respectively to the value in use recoverable amount. The
impairment of goodwill and intangible assets has been recognised within the
consolidated statement of profit or loss within depreciation, amortisation and
impairment.
9. Intangible assets
Customer Order
relationships Brands Backlog Other Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2021 307,120 18,557 11,794 11,207 348,678
Acquired through business combinations 86,552 2,804 3,547 829 93,732
Additions - - - 3,458 3,458
Disposals - - - (117) (117)
Foreign exchange differences (4,632) (478) (354) (174) (5,638)
At 31 December 2021 389,040 20,883 14,987 15,203 440,113
Acquired through business combinations 104,229 3,237 7,846 325 115,637
Additions - - - 1,512 1,512
Disposals - - (22,915) - (22,915)
Foreign exchange differences 38,534 1,960 614 1,381 42,489
At 31 December 2022 531,803 26,080 532 18,421 576,836
( )
Accumulated amortisation and impairment
At 1 January 2021 (32,243) (3,121) (7,604) (2,757) (45,725)
Charge for the year (26,762) (3,312) (6,380) (3,037) (39,491)
Foreign exchange differences 842 47 326 177 1,392
At 31 December 2021 (58,163) (6,386) (13,658) (5,617) (83,824)
Charge for the year (38,542) (5,554) (9,184) (3,731) (57,011)
Impairment (6,103) (277) - (304) (6,684)
Disposals - - 22,915 - 22,915
Foreign exchange differences (5,394) (622) (441) (614) (7,071)
At 31 December 2022 (108,202) (12,839) (368) (10,266) (131,675)
Net book value
At 31 December 2021 330,877 14,497 1,329 9,586 356,289
At 31 December 2022 423,601 13,241 164 8,155 445,161
The impairment of customer relationships, brands and other intangibles relates
to 4Mile. See Note 8.
10. Interest in joint ventures
The Group, through its subsidiary S(4)Capital 2 Ltd a directly owned
subsidiary, together with Stanhope Capital LLP (Stanhope LLP), through its
subsidiary Portman Square General Partner S.à r.l. (Stanhope), subscribed for
the initial EUR6,000 of shares each to incorporate S4S Ventures General
Partner S.à r.l. (GP), a Luxembourg company. The GP has since established two
S4S Ventures funds established in Luxembourg and the US. The Group has a 50%
interest in the GP, a joint venture whose primary activity is to invest in
technology companies focused on the marketing and advertising industries, to
focus on early-stage technology investments with the ability to transform the
sector. S4S aims to invest in companies across five principal areas: Martech,
Adtech, Data Technology, Creative Technology, and Emerging Digital
Media/Content. The Group's interest is accounted for using the equity method
in the consolidated financial statements.
11. Loans and borrowings
Senior secured term loan B (TLB) Interest on Facilities Agreement
£'000 Transaction Costs £'000
Bank Loans £'000 Total
£'000 £'000
Balance at 1 January 2021 91,285 - (844) - 90,441
Drawdowns 24,632 318,938 (8,379) - 335,191
Acquired through business combinations 2,760 - - - 2,760
Loans Waived (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
Balance at 31 December 2021 3,326 315,105 (7,961) 624 311,094
Drawdowns 16 - - - 16
Acquired through business combinations 258 - - - 258
Loans Waived (266) - - - (266)
Repayments (2,790) - - (13,543) (16,333)
Charged to profit-or-loss - - 1,320 13,543 14,863
Exchange rate differences 45 17,471 (283) 34 17,267
Total transactions during the year (2,737) 17,471 1,037 34 15,805
Balance at 31 December 2022 589 332,576 (6,924) 658 326,899
Included in current liabilities 16 - - 658 674
Included in non-current liabilities 573 332,576 (6,924) - 326,225
S(4)Capital Group has a facility agreement, consisting of a Term Loan B (TLB)
of EUR 375 million and a multicurrency Revolving Credit Facility (RCF) of
£100 million. During 2022, 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 interest rate of the outstanding
loans amounted to 4.76% (2021: 2.96%) The average effective interest rate for
the outstanding loans is 4.06% (2021: 2.93%) and during the period interest
expense of £13.5 million was recognised (2021: £6.2 million).
The 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 pro-forma earnings before
interest, tax, depreciation, and amortisation, measured at the end of any
relevant period of 12 months ending each semi-annual date in a financial year.
During the year S(4)Capital Group complied with the covenants set in the loan
agreement.
12. Financial instruments
The Board of Directors of S(4)Capital plc has overall responsibility for the
determination of the Group's risk management objectives and policies. The
overall objective of the Board is to set policies that seek to reduce risk as
far as possible without unduly affecting the Group's competitiveness and
flexibility. S(4)Capital Group reports in Pound Sterling.
All funding requirements and financial risks are managed based on policies and
procedures adopted by the Board. S(4)Capital Group does not issue or use
financial instruments of a speculative nature.
S(4)Capital Group is exposed to the following financial risks:
· Market risk
· Credit risk
· Liquidity risk
The Group is exposed to risks that arise from its use of financial
instruments. The principal financial instruments used by the Group, from which
financial instrument risk arises, are trade and other receivables, cash and
cash equivalents, accrued income, trade and other payables, loans and
borrowings, contingent consideration and lease liabilities.
Fair values of the Group's financial assets and liabilities are categorised
into different levels in a fair value hierarchy based on inputs used in the
valuation techniques as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs) as applicable for
contingent consideration.
To the extent financial instruments are not carried at fair value in the
consolidated balance sheet, the carrying amount approximates to fair value as
of the financial year end due to the short-term nature.
Financial instruments by category
Financial assets 2022 2021
£'000 £'000
Cash and cash equivalents 223,574 301,021
Trade receivables 349,600 271,747
Accrued income 44,728 36,870
Other receivables 42,236 12,365
Total 660,138 622,003
Financial liabilities 2022 2021
£'000 £'000
Financial liabilities held at amortised cost
Trade and other payables (369,192) (265,079)
Loans and borrowings (326,899) (311,094)
Lease liabilities (58,396) (41,968)
Financial liabilities held at fair value through profit and loss
Contingent consideration and holdbacks (188,607) (118,426)
Total (943,094) (736,567)
Note
1. The comparatives as at 31 December 2021 have been restated for measurement
period adjustments in respect of business combinations and re-presented for
consistency with the presentation for the year ended 31 December 2022. See
Note 2.
The following table categorises the Group's financial liabilities held at fair
value on the consolidated balance sheet. There have been no transfers between
levels during the year.
2021 2021
2022 2022 Fair value Restated(1) Level 3
Fair value Level 3 £'000 Restated(1)
Financial liabilities £'000 £'000 £'000
Contingent consideration and holdbacks 188,607 188,607 118,426 118,426
Total 188,607 188,607 118,426 118,426
Note
1. The comparatives as at 31 December 2021 have been restated for measurement
period adjustments in respect of business combinations. See Note 2.
The following table shows the movement in contingent consideration and
holdbacks.
Performance Employment
linked linked
contingent contingent
Contingent consideration and holdbacks consideration consideration Holdbacks Total
£'000 £'000 £'000 £'000
Balance at 1 January 2021 57,885 1,732 10,306 69,923
Acquired through business combinations 45,968 - 12,145 58,113
Recognised in consolidated statement of profit and loss - 72,250 - 72,250
Cash paid (19,281) (9,985) (5,923) (35,189)
Equity settlement (41,527) (5,718) - (47,245)
Exchange rate differences (80) 383 271 574
Balance at 31 December 2021(1,2) 42,965 58,662 16,799 118,426
Acquired through business combinations 12,450 - 14,232 26,682
Recognised in consolidated statement of profit and loss (13,067) 155,599 1,581 144,113
Cash paid (16,949) (38,936) (9,437) (65,322)
Equity settlement (19,126) (35,449) - (54,575)
Exchange rate differences 4,677 11,818 2,788 19,283
Balance at 31 December 2022 10,950 151,694 25,963 188,607
40,744 40,866 5,067 86,677
Included in current liabilities
Included in non-current liabilities 2,221 17,796 11,732 31,749
Balance at 31 December 2021 42,965 58,662 16,799 118,426
10,950 151,694 14,685 177,329
Included in current liabilities
Included in non-current liabilities - - 11,278 11,278
Balance at 31 December 2022 10,950 151,694 25,963 188,607
Note
1. The comparatives as at 31 December 2021 have been restated for
measurement period adjustments in respect of business combinations. See Note
2.
2. In the prior year we referred to the employment linked
contingent consideration as £67.9 million, however, this should have been
£58.7 million as reflected in the table above.
Where the contingent consideration conditions have been satisfied, the Group
recognises deferred equity consideration, which is included within Other
Reserves.
The fair value of the performance linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed and recognised at the
acquisition date, and reassessed at each balance sheet date thereafter, until
fully settled, cancelled or expired. Any change in the range of future
outcomes is recognised in the consolidated statement of profit or loss. The
impact of discounting on the performance linked contingent consideration is
£1.5 million for the year (2021: £nil). During the year ended 31 December
2022, a revaluation gain of £14.6million (2021: £nil) was recognised in the
consolidated statement of profit or loss.
The fair value of the employment linked contingent consideration has been
determined based on management's best estimate of achieving future targets to
which the consideration is linked. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired business. The fair value is assessed at the acquisition date, and
systematically accrued over the respective employment term. Any changes in the
range of future outcomes are recognised in the consolidated statement of
profit or loss. During the year ended 31 December 2022, the amounts recognised
in the consolidated statement of profit or loss, of £155.6 million (2021:
£72.3 million), related to the systematic accrual of the employment linked
contingent consideration.
Holdbacks relate to amounts held by the Group to cover and indemnify the Group against certain acquisition costs and damages. The fair value of the holdbacks has been determined based on management's best estimate of the level of the costs incurred and damages expected to which the holdback is linked, which is the most significant unobservable input used in the fair value measurement. During the year ended 31 December 2022, £1.6 million (2021: £nil) has been recognised in the consolidated statement of profit or loss.
13. Net debt and cashflow reconciliation
The following table shows the reconciliation of net cash flow to movements in
net debt:
Net Debt including Lease Liabilities
£'000
Borrowings and overdraft
£'000 Cash Net Debt Leases
£'000 £'000 £'000
Net debt as at 1 January 2021 (91,285) 142,052 50,767 (28,960) 21,807
Financing cash flows (232,099) 158,331 (73,768) 10,903 (62,865)
Acquired through business combinations (2,760) - (2,760) (6,354) (9,114)
Lease additions - - - (15,953) (15,953)
Foreign exchange adjustments 6,712 638 7,350 (76) 7,274
Interest expense (6,169) - (6,169) (1,602) (7,771)
Interest payment 5,530 - 5,530 - 5,530
Other 1,016 - 1,016 74 1,090
Net debt as at 31 December 2021 (319,055) 301,021 (18,034) (41,968) (60,002)
Financing cash flows 891 (95,778) (94,887) 17,534 (77,353)
Acquired through business combinations (258) - (258) (709) (967)
Lease additions - - - (26,946) (26,946)
Foreign exchange adjustments (17,550) 18,331 781 (3,498) (2,717)
Interest expense (13,543) - (13,543) (2,146) (15,689)
Interest payment 13,543 - 13,543 - 13,543
Other 2,149 - 2,149 (663) 1,486
Net debt as at 31 December 2022 (333,823) 223,574 (110,249) (58,396) (168,645)
The following table shows the items included in the cash flows from
operations:
2022 2021
£'000 £'000
Cash flows from operating activities
Loss before income tax (159,666) (55,650)
Financial income and expenses 25,707 12,251
Depreciation and amortisation 105,711 56,456
Share-based payments 14,216 13,876
Acquisition, restructuring and other expenses 155,873 83,496
Contingent consideration paid (38,936) (9,985)
Share of loss in joint venture 5 -
(Gain)/loss on the net monetary position (1,337) 1,344
Increase in trade and other receivables (48,682) (131,662)
Increase in trade and other payables 44,359 98,370
Cash flows from operations 97,250 68,496
14. Events occurring after the reporting period
There were no material post balance sheet events, that require adjustment or
disclosure, occurring between the
reporting period and the 29 March 2023.
Alternative Performance Measures
The Group has included various unaudited alternative performance measures
(APMs) in its unaudited consolidated financial statements. The Group includes
these non-GAAP measures as it considers these measures to be both useful and
necessary to the readers of the Annual Report and Accounts to help them more
fully understand the performance and position of the Group. The Group's
measures may not be calculated in the same way as similarly titled measures
reported by other companies. The APMs should not be viewed in isolation and
should be considered as additional supplementary information to the IFRS
measures. Full reconciliations have been provided between the APMs and their
closest IFRS measures.
The Group has concluded that these APM's are relevant as they represent how
the Board assesses the performance of the Group and they are also closely
aligned with how shareholders value the business. They provide like-for-like,
year-on-year comparisons and are closely correlated with the cash inflows from
operations and working capital position of the Group. They are used by the
Group for internal performance analysis and the presentation of these measures
facilitates comparison with other industry peers as they adjust for
non-recurring factors which may materially affect IFRS measures. Adjusting
items for the Group include amortisation of acquired intangibles, acquisition
related expenses costs, share based payments, employment-related acquisition
costs and restructuring costs. Whilst adjusted measures exclude amortisation
of intangibles, acquisition costs and restructuring costs they do include the
revenue from acquisitions and the benefits of the restructuring programmes and
therefore should not be considered a complete picture of the Group's financial
performance, that is provided by the IFRS measures.
The adjusted measures are also used in the calculation of the adjusted
earnings per share and banking covenants as per our agreements with our
lenders.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Consolidated statement of profit or loss
Controlled Billings Revenue Includes media spend contracted directly by clients with media providers and It is an important measure to help understand the scale of the activities that
pass-through costs (see reconciliation A1 below) Group has managed on behalf of its clients, in addition to the activities that
are directly invoiced by the Group.
Billings Revenue Includes pass through costs (see reconciliation A1 below) It is an important measure to understand the activities that are directly
invoiced by the Group to its clients.
Net Revenue Revenue Excludes direct costs (see reconciliation A2 below) This is more closely aligned to the fees the Group earns for its services
provided to the clients. This is a key metric used in business when looking at
the Practice performance.
Operational EBITDA Operating profit Excludes amortisation of intangible assets, Operational EBITDA is Operating profit before the impact of adjusting items,
amortisation of intangible assets and PPE depreciation. The Group considers
Acquisition related expenses, share based payments and PPE depreciation (see this to be an important measure of Group performance and is consistent with
reconciliation A3 below) how the Group is assessed by the Board and investment community
Like-for-Like Revenue and operating profit Is the prior year comparative, in this case 2021, restated to include acquired Like for like is an important measure used by the Board and investors when
businesses for the same months as 2022, and restated using same FX rates as looking at Group performance. It provides a comparison that reflects the
used in 2022 (see reconciliations A4 below) impact of acquisitions and changes in FX rates during the period.
Closest IFRS measure Adjustments to reconcile to IFRS Measure
APM Reason for use
Pro-forma Revenue and operating profit Is full year consolidated results in constant currency and for acquisitions as Pro-forma figures are used extensively by management and the investment
if the Group had existed in full for the year (see reconciliations A5 below) community. It is a useful measure when looking at how the Group has changed
in light of the number of acquisitions that have been completed and to
understand the performance of the Group.
Adjusted basic earnings per share Basic earnings per share Excludes amortisation of intangible assets, acquisition related expenses, Adjusted basic earnings per share is used by management to understand the
share based payments and restructuring expenses (see reconciliation A6 below) earnings per share of the Group after removing non-recurring items and those
linked to combinations.
Consolidated balance sheet
Net debt None See reconciliation A7 below Net debt is cash less gross bank loans (excluding transaction costs). This is
a key measure used by management and in calculations for bank covenants.
2022 2021
Billings and Controlled billings (A1) £'000 £'000
Revenue 1,069,489 686,601
Pass-through expenses 820,988 610,249
Billings(1) 1,890,477 1,296,850
Third party billings direct to clients 3,760,747 2,696,311
Controlled billings(2) 5,651,224 3,993,161
Notes:
1. Billings is gross billings to clients including pass-through expenses.
2. Controlled billings are billings we influenced.
2022 2021
Net Revenue (A2) £'000 £'000
Revenue 1,069,489 686,601
Direct costs (177,797) (126,338)
Net Revenue 891,692 560,263
Reconciliation to Operational EBITDA (A3) 2022 2021
£'000 £'000
Operating (loss) / profit (135,296) (42,055)
Amortisation and impairment of intangible assets 78,859 39,491
Acquisition, restructuring and other expenses 155,873 83,496
Share based payment 14,660 13,876
Depreciation of property, plant and equipment(1) 10,076 6,179
Operational EBITDA 124,172 100,987
Note:
1. Depreciation of property, plant and equipment is exclusive of depreciation
on right-of-use assets
Like-for-Like (A4)
Data&Digital Media Technology Services
Like-for-like revenue Content Total
Year ended 31 December 2021 £'000 £'000 £'000 £'000
Revenue 513,433 165,646 7,522 686,601
Impact of acquisitions 79,389 34,590 50,005 163,984
Impact of foreign exchange 29,454 (15,854) (3,629) 9,971
Like-for-like revenue(1) 622,276 184,382 53,898 860,556
% like-for-like revenue change 21.4% 19.6% 73.6% 24.3%
Note:
1. Like-for-like is a non-GAAP measure and relates to 2021 being
restated to show the unaudited numbers for the previous year of the existing
and acquired businesses consolidated for the same months as in 2022, applying
currency rates as used in 2022.
Data&Digital Media Technology Services
Like-for-like net revenue Content Total
Year ended 31 December 2021 £'000 £'000 £'000 £'000
Net revenue 385,552 167,079 7,632 560,263
Impact of acquisitions 57,902 33,520 49,328 140,750
Impact of foreign exchange 26,252 (15,741) (3,479) 7,032
Like-for-like net revenue(1) 469,706 184,858 53,481 708,045
% like-for-like net revenue change 24.1% 17.3% 72.3% 25.9%
Note:
1. Like-for-like is a non-GAAP measure and relates to 2021 being restated to
show the unaudited numbers for the previous year of the existing and acquired
businesses consolidated for the same months as in 2022, applying currency
rates as used in 2022.
Like-for-like Operational EBITDA Total
Year ended 31 December 2021 £'000
Operational EBITDA 100,987
Impact of acquisitions 39,039
Impact of foreign exchange 8,450
Like-for-like operational EBITDA(1) 148,476
% like-for-like operational EBITDA change -16.4%
Note:
1. Like-for-like is a non-GAAP measure and relates to 2021 being restated to
show the unaudited numbers for the previous year of the existing and acquired
businesses consolidated for the same months as in 2022, applying currency
rates as used in 2022.
Data&Digital Media Technology Services
Pro-forma (A5) Content £'000 £'000 Total
Pro-forma revenue £'000 £'000
FY22 Revenue 755,422 220,498 93,569 1,069,489
Impact of acquisitions 17,146 284 21,818 39,248
FY22 Pro-forma revenue(1) 772,568 220,782 115,387 1,108,737
FY21 Revenue 513,433 165,646 7,522 686,601
Impact of acquisitions 83,287 34,590 65,758 183,635
Impact of foreign exchange 29,785 (15,854) (2,726) 11,205
FY21 Pro-forma revenue(1) 626,505 184,382 70,554 881,441
% pro-forma revenue change 23.3 % 19.7% 63.5% 25.8%
Note:
1. Pro-forma relates 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.
Data&Digital Media Technology Services
Content £'000 £'000 Total
Pro-forma net revenue £'000 £'000
FY22 net revenue 582,713 216,818 92,161 891,692
Impact of acquisitions 10,540 276 21,572 32,388
FY22 Pro-forma net revenue(1) 593,253 217,094 113,733 924,080
FY21 net revenue 385,552 167,079 7,632 560,263
Impact of acquisitions 60,345 33,520 64,970 158,835
Impact of foreign exchange 26,454 (15,741) (2,585) 8,128
FY21 Pro-forma net revenue(1) 472,351 184,858 70,017 727,226
% pro-forma net revenue change 25.6% 17.4% 62.4% 27.1%
Total
Pro-forma Operational EBITDA £'000
FY22 operational EBITDA 124,172
Impact of acquisitions 12,083
FY22 Pro-forma operational EBITDA(1) 136,255
FY21 Operational EBITDA 100,987
Impact of acquisitions 44,712
Impact of foreign exchange 8,796
FY21 Pro-forma operational EBITDA(1) 154,495
% pro-forma operational EBITDA change -11.8%
Adjusted basic earnings per share (A6)
Amortisation and impairment(1)
Year ending 31 December 2022 £'000 Acquisition expenses Share-based payment Restructuring expenses
£'000
£'000
£'000
Reported Adjusted
£'000 £'000
Operating (loss) / profit (135,296) 78,859 150,973 14,660 4,900 114,096
Net finance costs (25,707) - - - - (25,707)
Gain on net monetary position 1,337 - - - - 1,337
(Loss) / profit before income tax (159,666) 78,859 150,973 14,660 4,900 89,726
Income tax credit/(expense) 32 (16,714) (64) (2,454) (837) (20,037)
(Loss) / profit for the year (159,634) 62,145 150,909 12,206 4,063 69,689
1. Amortisation and impairment relate to the intangible assets recognised as a
result of the acquisitions.
Acquisition expenses Share-based payment Restructuring expenses
Reported Amortisation(1) Adjusted
Year ending 31 December 2021 £'000 £'000 £'000 £'000 £'000 £'000
Operating profit (42,055) 39,491 83,496 13,876 - 94,808
Net finance costs (12,251) - - - - (12,251)
Loss on net monetary position (1,344) - - - - (1,344)
(Loss) / profit before income tax (55,650) 39,491 83,496 13,876 - 81,213
Income tax expense (1,065) (6,941) (1,426) - - (9,433)
(Loss) / profit for the year (56,715) 32,550 82,070 13,876 - 71,780
1. Amortisation relates to the amortisation of the
intangible assets recognised as a result of the acquisitions.
Adjusted basic result per share 2022 2021
Adjusted profit attributable to owners of the Company (£'000) 69,689 71,780
Weighted average number of ordinary shares for the purpose of basic EPS 590,667,949 551,752,618
(shares)
Adjusted basic earnings per share(pence) 11.8 13.0
Net Debt (A7)
Net debt is cash less gross bank loans (excluding transaction costs). This is
a measure used by management and in calculations for bank covenants.
2022 2021
Net debt £'000 £'000
Cash and bank 223,574 301,021
Loans and borrowings (excluding bank overdrafts) (333,807) (317,156)
Bank overdrafts (16) (1,899)
Net debt (110,249) (18,034)
Lease liabilities (58,396) (41,968)
Net debt including lease liabilities (168,645) (60,002)
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