TIDMSFOR
RNS Number : 6895M
S4 Capital PLC
18 September 2023
S(4) Capital plc
( " S(4) Capital" or " the Company" or "the Group")
Interim Results for 2023
Net revenue(2) growth of 18.7%, 5.1% like-for-like(3)
Operational EBITDA(5) GBP36.5 million up 21.3% on a reported
basis, down 30.2% like-for-like
Net debt(7) at GBP109 million, better than expectations and last
year's GBP135 million
The Board will consider a dividend of at least 1p per share when
the final results for 2023 have been determined
Continued client conversion at scale, with like-for-like revenue
growth from top 20 clients of 8.9% and top 50 clients of 11.4%
Revised full year like-for-like net revenue target, likely down
on last year with operational EBITDA margins of 12 to 13.5%(9)
GBP millions six months six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June
2023 2022(8)
Billings(1) 925.4 765.6 20.9% 10.9% 10.9%
Revenue 517.1 446.4 15.8% 2.5% 2.5%
Net revenue(2) 445.5 375.3 18.7% 5.1% 5.1%
------------------------------ ----------- --------------- ---------- ------------------ --------------
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
Operational EBITDA margin(5) 8.2% 8.0% 20bps (410)bps (410)bps
Adjusted(6) operating profit 30.6 25.4 20.5%
Adjusting(6) items (37.0) (100.8) 63.3%
Operating loss (6.4) (75.4) 91.5%
Loss for period (19.7) (82.3) 76.1%
------------------------------ ----------- --------------- ---------- ------------------ --------------
Basic loss per share (pence) (3.2) (14.5) 11.3
Adjusted(6) basic earnings
per share (pence) 1.7 2.1 (0.4)
Number of Monks 8,551 9,041 (5.4%)
============================== =========== =============== ========== ================== ==============
Net debt(7) (109.4) (135.5)
============================== =========== =============== ========== ================== ==============
Financial highlights
@ Billings (1) GBP925.4 million, up 20.9% on a reported basis, up 10.9% like-for-like(3) .
@ Revenue GBP517.1 million, up 15.8% reported, 2.5% like-for-like.
@ Net revenue(2) GBP445.5 million, up 18.7% reported, and 5.1%
like-for-like, reflecting the challenging macroeconomic conditions
compared to last year and clients' caution, with longer sales
cycles, particularly with technology and newer regional and local
clients. Two-year and three-year net revenue stacks (like-for-like
net revenue growth stacks for the last two and three years) are
32.9% and 82.3%.
@ Operational EBITDA(5) GBP36.5 million, up 21.3% reported and down 30.2% like-for-like.
@ Operating loss GBP6.4 million, an improvement of GBP69.0
million on the prior year, primarily due to lower combination
related expenses.
@ Basic loss per share of 3.2p, compared to 14.5 p basic loss
per share in the first half of 2022.
Adjusted(6) basic earnings per share, which excludes adjusting
items after tax, of 1.7p per share, compared to 2.1p per share last
year.
The Board will consider a dividend of at least 1p per share,
when the final results for 2023 have been determined, reflecting
its confidence in the strategy and that we expect to be cash
generative in 2024 with no material combination payments.
@ Net debt (7) ended the period at GBP109.4 million, or 0.9x net
debt/pro-forma 12 month operational EBITDA . The cash consideration
payments to be made in respect of prior year combinations are now
expected in H2 , and as a result we expect to see net debt rise by
the year end to GBP 180 -220 million.
@ The balance sheet has sufficient liquidity and long-dated debt
maturities to facilitate growth .
Strategic and operational highlights
@ Our stated 'whopper' strategy of building broad scaled
relationships with leading enterprise clients continues to drive
our growth. Revenues from our top 20 clients grew 8.9% on a
like-for-like basis in H1 2023 and the average size of our top 20
clients increased from GBP14.3 million to GBP15.5 million. Our top
50 client cohort delivered similar revenue growth of 11.4% on a
like-for-like basis and their average size increased from GBP7.0
million to GBP7.7 million. We will likely have eight "whoppers"
this year, with a further two on the fringe of reaching $20 million
of gross revenue in 2023.
@ We had a mixed first half of 2023, despite reported H1 net
revenue growth of 18.7%, with like-for-like growth 5.1%. This
reflects the more challenging global macroeconomic conditions and
clients' caution reflecting fears of recession. We see longer sales
cycles, particularly for larger transformation projects, and whilst
all practices have seen some impact, this is most evident in
Content and in particular with one or two technology clients and
regional and local opportunities.
@ Profitability in the first half reflects slower top line
growth and was below our budgets . W e have seen some salary and
related benefits inflation and we continue to maintain a
disciplined approach to cost management, including headcount and
discretionary costs. These controls have resulted in the number of
Monks at the half year of 8,550, down over 5% from over 9,000 at
this time last year. The Group continues to take action, especially
in Content, given the current market outlook.
@ The Content practice net revenue(2) was down 2.5%
like-for-like, but up 5.8% on a reported basis, with
Data&Digital Media up 2.4% like-for-like and Technology
Services up 54.3% like-for-like. Content had a very challenging
first half, particularly in May and June with one or two technology
clients and regional and local opportunities. Data&Digital
Media had modest growth in the first half, again highlighting
tougher end markets and Technology Services remained strong,
continuing to outperform.
@ Geographically, on a like-for-like basis, the Americas net
revenue growth was up 6.8% and now accounts for 79% of the Company,
EMEA, accounting for 15% was up 1.7% and Asia Pacific, accounting
for the remaining 6% was down 6.9%, reflecting lower client demand,
particularly in China and some underperformance.
@ Growth rates in digital media and transformation still remain
above those of traditional, analogue markets. We are mainly focused
on the digital media and transformation markets and are at the
heart of developing trends around Blockchain, the Metaverse, AI and
Quantum computing. Initial traction from our AI initiatives with
clients is encouraging, such as last week's exclusive Outside
Broadcasting Services initiative with Nvidia, AWS and Adobe, which
is engendering considerable interest from media companies.
@ Our talented people have responded positively to the
challenges of the first half and we have continued to make progress
in the three areas of our ESG strategy: zero impact workspaces,
sustainable work, and diversity, equity and inclusion
(DE&I).
@ No new combinations were added to the Company in the first half of 2023.
Outlook
@ Following slower than expected trading over the summer months,
including August and current client activity levels, full year
expectations have been further revised. Like-for-like n et revenue
is now expected to be likely down on the prior year and operational
EBITDA margins are now targeted to be in the range of 12 % to 1
3.5% . As in recent years, we expect the full year results to be
heavily Q4 weighted reflecting our seasonality and anticipated
client activity (9) .
@ Our net debt(7) will rise in H2 2023 reflecting payments for
prior year combinations, after which virtually all of the existing
contingent consideration due will have been satisfied. Our expected
range for the year end is GBP180-220 million. We aim for financial
leverage of around 1.5 times operational EBITDA over the medium
term.
@ Over the longer term we continue to expect our growth to
outperform our markets and operational EBITDA margins to return to
historic levels of 20%+.
Sir Martin Sorrell, Executive Chairman of S(4) Capital plc
said:
"We had a very mixed first half of the year reflecting
challenging global macroeconomic conditions and consequent fears of
recession, which resulted in client caution to commit and extended
sales cycles, particularly for larger projects. Despite this
like-for-like revenue growth at our top 20 clients was up 8.9% and
at the top 50 up 11.4%. We expect the year as usual to be weighted
to the second half, especially Q4 - stimulated, in particular, by
increased seasonal levels of clients' activity and our Artificial
Intelligence initiatives and the use cases we are developing with
our clients. We remain confident our talent, business model,
strategy and scaled client relationships position us well for above
average growth in the longer term, with a new emphasis on deploying
free cash flow to dividends and share buybacks."
N otes:
1. Billings is unaudited gross billings to client including pass through costs.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous period of
the existing and acquired businesses consolidated for the same
months as in 2023 applying currency rates as used in 2023.
4. Pro-forma numbers relate to unaudited non-statutory and
non-GAAP consolidated results at half year in constant currency as
if the Group had existed in full for the six month period and have
been prepared under comparable GAAP with no consolidation
eliminations in the pre-acquisition period.
5. Operational EBITDA is operating profit or loss adjusted for
acquisition related expenses, non-recurring items (primarily
acquisition payments tied to continued employment, restructuring
costs and amortisation of business combination intangible assets)
and recurring share-based payments, and includes right-of-use
assets depreciation. It is a non-GAAP measure management uses to
assess the underlying business performance. Operational EBITDA
margin is operational EBITDA as a percentage of net revenue.
6. Adjusted operating profit is operating profit/loss adjusted
for non-recurring items (as defined above) and recurring
share-based payments.
7. Net debt excludes lease liabilities.
8. The prior period figures have been restated for the adoption of the amendment to IAS 12.
9. This is a target and not a profit forecast.
Disclaimer
This announcement includes 'forward-looking statements'. All
statements other than statements of historical facts included in
this announcement, including, without limitation, those regarding
the Company's financial position, business strategy, plans and
objectives of management for future operations (including
development plans and objectives relating to the Company's
services) are forward-looking statements.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These factors include but are not limited to those
described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These
forward- looking statements speak only as at the date of this
announcement. S(4) Capital expressly disclaims any obligation or
undertaking to update or revise any forward-looking statements
contained herein to reflect actual results or any change in the
assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of the Company for the
current or future years would necessarily match or exceed the
historical published earnings per share of the Company.
Neither the content of the Company's website, nor the content on
any website accessible from hyperlinks on its website for any other
website, is incorporated into, or forms part of, this announcement
nor, unless previously published by means of a recognised
information service, should any such content be relied upon in
reaching a decision as to whether or not to acquire, continue to
hold, or dispose of, shares in the Company.
Results webcast and conference call
A webcast and conference call covering the results will be held
today at 09:00 BST, followed by another webcast and call at 08:00
EDT/ 13:00 BST. Both webcasts of the presentation will be available
at www.s4capital.com during the event.
09: 00 BST webcast (watch only) and conference call (for
Q&A):
Webcast: https://brrmedia.news/SFOR_H1IR2023
Conference call:
UK: +44 (0)330 551 0200
USA: +1 786 697 3501
08:00 EDT / 13:00 BST webcast (watch only) and conference call
(for Q&A) :
Webcast: https://brrmedia.news/SFOR_H1IRUS23
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Enquiries to
S(4) Capital plc
Sir Martin Sorrell, Executive Chairman +44 (0)20 3793 0003/ +44
(0)20 3793 0007
Mary Basterfield, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)
Elly Williamson +44 (0)7970 246 725
Pete Lambie
Interim results statement overview
The first half of 2023 was mixed with slower market growth and
continuing macroeconomic uncertainty. Our stated 'whopper' strategy
of building broad scaled relationships with leading enterprise
clients continues to drive our growth. Overall, we have seen
clients being cautious and very much focused on the short term,
particularly in relation to larger transformation projects. We
anticipate an improved second half performance reflecting our
seasonality and particularly Q4 weighting, and ongoing cost
management which drives the stronger performance. We remain focused
on a disciplined approach to costs, headcount and operational cash
generation.
In the second half of 2023 there will be a cash outflow relating
to 2022 and prior year combinations, with net debt expected to rise
as a result. We will maintain a liquid balance sheet and the focus
will be on improving operating performance and deploying free cash
flow to dividends and buybacks.
The Company reports in three well defined practices; Content,
Data&Digital Media and Technology Services. Content had a
challenging first half, with like for like net revenue down
slightly, which impacted margins significantly, delivering results
below our budget. Data&Digital Media saw modest like-for-like
net revenue growth, but is trading satisfactorily , although at
reduced margins . Technology Services continues to perform
strongly. Growth in Technology Services is expected to moderate in
the second half due to expected phasing of work with its larger
clients and strong comparatives. As in prior years, we anticipate a
significant second half weighting and particularly in Q4 reflecting
our seasonality and anticipated client activity, which will be
complemented by an ongoing disciplined approach to cost
management.
Both Data&Digital Media and Technology Services growth rates
remain above those of traditional, analogue markets. We are mainly
focused on the digital media and transformation markets and are at
the heart of developing trends around Blockchain, the Metaverse, AI
and Quantum computing. We are seeing our Artificial Intelligence
initiatives improving visualisation and copywriting productivity,
in delivering more empathetic hyper-personalisation (better
targeted content at greater scale), more automated media planning
and buying, improving general client and agency efficiency and
democratising knowledge. The initial client traction reinforces our
confidence in our offering and approach. As anticipated our markets
and clients are growing more slowly in 2023, reflecting the weaker
global economic conditions, which have been impacted by inflation
and higher interest rates and general geopolitical uncertainty
around US/China relations, the war in Ukraine and relations with
Iran.
We continue to focus on the three areas of our ESG strategy:
zero impact workspaces, sustainable work, and diversity, equity and
inclusion (DE&I). We are adopting new tools to help us move
towards increased transparency and measuring of CO(2) emissions. We
continue to engage with leading stakeholders, industry efforts and
global initiatives - like Amazon and the World Economic Forum and
we continue to focus on our external reporting and compliance.
Across the Company, we continue to donate hours to support
community and charity services and our For Good projects. We
focused on our people and people experience with our DE&I
platform, Diversity in Action, which touches all aspects of our
business. Embedding a greater understanding of diversity and
cultural fluency into the Company is also a top priority. We are a
signatory to the United Nations (UN) Women's Empowerment Principles
and continue to focus on closing the representation gap in our
industry by providing training to underserved and/or
underrepresented talent.
Summary and outlook
Following slower than expected trading over the summer months,
including August and current client activity levels, full year
expectations have been revised further. Like-for-like net revenue
is now expected to be down on the prior year and operational EBITDA
margins are now targeted to be in the range of 12 to 13.5%. As in
recent years, we expect the full year results to be heavily Q4
weighted reflecting our seasonality and anticipated client
activity.
Our net debt will rise in H2 2023 reflecting payments for prior
year combinations, after which virtually all of the existing
contingent consideration due will have been satisfied. Our expected
range for the year end is GBP180-220 million. We aim for financial
leverage of around 1.5 times operational EBITDA over the medium
term. We will focus on improving efficiency and effectiveness and
deploying free cash flow to dividends and buybacks.
Over the longer term we continue to expect our growth to
outperform our markets and operational EBITDA margins to return to
historic levels of 20%+. The strategy of S(4) Capital remains the
same. The Company's purely digital transformation model, based on
first-party data fuelling the creation, production and distribution
of digital advertising content, distributed by digital media and
built on technology platforms to ensure success and efficiency,
resonates with clients. Our tagline 'faster, better, cheaper, more'
or 'speed, quality, value, more' (to both of which with the arrival
of AI we have added 'more') and a unitary structure both appeal
strongly, even more so in challenging economic times.
Financial review
Summary of results
GBP millions six months six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June
2023 2022(8)
Billings(1) 925.4 765.6 20.9% 10.9% 10.9%
Revenue 517.1 446.4 15.8% 2.5% 2.5%
Net revenue (2) 445.5 375.3 18.7% 5.1% 5.1%
--------------------------------- ----------- ----------- ----------- ------------------ ---------------
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
Operational EBITDA margin(5) 8.2% 8.0% 20bps (410)bps (410)bps
Adjusted(6) operating profit 30.6 25.4 20.5%
------------------ ---------------
Adjusting(6) items (37.0) (100.8) 63.3%
------------------ ---------------
Adjusted(6) operating profit
margin 6.9% 6.8% 10bps
--------------------------------- ----------- ----------- ----------- ------------------ ---------------
Net finance expenses and
loss on net monetary position (16.8) (10.2) (64.7%)
Adjusted(6) result before
income tax 13.8 15.2 (9.2%)
Adjusted(6) Income tax expenses (3.5) (3.3) (6.1%)
Adjusted(6) result for the
period 10.3 11.9 (13.4%)
--------------------------------- ----------- ----------- ----------- ------------------ ---------------
Adjusted(6) basic earnings
per share (pence) 1.7 2.1 (0.4)
================================= =========== =========== =========== ================== ===============
A full list of alternative performance measures and non-IFRS
measures together with reconciliations to IFRS or GAAP measures are
set out in the Alternative Performance Measures.
Financial summary
Despite the challenging first half of 2023 with slower market
growth and ongoing macroeconomic uncertainty, we have continued to
enhance our financial processes and controls, supported by a now
well established finance team, with a focus on operational EBITDA
margin, tight cost controls and driving cash generation centred
around working capital. We will continue to focus on all of these
areas throughout the second half of 2023 to support the Company in
delivering its revised targets for the year.
Billings(1) were GBP925.4 million, up 20.9% on a reported basis,
up 10.9% on a like-for-like(3) basis.
Revenue was GBP517.1 million, up 15.8% from GBP446.4 million on
a reported basis, up 2.5% like-for-like basis.
Net revenue(2) was GBP445.5 million, up 18.7% reported, up 5.1%
like-for-like.
Operational EBITDA(5) was GBP36.5 million compared to GBP30.1
million in the prior year, a reported increase of 21.3% and down
30.2% on a like-for-like basis. We have continued to maintain a
disciplined approach to cost management, including headcount and
discretionary costs. These controls have resulted in the number of
Monks at the half year being around 8,550, down 5% from over 9,000
at this time last year. We are taking further actions in the second
half, particularly in Content, given the current market
conditions.
Operational EBITDA margin was 8.2%, up 20 basis points versus
8.0% in the first half of 2022 and down 410 basis points
like-for-like reflecting primarily the lower growth in the Content
practice and lower margins in Data&Digital Media . Our ambition
remains to return full year margins to historic levels, above 20%,
over the longer term.
Adjusted operating profit was up 20.5% on a reported basis to
GBP30.6 million from GBP25.4 million, before adjusting items of
GBP37.0 million. The reduction in adjusting items is largely due to
lower combination costs tied to continued employment and a fair
value adjustment on equity consideration. Adjusting items also
includes share-based payments, restructuring costs primarily
related to headcount and amortisation of business combination
intangible assets.
The reported operating loss of GBP6.4 million, was GBP69.0
million lower than in 2022, reflecting a reduction in the
acquisition and restructuring expenses. The loss for the period was
GBP19.7 million (30 June 2022: GBP82.3 million).
Adjusted basic earnings per share was 1.7p, versus adjusted
basic earnings per share of 2.1p in the first half of 2022.
The Board will consider a dividend of at least 1p per share,
when the final results for 2023 have been determined, reflecting
its confidence in the strategy for the Group and that we expect to
be cash generative in 2024 with no material combination
payments.
Practice and Geographic Performance
GBP millions six months six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June 2022
2023
Content 264.7 250.2 5.8% (2.5%) (2.5%)
Data&Digital Media 106.6 100.7 5.9% 2.4% 2.4%
Technology Services 74.2 24.4 204.1% 54.3% 54.3%
----------------------- ----------- -------------- ---------- ------------------ --------------
Net revenue (2) 445.5 375.3 18.7% 5.1% 5.1%
Americas 353.7 284.5 24.3% 6.8% 6.8%
EMEA 66.1 63.3 4.4% 1.7% 1.7%
Asia-Pacific 25.7 27.5 (6.5%) (6.9%) (6.9%)
----------------------- ----------- -------------- ---------- ------------------ --------------
Net revenue (2*) 445.5 375.3 18.7% 5.1% 5.1%
Content 6.8 14.0 (51.4%) (73.3%) (73.3%)
Data&Digital Media 16.3 17.4 (6.3%) (15.5%) (15.5%)
Technology Services 26.5 8.8 201.1% 49.7% 49.7%
S(4) central (13.1) (10.1) (29.7%) (28.4%) (28.4%)
----------------------- ----------- -------------- ---------- ------------------ --------------
Operational EBITDA(5) 36.5 30.1 21.3% (30.2%) (30.2%)
*T he prior period geographical split of net revenue has been
re-presented to be consistent with the internal reporting provided
to the Group's Board of Directors in the current period.
Practice performance
Content practice operational EBITDA was GBP6.8 million, down
51.4% on a reported basis versus the first half of 2022, down 73.3%
on a like-for-like basis. The Content practice operational EBITDA
margin was 2.6%, compared to 5.6% in the first half of 2022,
reflecting people cost inflation and related benefits , higher IT
costs and lower than budgeted revenues impacting profitability.
Continued control on hiring has reduced headcount at the period end
and will benefit the second half and Q4. We continue to focus on
integration and improving the operating model for Content, with
further cost reduction measures taking place during Q3 and Q4.
Data&Digital Media practice operational EBITDA was GBP16.3
million, down 6.3% on a reported basis from the last year, down
15.5% on a like-for-like basis. Data&Digital Media practice
operational EBITDA margin was 15.3%, compared to 17.3%, reflecting
the lower like-for-like topline growth, people cost inflation and
related benefits , and higher travel and selling costs against a
covid impacted comparison.
Technology Services continues to outperform with operational
EBITDA of GBP26.5 million, up 201.1% on a reported basis from the
prior period, up 49.7% like-for-like and delivering an operational
EBITDA margin of 35.7%.
Central costs reflect a full six months of the investments made
in 2022 to build out finance, assurance and governance.
Geographic performance
The Americas net revenue was GBP353.7 million (79 .4 % of
total), up 24.3% on a reported basis from last year. On a
like-for-like basis the Americas net revenue was up 6.8%,
reflecting growth in our " whoppers " offset by slower market
growth and client caution.
EMEA net revenue was GBP66.1 million (1 4.8 % of total), up 4.4%
from last year on a reported basis. On a like-for-like basis EMEA
net revenue was up 1.7% primarily reflecting slower market growth
and client caution .
Asia Pacific net revenue was GBP25.7 million ( 5.8 % of total),
down 6.5% on a reported basis. On a like-for-like basis Asia
Pacific net revenue was down 6.9% reflecting challenging market
conditions , particularly in China and some underperformance .
Cash flow
GBP millions six months six months
ended ended
30 June 30 June 2022
2023
Operational EBITDA 36.5 30.1
Capital expenditure(1) (5.1) (10.2)
Interest paid (11.6) (6.6)
Income tax paid (10.7) (7.4)
Change in working capital (10.8) (7.7)
Free cashflow (1.7) (1.8)
Mergers & Acquisitions (0.3) (125.6)
Other 2.8 9.9
Movement in net cash/(net debt) 0.8 (117.5)
Opening net debt (110.2) (18.0)
Net debt (109.4) (135.5)
================================= =========== ==============
The table reflects how the business is managed and this is a
non-statutory cash flow format.
1. Includes investment in intangible assets, investments in
property, plant and equipment and security deposits.
Free cashflow for the period was negative GBP1.7 million, an
improvement of GBP0.1 million compared to the first of 2022 with an
improvement in operational EBITDA and the benefits of lower capital
expenditure, partially offset by increased cash interest costs
reflecting higher interest rates.
Cash paid in relation to combinations (M&A) decreased
GBP125.3 million versus the prior period to GBP0.3 million
reflecting lower M&A activity and timing of payments, which are
now expected in the second half of the year.
Treasury and net debt
six months six months
ended ended
30 June 30 June
2023 2022
Net debt reconciliation
GBP millions
================================================== =========== ===========
Cash and cash equivalents 213.3 193.1
Loans and borrowings (excluding bank overdrafts) (322.7) (323.8)
Bank overdrafts - (4.8)
=================================================== =========== ===========
Net debt (109.4) (135.5)
--------------------------------------------------- ----------- -----------
The half year net debt was GBP109.4 million (30 June 2022:
GBP135.5 million) or 0.9x net debt/12 month pro-forma operational
EBITDA. The balance sheet has sufficient liquidity and long dated
debt maturities. During the period S(4) Capital Group complied with
the covenants set in its loan agreement. The pro-forma 12 month
operational EBITDA for the period to 30(th) June 2023 was GBP128.1
million.
Interest and tax
Income statement net financing costs were GBP16.8 million (30
June 2022: GBP10.2 million), an increase of GBP6.6 million due to
higher interest rates, increased lease costs and the discounting of
contingent consideration. The income statement tax credit for the
half year was GBP3.5 million (30 June 2022: GBP3.3 million).
Balance sheet
Overall the Group reported net assets of GBP827.8 million as at
30 June 2023, which is a decrease of GBP22.3 million compared to 31
December 2022, driven mainly by changes in FX rates and
amortisation of intangible assets.
Acquisitions
No acquisitions were made in the six months ended 30 June
2023.
Responsibility Statement
The directors confirm that these unaudited consolidated interim
financial statements have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
@ an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
@ material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The maintenance and integrity of the S(4) Capital plc website is
the responsibility of the directors; the work carried out by the
authors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that might have occurred to the interim financial statements since
they were initially presented on the website. The directors of S(4)
Capital plc are listed in the S(4) Capital plc annual report for 31
December 2022. A list of current directors is maintained on the
S(4) Capital plc website: www.s4capital.com .
By order of the Board
Sir Martin Sorrell Mary Basterfield
Chairman Chief Financial Officer
About S(4) Capital
S (4) Capital plc (SFOR.L) is the tech-led, new age/new era
digital advertising, marketing and technology services company,
established by Sir Martin Sorrell in May 2018.
Our strategy is to build a purely digital advertising and
marketing services business for global, multinational, regional,
and local clients, and millennial-driven influencer brands. This
will be achieved by integrating leading businesses in three
practices: Content, Data&Digital Media and Technology Services,
along with an emphasis on 'faster, better, cheaper, more' execution
in an always-on consumer-led environment, with a unitary
structure.
Victor Knaap, Wesley ter Haar, Christopher S. Martin, Scott
Spirit and Mary Basterfield all joined the S (4) Capital Board as
Executive Directors. The S (4) Capital Board also includes Rupert
Faure Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth
Buchanan, Naoko Okumoto, Margaret Ma Connolly, Miles Young and
Colin Day.
The Company now has approximately 8,600 people in 32 countries
with approximately 80 % of net revenue across the Americas, 15 %
across Europe, the Middle East and Africa and 5 % across
Asia-Pacific. The longer-term objective is a geographic split of
60%:20%:20%. Content currently accounts for approximately 6 0 % of
net revenue, Data&Digital Media 2 5 % and Technology Services 1
5 %. 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 GBP1
million 'shell' company in 1985 into the world's largest
advertising and marketing services company, with a market
capitalisation of over GBP16 billion on the day he left. Prior to
that Sir Martin was Group Financial Director of Saatchi &
Saatchi Company Plc for nine years.
Unaudited consolidated interim statement of profit or loss
For the six month period ended 30 June 2023
Six months Six months
ended ended
30 June 2023 30 June
GBPm 2022(1)
GBPm
Note
======================================== ==== ========= ==========
Revenue 7 517.1 446.4
Direct costs (71.6) (71.1)
======================================== ==== ========= ==========
Net revenue 7 445.5 375.3
Personnel costs (358.8) (308.9)
Other operating expenses (48.7) (36.1)
Acquisition, restructuring and other
expenses (5.7) (69.7)
Depreciatio n and amortisation (38.8) (36.0)
Share of profit of joint ventures 0.1 -
======================================== ==== ========= ==========
Total operating expenses (451.9) (450.7)
======================================== ==== ========= ==========
Operating loss (6.4) (75.4)
======================================== ==== ========= ----------
Adjusted operating profit 30.6 25.4
Adjusting items(2) (37.0) (100.8)
Operating loss (6.4) (75.4)
======================================== ==== ========= ----------
Finance income 1.1 0.8
Finance costs (18.6) (10.4)
======================================== ==== ========= ==========
Net finance costs (17.5) (9.6)
Gain/(loss) on the net monetary
position 0.7 (0.6)
======================================== ==== ========= ==========
Loss before income tax (23.2) (85.6)
Income tax credit 3.5 3.3
======================================== ==== ========= ==========
Loss for the period (19.7) (82.3)
======================================== ==== ========= ==========
Attributable to owners of the Company
Attributable to non-controlling (19.7) (82.3)
interests - -
======================================== ==== ========= ==========
(19.7) (82.3)
======================================== ==== ========= ==========
Loss per share is attributable
to the ordinary equity holders of
the Company
Basic loss per share (pence) (3.2) (14.5)
Diluted loss per share (pence) (3.2) (14.5)
======================================== ==== ========= ==========
Notes:
1. The comparatives for the six month period ended 30 June 2022
have been restated for the adoption of the amendment to IAS 12 (see
Note 2).
2. Adjusting items comprises amortisation of intangibles of
GBP24.2m (H1 2022: GBP24.2m), acquisition and restructuring
expenses of GBP5.7m (H1 2022: GBP69.7m) and share-based payments of
GBP7.1m (H1 2022: GBP6.9m) .
The results for the period are wholly attributable to the
continuing operations of the Group.
Unaudited consolidated interim statement of comprehensive
income
For the six month period ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
2023 2022(1)
GBPm GBPm
=============================================================== ========== ==========
Loss for the period (19.7) (82.3)
--------------------------------------------------------------- ---------- ----------
Other comprehensive (expense)/income
Items that may be reclassified to profit or loss
Foreign operations - foreign currency translation differences (38.8) 70.4
=============================================================== ========== ==========
Other comprehensive (expense)/income (38.8) 70.4
=============================================================== ========== ==========
Total comprehensive expense for the period (58.5) (11.9)
=============================================================== ========== ==========
Attributable to owners of the Company (58.5) (11.9)
Attributable to non-controlling interests - -
=============================================================== ========== ==========
(58.5) (11.9)
=============================================================== ========== ==========
Notes:
1. The comparatives for the six month period ended 30 June 2022
have been restated for the adoption of the amendment to IAS 12 (see
Note 2).
Unaudited consolidated interim balance sheet
As at 30 June 2023
Six months Year
ended ended
30 June 31 December
Note 2023 2022(1)
GBPm GBPm
======================================= ====== ========== ============
Assets
Goodwill 8 690.2 718.8
Intangible assets 404.3 445.2
Right-of-use assets 51.5 55.7
Property, plant and equipment 27.0 29.7
Interest in joint ventures 0.1 -
Deferred tax assets 15.8 15.1
Other receivables 9.3 12.2
======================================= ====== ========== ============
Non-current assets 1,198.2 1,276.7
======================================= ====== ========== ============
Trade and other receivables 365.2 442.4
Tax assets 3.6 -
--------------------------------------- ------ ---------- ------------
Cash and cash equivalents 213.3 223.6
======================================= ====== ========== ============
Current assets 582.1 666.0
======================================= ====== ========== ============
Total assets 1,780.3 1,942.7
======================================= ====== ========== ============
Liabilities
Deferred tax liabilities (57.2) (63.8)
Loans and borrowings (316.3) (326.2)
Lease liabilities (38.9) (43.1)
Contingent consideration and holdbacks 9 (6.3) (11.3)
Provisions (4.7) (5.7)
======================================= ====== ========== ============
Non-current liabilities (423.4) (450.1)
--------------------------------------- ------ ---------- ------------
Trade and other payables (401.4) (443.2)
Contingent consideration and holdbacks 9 (111.3) (177.3)
Loans and borrowings (0.4) (0.7)
Lease liabilities (15.2) (15.3)
Provisions (0.8) -
Tax liabilities - (6.0)
======================================= ====== ========== ============
Current liabilities (529.1) (642.5)
======================================= ====== ========== ============
Total liabilities (952.5) (1,092.6)
======================================= ====== ========== ============
Net assets 827.8 850.1
======================================= ====== ========== ============
Equity
Share capital 145.1 142.0
Share premium 67.6 5.9
Merger reserves - -
Other reserves 139.7 175.2
Foreign exchange reserves 9.7 48.5
Retained earnings/(accumulated losses) 465.6 478.4
======================================= ====== ========== ============
Attributable to owners of the Company 827.7 850.0
Non-controlling interests 0.1 0.1
======================================= ====== ========== ============
Total equity 827.8 850.1
======================================= ====== ========== ============
Notes:
1. The comparatives as at 31 December 2022 have been restated
for the adoption of the amendment to IAS 12 , measurement period
adjustments in respect of business combinations and re-presented to
split out certain balance sheet items and provide more clarity for
the year ended 31 December 2022. See Note 2.
Unaudited consolidated interim statement of changes in
equity
For the six month period ended 30 June 2023
Retained
earnings/ Attributable
Share Foreign (accumulated to owners
capital Share Merger Other exchange losses) of the Non-controlling Total
(1) premium reserves reserves(2) reserves (3) Company interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======== ======== ========= ============ ========= ============= ============= ================ =======
At 1 January
2022 138.8 446.9 205.7 76.7 (22.2) (44.8) 801.1 0.1 801.2
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Amendment to
IAS 12
restatement(3) - - - - - 1.3 1.3 - 1.3
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Hyperinflation
restatement - - - 1.7 - - 1.7 - 1.7
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Adjusted
opening
balance 138.8 446.9 205.7 78.4 (22.2) (43.5) 804.1 0.1 804.2
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Comprehensive
loss for the
period
Loss for the
period - - - - - (82.3) (82.3) - (82.3)
Foreign
currency
translation
differences - - - - 70.4 - 70.4 - 70.4
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Total
comprehensive
loss
for the period - - - - 70.4 (82.3) (11.9) - (11.9)
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Transactions
with owners of
the Company
Business
combinations 0.2 2.9 - 91.0 - - 94.1 - 94.1
Share-based
payments - - - 0.3 - 6.6 6.9 - 6.9
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
At 30 June
2022(3) 139.0 449.8 205.7 169.7 48.2 (119.2) 893.2 0.1 893.3
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Hyperinflation
restatement - - - 1.6 - - 1.6 - 1.6
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Adjusted
opening
balance 139.0 449.8 205.7 171.3 48.2 (119.2) 894.8 0.1 894.9
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Comprehensive
loss for the
period
Loss for the
period - - - - - (78.2) (78.2) - (78.2)
Other
comprehensive
Income - - - - 0.3 - 0.3 - 0.3
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Total
comprehensive
income/(loss)
for the period - - - - 0.3 (78.2) (77.9) - (77.9)
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Transactions
with owners of
the Company
Realised merger
reserve(4) - (462.6) (205.7) - - 668.3 - - -
Business
combinations 3.0 18.7 - 3.8 - - 25.5 - 25.5
Share-based
payments - - - 0.1 - 7.5 7.6 - 7.6
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
At 31 December
2022(3) 142.0 5.9 - 175.2 48.5 478.4 850.0 0.1 850.1
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Hyperinflation
restatement - - - 2.4 - - 2.4 - 2.4
================ ======== ======== ========= ============ ========= ============= ============= ================ =======
Adjusted
opening
balance 142.0 5.9 - 177.6 48.5 478.4 852.4 0.1 852.5
Comprehensive
loss for the
period
Loss for the
period - - - - - (19.7) (19.7) - (19.7)
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Other
comprehensive
Income - - - - (38.8) - (38.8) - (38.8)
Total
comprehensive
loss
for the period - - - - (38.8) (19.7) (58.5) - (58.5)
Transactions
with owners of
the Company
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Business
combinations 3.1 61.7 - (38.3) - - 26.5 - 26.5
---------------- -------- -------- --------- ------------ --------- ------------- ------------- ---------------- -------
Share-based
payments - - - 0.4 - 6.9 7.3 - 7.3
================ ======== ======== ========= ============ ========= ============= ============= ================ =======
At 30 June 2023 145.1 67.6 - 139.7 9.7 465.6 827.7 0.1 827.8
================ ======== ======== ========= ============ ========= ============= ============= ================ =======
Notes:
1. At the end of the reporting period, the issued and paid up
share capital of S4Capital plc consisted of 580,147,552 (H1 2022:
556,085,466, 2022: 567,832,883) Ordinary Shares having a nominal
value of GBP0.25 per Ordinary Share.
2. Other reserves primarily includes the deferred equity
consideration arising from business combinations of GBP133.5m (H1
2022: GBP168.0m ), made up of the following: TheoremOne for
GBP81.4m, Raccoon for GBP26.2m, XX Artists for GBP7.8m, Cashmere
for GBP6.9m, Zemoga GBP8.7m, 4Mile for GBP2.3m and Destined for
GBP0.2m, the treasury shares issued in the name of S(4) Capital plc
to an employee benefit trust for the amount of GBP1.4m (H1 2022:
GBP2.2m), and hyperinflation restatement in Argentina of GBP7.4m
(H1 2022: GBP3.4m).
3. The comparatives as at 30 June 2022, 31 December 2022 and 1
January 2022 have been restated for the adoption of the amendment
to IAS 12. See Note 2.
4. During the year ended 31 December 2022, the Group undertook a
reduction of capital to effect the cancellation of the C ordinary
shares resulting from the capitalisation of the sum of GBP205.7 m
ou tstanding to the credit of the Company's merger reserve.
Unaudited consolidated interim statement of cashflows
For the six month period ended 30 June 2023
Note
Six months Six months
ended ended
30 June 2023 30 June
GBPm 2022
GBPm
=============================================== ====== ============== ============
Cash flows from operating activities
----------------------------------------------- ------ -------------- ------------
Loss before income tax (23.2) (85.6)
Financial income and expenses 17.5 9.6
Depreciation and amortisation 38.8 36.0
Share-based payments 7.1 6.9
Acquisition , restructuring and other
expenses 5.7 69.7
Employment linked contingent consideration
paid - (32.3)
Share of profit in joint venture (0.1) -
(Gain)/loss on the net monetary position (0.7) 0.6
Decrease in trade and other receivables 60.6 40.9
Decrease in trade and other payables (70.3) (48.1)
Cash flows from operations 35.4 (2.3)
Income taxes paid (10.7) (7.4)
=============================================== ====== ============== ============
Net cash inflow/(outflow) from operating
activities 24.7 (9.7)
=============================================== ====== ============== ============
Cash flows from investing activities
Investments in intangible assets (1.1) (0.5)
Investments in property, plant and equipment (3.8) (10.2)
Acquisition of subsidiaries, net of cash
acquired 6, 9 (0.3) (93.2)
Security deposits (0.2) 0.5
=============================================== ====== ============== ============
Cash flows used in investing activities (5.4) (103.4)
=============================================== ====== ============== ============
Cash flows from financing activities
Proceeds from own shares 0.2 -
Payment of lease liabilities (9.7) (7.6)
Repayments of loans and borrowings (0.1) (0.2)
Transaction costs paid on borrowings - (0.3)
Interest paid (11.6) (6.6)
=============================================== ====== ============== ============
Cash flows used in financing activities (21.2) (14.7)
=============================================== ====== ============== ============
Net movement in cash and cash equivalents (1.9) (127.8)
Cash and cash equivalents beginning of
the year(1) 223.6 299.1
Exchange (loss)/ gain on cash and cash
equivalents (8.4) 17.1
=============================================== ====== ============== ============
Cash and cash equivalents at the end
of the period (1) 213.3 188.4
=============================================== ====== ============== ============
Note:
1. Including bank overdrafts GBPnil (31 December 2022: GBPnil;
30 June 2022: GBP4.8m; 31 December 2021: GBP1.9m).
Notes to the unaudited consolidated interim financial
statements
For the six month period ended 30 June 2023
1. General information
S(4) Capital plc ( ' S(4) Capital ' or ' Company ' ) is a public
limited company incorporated on 14 November 2016 in the United
Kingdom. The Company has its registered office at 12 St James ' s
Place, London, SW1A 1NX, United Kingdom.
The unaudited consolidated interim financial statements
represent the results of the Company and its subsidiaries (together
referred to as ' S(4) Capital Group' or the ' Group ' ).
S(4) Capital Group is a new age/new era digital advertising and
marketing services company.
2. Basis of preparation
A. Statement of compliance
This report is to be read in conjunction with the Annual Report
and Accounts of S(4) Capital plc for the year ended 31 December
2022 and has been prepared in accordance with UK adopted
International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards.
The unaudited consolidated interim financial statements for the
6 months period ended 30 June 2023 are a condensed set of financial
information and have been prepared on the basis of the policies set
out in the 2022 annual financial statements and in accordance with
UK adopted IAS 34 and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority.
The Group has undertaken a detailed going concern assessment,
reviewing its current and projected financial performance and
position. The Directors believe that the Group's forecasts have
been prepared on a prudent basis. Considering the Group's bank
covenant and liquidity headroom and cost mitigation actions which
could be implemented, the Directors have concluded that the Group
will be able to operate within its facilities and comply with its
banking covenants for the foreseeable future and therefore believe
it is appropriate to prepare the financial statements of the Group
on a going concern basis and that there are no material
uncertainties which gives rise to a significant going concern risk.
Given its debt maturity profile and available facilities, the
Directors believe the Group has sufficient liquidity to match its
requirements for the foreseeable future.
The unaudited consolidated interim financial statements were
authorised for issue by the Board of Directors on 17 September
2023.
B. Restatement and re-presentation
Business combinations
The consolidated balance sheet at 31 December 2022 has been
restated for fair value adjustments relating to the TheoremOne
acquisition. See Note 6 for further details.
Deferred tax related to assets and liabilities arising from a
single transaction (Amendments to IAS 12 Income Taxes)
An amendment to IAS 12 Income taxes was published in May 2021
and became effective for the Group from 1 January 2023. The
amendment narrowed the scope of the deferred tax recognition
exemption so that it no longer applies to transactions that, on
initial recognition, give rise to equal taxable and deductible
temporary differences.
The Group has considered the impact of this amendment, notably
in relation to the accounting for deferred taxes on leases and
dilapidation provisions. The impact of transitioning to the revised
standard was to increase deferred tax assets by GBP0.3 million,
decrease deferred tax liabilities by GBP1.0 million and increase
total equity by GBP1.3 million as at 1 January 2022. The impact on
the statement of profit and loss was GBP0.1 million income and
GBP0.9 million expense for period ended 30 June 2022 and 31
December 2022 respectively. The impact of this retrospective
adjustment on the consolidated balance sheet at 31 December 2022 is
shown below.
Provisions and other payables
Provisions previously presented as other payables have been
re-presented to be shown separately on the consolidated balance
sheet to provide consistency with the presentation of balances for
the six months ended 30 June 2023.
31 December
2022
============================== =========== ============= ========== =========================
As reported Business Amendment Re-presented As restated
combinations to IAS 12
GBPm GBPm GBPm GBPm GBPm
============================== =========== ============= ========== ============ ===========
Goodwill 720.4 (1.6) - - 718.8
=============================== =========== ============= ========== ============ ===========
Deferred tax assets 16.8 - (1.7) - 15.1
=============================== =========== ============= ========== ============ ===========
Total non-current assets 1,280.0 (1.6) (1.7) - 1,276.7
=============================== =========== ============= ========== ============ ===========
Trade and other receivables 440.8 1.6 - - 442.4
=============================== =========== ============= ========== ============ ===========
Total current assets 664.4 1.6 - - 666.0
=============================== =========== ============= ========== ============ ===========
Total assets 1,944.4 - (1.7) - 1,942.7
=============================== =========== ============= ========== ============ ===========
Deferred tax liabilities 66.0 - (2.2) - 63.8
------------------------------- ----------- ------------- ---------- ------------ -----------
Provisions - - - 5.7 5.7
------------------------------- ----------- ------------- ---------- ------------ -----------
Other payables 5.7 - - (5.7) -
=============================== =========== ============= ========== ============ ===========
Total non-current liabilities 452.3 - (2.2) - 450.1
=============================== =========== ============= ========== ============ ===========
Total liabilities 1,094.8 - (2.2) - 1,092.6
=============================== =========== ============= ========== ============ ===========
Net assets 849.6 - 0.5 - 850.1
=============================== =========== ============= ========== ============ ===========
C. Functional and presentation currency
The unaudited consolidated interim financial statements are
presented in Pound Sterling (GBP or GBP), the Company ' s
functional currency. All financial information in Pound Sterling
has been rounded to the nearest million unless otherwise
indicated.
D. Principal risks and uncertainties
The principal risks and uncertainties facing the Group at the
2022 year end are set out in detail on pages 24 to 28 of the Annual
Reports and Accounts 2022. The principal risks and uncertainties
facing the Group at the 30 June 2023 remain the same and relate the
following:
@ Economic environment
@ People retention
@ Controls and compliance
@ Strategy
@ Integration of entities
@ Governance
@ Systems and processes
@ Competitive environment
@ Information security
3. Significant accounting policies
The unaudited consolidated interim financial statements have
been prepared on a consistent basis with the accounting policies of
the Group which were set out on pages 139 to 154 of the Annual
Report and Accounts 2022, excluding the impact of amended standards
as detailed below.
A number of amended standards became applicable for the current
reporting period. These are as follows:
Definition of accounting estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of accounting
estimates (Amendments to IAS 8) to clarify the distinction between
accounting policies and accounting estimates. The amendments are
effective for reporting periods beginning on or after 1 January
2023. The Group adopted this standard as of 1 January 2023. The
adoption of this standard had no material impact on the Groups
unaudited consolidated interim financial statements.
Making Materiality Judgements (Amendments to IAS 1 and IFRS
Practice Statement 2)
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 "Making Materiality Judgements", which provide
guidance and examples to help entities apply materiality judgements
to accounting policy disclosures. The amendments aim to help
entities provide accounting policy disclosures that are more useful
by replacing the requirement for entities to disclose their
'significant' accounting policies with a requirement to disclose
their material accounting policies and adding guidance on how
entities are to apply the concept of materiality in making
decisions about accounting policy disclosures. These amendments are
applicable for annual periods beginning on or after 1 January 2023.
These amendments have been adopted as of such date and has had no
material impact on the Group's unaudited consolidated interim
financial statements.
Deferred tax related to assets and liabilities arising from a
single transaction (Amendments to IAS 12 Income Taxes)
In May 2021, the IASB issued Deferred tax related to assets and
liabilities arising from a single transaction (Amendments to IAS 12
Income Taxes) to clarify how to account for deferred tax on
transactions including leases and decommissioning obligations. The
amendments are effective for reporting periods beginning on or
after 1 January 2023. The Group adopted this standard as of 1
January 2023, as detailed in Note 2.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts. IFRS
17 replaces IFRS 4 and sets out principles for the recognition,
measurement, presentation and disclosure of insurance contracts
within the scope of IFRS 17. This standard is effective for
reporting periods beginning on or after 1 January 2023. The Group
adopted this standard as of 1 January 2023. The adoption of this
standard had no material impact on the Group's unaudited
consolidated interim financial statements.
Pillar 2
The Group has applied the mandatory temporary exception under
IAS 12 in relation to the accounting for deferred taxes arising
from the implementation of the Pillar 2 rules.
4. Critical accounting judgements and estimates
The following are the critical accounting judgements and
estimates, made by management in the process of applying the
Group's accounting policies, that have the most significant effect
on the amounts recognised in the Group's unaudited consolidated
interim financial statements.
Judgements
Revenue recognition
The Group's revenue is earned from the provision of data and
digital media solutions and technology services. Under IFRS 15,
revenue from contracts with customers is recognised as, or when,
the performance obligation is satisfied.
Specifically for the Content segment, due to the size and
complexity of contracts, management is required to form a number of
judgements in the determination of the amount of revenue to be
recognised including the identification of performance obligations
within the contract and whether the performance obligation is
satisfied over time or at a point in time. The key judgment is
whether revenue should be recognised over time or at point in time.
Where revenue is recognised over time, an estimate must be made
regarding the progress towards completion of the performance
obligation.
Impairment of goodwill and intangible assets
The Group applies judgement in determining whether the carrying
value of goodwill and intangible assets have any indication of
impairment at each reporting period, or more frequently if
required. Both external and internal factors are monitored for
indicators of impairment. When performing the impairment review,
management's approach for determining the recoverable amount of a
cash-generating unit is based on the higher of value in use or fair
value less cost to dispose. In determining the value in use,
estimates and assumptions are used to derive cashflows, growth
rates and discount rates. See Note 8 for further information.
Tax positions
The Group is subject to sales tax in a number of jurisdictions.
Judgement is required in determining the provision for sales taxes
due to uncertainty of the amount of tax that may be payable.
Provisions in relation to uncertain tax positions are established
on an individual rather than portfolio basis, considering whether,
in each circumstance, the Group considers it is probable that the
uncertainty will crystallise.
Use of alternative performance measures
In establishing which items are disclosed separately as
adjusting items to enable a better understanding of the underlying
financial performance of the Group, management exercise judgement
in assessing the size and nature of specific items. The Group uses
alternative performance measures as we believe these measures
provide additional useful information on the underlying trend,
performance, and position of the Group. These underlying measures
are used by the Group for internal performance analyses, and credit
facility covenant calculations. The alternative performance
measures include 'adjusted operating profit', 'adjusting items',
'EBITDA' (earnings before interest, tax, depreciation) and
'operational EBITDA'. The terms 'adjusted operating profit',
'adjusting items', 'EBITDA' and 'operational EBITDA' are not
defined terms under IFRS and may therefore not be comparable with
similarly titled profit measures reported by other companies. The
measures are not intended to be a substitute for, or superior to,
GAAP measures. A full list of alternative performance measures and
non-IFRS measures together with reconciliations to IFRS or GAAP
measures are set out in the Alternative Performance Measures.
Estimates
Fair value of assets and liabilities acquired and measurement of
consideration on business combinations
During the six months ended 30 June 2023, there were no business
combinations. I n determining the fair value of the customer
relationships in comparative periods, or adjustments to provisional
amounts recognised, estimates and assumptions are used in deriving
the cashflows, renewal rates and discount rates . The cashflows
include estimates of revenue growth, attrition rates, profit
margins, contract durations and discount rates. Management involves
external advisors on the valuation techniques used in determining
the fair value of customer relationships. These inputs, combined
with our internal knowledge and expertise on the relevant market
growth opportunities, enabled management to determine the
appropriate value of customer relationships. See Note 6 for further
details.
The Group recognises contingent consideration on acquisitions,
which comprise both performance and employment linked contingent
consideration. The fair value of contingent consideration is based
on management's best estimate of achieving future targets to which
the contingent consideration is linked to, which is the most
significant unobservable input. See Note 6 and 9 for further
information.
5. Statutory information and independent review
The condensed unaudited consolidated interim financial
statements for the six months period ended 30 June 2023 do not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. The statutory accounts for the year ended
31 December 2022 have been delivered to the Registrar of Companies
and received an unqualified auditors' report, did not include a
reference to any matters to which the auditors drew attention by
way of an emphasis of matter and did not contain a statement under
sections 498 (2) or (3) of the Companies Act 2006. The consolidated
interim financial statements are unaudited but have been reviewed
by the auditors and their report is set out on the last page.
6. Acquisitions
Current period acquisitions
There were no acquisitions during the six month period ended 30
June 2023.
Prior period acquisitions
XX Artists
The initial accounting for the business combination of XX
Artists was provisional at the 31 December 2022 and has been
finalised as at 30 June 2023. There has been no change to the
provisional fair value as disclosed at 31 December 2022.
At 30 June 2023, the employment linked contingent consideration
and holdback remaining on the balance sheet was GBP34.0 million and
GBP0.6 million respectively. The Group expects to settle the
maximum amounts, as the business had achieved the post acquisition
EBITDA targets for the 12 month period ended 31 December 2022.
TheoremOne
The initial accounting for the business combination of
TheoremOne was provisional at the 31 December 2022. As required by
IFRS 3, the following fair value adjustments have been made during
the measurement period, which had no material impact on the profit
or loss statement.
As disclosed At 30 June
at 31 December 2023
2022
======================================== ================ ============ ============
Provisional Fair value
fair adjustments Fair value
value GBPm GBPm
GBPm
======================================== ================ ============ ============
Net identifiable assets 105.0 - 105.0
Goodwill 38.0 (1.5) 36.5
======================================== ================ ============ ============
Total 143.0 (1.5) 141.5
Cash 78.0 - 78.0
Deferred consideration 55.0 - 55.0
Holdback obligations 10.0 - 10.0
Adjustment to purchase consideration(1) - (1.5) (1.5)
Total purchase consideration 143.0 (1.5) 141.5
======================================== ================ ============ ============
Notes:
1. Adjustment to purchase consideration relates to the amount to
be recovered by the Group through the completion accounts process.
This has been received by the Group after the 30 June 2023.
During the six months ended 30 June 2023, GBP28.5 million was
charged to the statement of profit or loss with no further amounts
to be accrued which related to the employment linked contingent
consideration due to Sellers who remain employees of the
business.
At 30 June 2023, the employment linked contingent consideration
became unconditional, on the basis that TheoremOne fully achieved
post acquisition EBITDA targets for the 12 month period ended 31
December 2022. As a result, GBP79.0 million of employment linked
contingent consideration was derecognised, with GBP39.5 million
being recognised within trade and other payables, GBP26.4 million
being recognised as deferred equity consideration and a revaluation
gain of GBP13.1 million recognised in the statement of profit or
loss. The GBP39.5 million within trade and other payables was
settled in August 2023.
Included within other reserves as at 30 June 2023 is GBP81.4
million, comprised of GBP55.0 million of deferred consideration on
initial acquisition and GBP26.4 million recognised during the
period, as explained above.
At 30 June 2023, GBP7.9 million of holdbacks remain relating to
amounts held back due to cover and indemnify the Group against
certain acquisition costs and damages. The Group currently expects
to settle the maximum holdback amount. The amount payable would be
dependent on the amount of these acquisition costs and damages,
with the minimum amount payable being GBPnil.
4Mile
At 30 June 2023, the performance linked and employment linked
contingent consideration remaining on the balance sheet is GBP8.3
million and GBP3.5 million respectively. The post acquisition gross
margin targets for the 12 months ended 31 December 2022 have not
been met in full and the amounts held at 30 June 2023 represent the
maximum amount payable based on this performance. Given the
performance, the Group continues to hold commercial discussions
with the Sellers regarding the outstanding consideration. The
minimum amount payable would be GBPnil.
At 30 June 2023, GBP4.7 million of holdbacks remain relating to
amounts held back to cover and indemnify the Group against certain
acquisition costs and any damage. The Group currently expects to
settle the maximum holdback amount. The amount payable would be
dependent on the acquisition costs and any damages, with the
minimum amount payable being GBPnil.
Raccoon Group (Raccoon)
At 30 June 2023, the employment linked contingent consideration
remaining on the balance sheet is GBP42.6 million. As the business
had not fully met the agreed post-acquisition EBITDA targets for
the 12 months ended 31 December 2022, during the six months ended
30 June 2023, a revaluation gain of GBP14.3 million was recognised
in the statement of profit or loss. The amount held of GBP42.6
million was paid in August 2023.
Zemoga Group (Zemoga)
At 30 June 2023, GBP6.0 million of holdbacks remain relating to
amounts held back due to cover and indemnify the Group against
certain acquisition costs and damages. The Group currently expects
to settle the maximum holdback amount. The amount payable is
dependent on the amount of these acquisition costs and damages,
with the minimum amount payable being GBPnil.
Cashmere Agency Inc (Cashmere)
At 30 June 2023, GBP2.8 million of holdbacks remain relating to
amounts held back due to cover and indemnify the Group against
certain acquisition costs and damages. The Group currently expects
to settle the maximum holdback amount. The amount payable is
dependent on the amount of these acquisition costs and damages,
with the minimum amount payable being GBPnil.
7. Segment information
A. Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
(CODM). The CODM has been identified as the Board of Directors of
S(4) Capital Group.
During the period, S(4) Capital Group has three reportable
segments as follows:
-- Content practice: Creative content, campaigns, and assets at
a global scale for paid, social and earned media - from digital
platforms and apps to brand activations that aim to convert
consumers at every possible touchpoint.
-- Data&Digital Media practice: Full-service campaign
management analytics, creative production and ad serving, platform
and systems integration and transition, training and education.
-- Technology Services practice: digital transformation services
in delivering advanced digital product design, engineering services
and delivery services.
The customers are primarily businesses across technology, FMCG
and media and entertainment. Any intersegment transactions are
based on commercial terms.
The Board of Directors monitor the results of the reportable
segments separately for the purpose of making decisions about
resource allocation and performance assessment prior to charges for
tax, depreciation and amortisation.
The Board of S(4) Capital Group uses net revenue rather than
revenue to manage the Company due to the fluctuating amounts of
direct costs, which form part of revenue.
The following is an analysis of the Group's net revenue and
results by reportable segments:
Data&Digital Technology
Six months ended 30 June 2023 Content Media services Total
GBPm GBPm GBPm GBPm
============================================== ========= ============== ============ ===========
Revenue 334.8 108.1 74.2 517.1
Net revenue 264.7 106.6 74.2 445.5
Segment profit(1) 6.8 16.3 26.5 49.6
Overhead costs (13.1)
Adjusted non-recurring and acquisition
related expenses(2) (12.8)
Depreciation, amortisation and impairments(3) (30.1)
Net finance costs and gain on net monetary
position (16.8)
============================================== ========= ============== ============ ===========
Loss before income tax (23.2)
============================================== ========= ============== ============ ===========
Data&Digital Technology
Six months ended 30 June 2022 Content Media services Total
GBPm GBPm GBPm GBPm
============================================== ========= ============== ============ ===========
Revenue 319.1 102.3 25.0 446.4
Net revenue 250.2 100.7 24.4 375.3
Segment profit(1) 14.0 17.4 8.8 40.2
Overhead costs (10.1)
Adjusted non-recurring and acquisition
related expenses(2) (76.6)
Depreciation, amortisation and impairments(3) (28.9)
Net finance costs and loss on net monetary
position (10.2)
============================================== ========= ============== ============ ===========
Loss before income tax (85.6)
============================================== ========= ============== ============ ===========
Notes:
1. Including GBP8.7m (H1 2022: GBP7.1m) depreciation on
right-of-use assets.
2. Comprised of acquisition and restructuring expenses of
GBP5.7m (H1 2022: GBP69.7m) and share-based payment costs of
GBP7.1m (H1 2022: GBP6.9m).
3. Excluding GBP8.7m (H1 2022: GBP7.1m) depreciation on
right-of-use assets.
Segment profit represents the profit earned by each segment
without allocation of the share of loss of joint ventures, central
administration costs including Directors' salaries, finance income,
non-operating gains and losses, and income tax expense. This is the
measure reported to the Group's Board of Directors for the purpose
of resource allocation and assessment of segment performance.
B. Information about major customers
S(4) Capital Group has an attractive and expanding client base
with four clients providing more than GBP20 million of revenue in
the first six months of the year representing 36% of the Group's
revenue. During the six months ended 30 June 2022 four clients
provided more than GBP20 million of revenue representing 31% of the
Group's revenue.
One customer accounted for more than 10% of the Group's revenue
during the period, contributing GBP92.6 million. The revenue from
this customer was attributable to both the Content and
Data&Digital Media segments. For the prior period, one customer
accounted for more than 10% of the Group's revenue, contributing
GBP70.9 million. The revenue from this customer was attributable to
both the Content and Data&Digital Media segments.
8. Goodwill
Six months Restated(1)
ended Year ended
30 June 31 Dec 2022
2023 GBPm
GBPm
============================================ ============ =============
At the start of the period 718.8 625.0
Acquired through business combinations - 51.8
Impairments - (15.2)
Foreign exchange differences (28.6) 57.2
============================================= ============ =============
At the end of the period 690.2 718.8
============================================= ============ =============
Note:
1. Restated for the business combinations.
Refer to Note 2 .
Goodwill represents the excess of consideration over the fair
value of the Group's share of the net identifiable assets of the
acquired subsidiary at the date of acquisition.
Impairment testing
The Group performs its Goodwill impairment testing annually and
in addition, when circumstances indicate that the carrying value
may be impaired. In light of the Group's recent market
capitalisation and revised targets for the full year as issued in
July, the Group has conducted impairment tests of the 3
cash-generating unit's (CGU) as at 30 June 2023.
The Group's impairment testing is based on value-in-use
calculations. The Group considers the relationship between its
market capitalisation and its book value, among other factors, when
reviewing for indicators of impairment.
The recoverable amount for each CGU is determined using a
value-in-use calculation. The Group's CGUs are Content,
Data&Digital Media and Technology Services. In determining the
value in use, the Group uses forecasted revenue and profits
adjusted for non-cash transactions to generate cash flow
projections. The forecasts reflect management's latest expectations
for each CGU's future financial performance, based on estimated
growth rates and margins for each CGU considering the latest
macroeconomic trends and external factors, historic performance and
trends, and latest outlook for the rest of the year, amongst other
factors.
Net revenue growth rates of between -1% and 22% per annum
depending on the CGU in years one to five has been used. Beyond the
explicit five-year forecast period, a long-term growth rate has
been applied in perpetuity. A terminal value has been applied using
an underlying long term growth rate of 2.0%. The cash flows have
been discounted to present value using a pre-tax discount rate of
between 14.3% and 14.8% depending on the CGU. The resultant
value-in-use figure exceeds the carrying value of the CGUs.
Sensitivity analysis has been carried out by adjusting the
respective CGU discount rates, growth rates and margins. Based on
the Group's sensitivity analysis, no indications of impairment have
been identified. In carrying out the impairment review, management
believes that there are no CGUs where reasonably possible changes
to the underlying assumptions exist that would give rise to an
impairment.
The Group will continue to perform its annual impairment test as
part of the preparation for the year end Annual Report and
Accounts.
9. Financial instruments
Financial instruments by category
Six months Year
ended ended
Financial assets 30 June 31 Dec 2022
2023 GBPm
GBPm
============================ ============ =============
Cash and cash equivalents 213.3 223.6
Trade receivables 291.5 349.6
Accrued income 39.4 44.7
Other receivables 34.6 42.2
============================ ============ =============
Total 578.8 660.1
============================ ============ =============
Six months Year
Financial liabilities ended ended
30 June 2023 31 Dec 2022
GBPm GBPm
================================================== =============== ================
Financial liabilities held at amortised cost
Trade and other payables (321.3) (369.2)
Loans and borrowings (316.7) (326.9)
Lease liabilities (54.1) (58.4)
Financial liabilities held at fair value through
profit and loss
Contingent consideration and holdbacks (117.6) (188.6)
================================================== ============== ================
Total (809.7) ( 943 .1)
================================================== ============== ================
The following table categorises the Group's financial
liabilities held at fair value on the unaudited consolidated
interim balance sheet. There have been no transfers between levels
during the period.
Six months Six months Year Year
ended ended ended ended
Financial liabilities 30 June 30 June 31 Dec 31 Dec
2023 2023 Level 2022 2022
Fair value 3 Fair value Level 3
GBPm GBPm GBPm GBPm
======================================= ============ ============ ============ ===========
Contingent consideration and holdbacks 117.6 117.6 188.6 188.6
Total 117.6 117.6 188.6 188.6
======================================= ============ ============ ============ ===========
The following table shows the movement in contingent
consideration and holdbacks.
Performance Employment
linked linked
contingent contingent
Contingent consideration and holdbacks consideration consideration Holdbacks Total
GBPm GBPm GBPm GBPm
========================================== ================ ================ ============ ========
Balance at 1 January 2022 42.9 58.7 16.8 118.4
Acquired through business combinations 12.5 - 14.2 26.7
Recognised in consolidated statement
of profit and loss (13.1) 155.6 1.6 144.1
Cash paid (17.0) (38.9) (9.4) (65.3)
Equity settlement (19.1) (35.4) - (54.5)
Exchange rate differences 4.7 11.7 2.8 19.2
========================================== ================ ================ ============ ========
Balance at 31 December 2022 10.9 151.7 26.0 188.6
========================================== ================ ================ ============ ========
Acquired through business combinations - - - -
Recognised in consolidated statement
of profit and loss - 1.1 - 1.1
Cash paid - - (0.3) (0.3)
Equity settlement - (26.4) - (26.4)
Transfer to other payables - (39.5) - (39.5)
Exchange rate differences (0.5) (4.0) (1.4) (5.9)
========================================== ================ ================ ============ ========
Balance at 30 June 2023 10.4 82.9 24.3 117.6
========================================== ================ ================ ============ ========
Included in current liabilities 10.9 151.7 14.7 177.3
Included in non-current liabilities - - 11.3 11.3
========================================== ================ ================ ============ ========
Balance at 31 December 2022 10.9 151.7 26.0 188.6
========================================== ================ ================ ============ ========
Included in current liabilities 10.4 82.9 18.0 111.3
Included in non-current liabilities - - 6.3 6.3
========================================== ================ ================ ============ ========
Balance at 30 June 2023 10.4 82.9 24.3 117.6
========================================== ================ ================ ============ ========
Where the contingent consideration conditions have been
satisfied, the Group recognises deferred equity consideration,
which is included within Other Reserves.
The fair value of the performance linked contingent
consideration has been determined based on management's best
estimate of achieving future targets to which the consideration is
linked. The most significant unobservable input used in the fair
value measurements is the future forecast performance of the
acquired business. The fair value is assessed and recognised at the
acquisition date, and reassessed at each balance sheet date
thereafter, until fully settled, cancelled or expired. Any change
in the range of future outcomes is recognised in the consolidated
statement of profit or loss.
The fair value of the employment linked contingent consideration
has been determined based on management's best estimate of
achieving future targets to which the consideration is linked. The
most significant unobservable input used in the fair value
measurements is the future forecast performance of the acquired
business. The fair value is assessed at the acquisition date, and
systematically accrued over the respective employment term. Any
changes in the range of future outcomes are recognised in the
consolidated statement of profit or loss. During the six month
period ended 30 June 2023, the amounts recognised in the
consolidated statement of profit or loss, of GBP28.5 million (2022:
GBP172.4 million), related to the systematic accrual of the
employment linked contingent consideration. During the six months
ended 30 June 2023, a revaluation gain of GBP27.4 million (2022:
GBP28.3 million) was recognised in the consolidated statement of
profit or loss.
Holdbacks relate to amounts held by the Group to cover and
indemnify the Group against certain acquisition costs and damages.
The fair value of the holdbacks has been determined based on
management's best estimate of the level of the costs incurred and
damages expected to which the holdback is linked, which is the most
significant unobservable input used in the fair value measurement.
During the six month period ended 30 June 2023, GBPnil (2022:
GBPnil) has been recognised in the consolidated statement of profit
or loss.
10. Net debt reconciliation
The following table shows the reconciliation of net cash flow to
movements in net debt:
Net Debt
Borrowings Cash Net Debt Leases including
and overdrafts GBPm GBPm GBPm Lease
GBPm Liabilities
GBPm
======================================= ================ ============= ========== =============== ============
Net debt as at 1 January 2022 (319.0) 301.0 (18.0) (42.0) (60.0)
Financing cash flows 0.2 (125.1) (124.9) 7.6 (117.3)
Acquired through business combinations (0.3) - (0.3) - (0.3)
Lease additions - - - (18.3) (18.3)
Foreign exchange adjustments (6.8) 17.2 10.4 (3.2) 7.2
Interest expense (6.1) - (6.1) (1.0) (7.1)
Interest payment 6.1 - 6.1 - 6.1
Other (2.7) - (2.7) 1.6 (1.1)
--------------------------------------- ---------------- ------------- ---------- --------------- ------------
Net debt as at 30 June 2022 (328.6) 193.1 (135.5) (55.3) (190.8)
======================================= ================ ============= ========== =============== ============
Financing cash flows 0.7 29.4 30.1 9.9 40.0
Acquired through business combinations - - - (0.7) (0.7)
Lease additions - - - (8.6) (8.6)
Foreign exchange adjustments (10.8) 1.1 (9.7) (0.3) (10.0)
Interest expense (7.4) - (7.4) (1.1) (8.5)
Interest payment 7.4 - 7.4 - 7.4
Other 4.9 - 4.9 (2.3) 2.6
--------------------------------------- ---------------- ------------- ---------- --------------- ------------
Net debt as at 31 December
2022 (333.8) 223.6 (110.2) (58.4) (168.6)
======================================= ================ ============= ========== =============== ============
Financing cash flows 0.1 (2.0) (1.9) 9.7 7.8
Acquired through business combinations - - - - -
Lease additions - - - (5.1) (5.1)
Foreign exchange adjustments 9.7 (8.3) 1.4 1.5 2.9
Interest expense (10.4) - (10.4) (1.2) (11.6)
Interest payment 11.7 - 11.7 - 11.7
Other - - - (0.6) (0.6)
--------------------------------------- ---------------- ------------- ---------- --------------- ------------
Net debt as at 30 June 2023 (322.7) 213.3 (109.4) (54.1) (163.5)
--------------------------------------- ---------------- ------------- ---------- --------------- ------------
11. Related party transactions
Details of compensation for key management personnel for the 12
months to 31 December 2022 are disclosed on pages 105 to 116 of the
Annual Report and Accounts 2022. Apart from the key management
personnel compensation and the interest in S4S Ventures detailed in
the Annual Report and Accounts 2022, S(4) Capital Group did not
have any other related party transactions during the financial
period (2022: nil).
12. Events occurring after the reporting period
There were no material post balance sheet events, that require
adjustment or disclosure, occurring between the reporting period
and the 17 September 2023.
Appendix- Alternative Performance Measures
The Group has included various unaudited alternative performance
measures (APMs) in its unaudited consolidated interim financial
statements. The Group includes these non-GAAP measures as it
considers these measures to be both useful and necessary to the
readers of these unaudited consolidated interim financial
statements to help them more fully understand the performance and
position of the Group. The Group's measures may not be calculated
in the same way as similarly titled measures reported by other
companies. The APMs should not be viewed in isolation and should be
considered as additional supplementary information to the IFRS
measures. Full reconciliations have been provided between the APMs
and their closest IFRS measures.
The Group has concluded that these APMs are relevant as they
represent how the Board assesses the performance of the Group and
they are also closely aligned with how shareholders value the
business. They provide like-for-like, year-on-year comparisons and
are closely correlated with the cash inflows from operations and
working capital position of the Group. They are used by the Group
for internal performance analysis and the presentation of these
measures facilitates comparison with other industry peers as they
adjust for non-recurring factors which may materially affect IFRS
measures. Adjusting items for the Group include amortisation of
acquired intangibles, acquisition related expenses costs,
share-based payments, employment-related acquisition costs and
restructuring costs. Whilst adjusted measures exclude amortisation
of intangibles, acquisition costs and restructuring costs they do
include the revenue from acquisitions and the benefits of the
restructuring programmes and therefore should not be considered a
complete picture of the Group's
financial performance, that is provided by the IFRS
measures.
The adjusted measures are also used in the calculation of the
adjusted earnings per share and banking covenants as per our
agreements with our lenders.
Closest Adjustments to
APM IFRS measure reconcile to IFRS Reason for use
Measure
============== ============== =========================== ================================
Unaudited consolidated interim statement of profit or loss
=============================================================================================
Controlled Revenue Includes media spend
Billings contracted directly It is an important measure
by clients with to help understand the
media providers scale of the activities
and pass-through that Group has managed
costs (see reconciliation on behalf of its clients,
A1 below) in addition to the activities
that are directly invoiced
by the Group.
-------------- -------------- --------------------------- --------------------------------
Billings Revenue Includes pass through
costs (see reconciliation It is an important measure
A1 below) to understand the activities
that are directly invoiced
by the Group to its clients.
-------------- -------------- --------------------------- --------------------------------
Net Revenue Revenue Excludes direct This is more closely aligned
costs (see reconciliation to the fees the Group earns
A2 below) for its services provided
to the clients. This is
a key metric used by the
Group when looking at the
Practice performance.
-------------- -------------- --------------------------- --------------------------------
Operational Operating Excludes acquisition Operational EBITDA is Operating
EBITDA profit related expenses, profit or loss before the
non-recurring items impact of adjusting items,
(primarily acquisition amortisation of intangible
payments tied to assets and PPE depreciation.
continued employment, The Group considers this
restructuring costs to be an important measure
and amortisation of Group performance and
of business combination is consistent with how
intangible assets) the Group is assessed by
and recurring share-based the Board and investment
payments, and includes community
right-of-use assets
depreciation. (see
reconciliation A3
below)
-------------- -------------- --------------------------- --------------------------------
Like-for-Like Revenue and Like-for-like is an important
operating Is the prior period measure used by the Board
profit comparative, in and investors when looking
this case 2022, at Group performance. It
restated to include provides a comparison that
acquired businesses reflects the impact of
for the same months acquisitions and changes
as 2023, and restated in FX rates during the
using same FX rates period.
as used in 2023
(see reconciliations
A4 below)
-------------- -------------- --------------------------- --------------------------------
Closest Adjustments to
APM IFRS measure reconcile to IFRS Reason for use
Measure
================== ================== ===================== ===================================================
Pro-forma Revenue Is t he period Pro-forma figures are
and operating consolidated used extensively by management
profit results in constant and the investment community.
currency and for It is a useful measure
acquisitions as when looking at how the
if the Group had Group has changed in light
existed in full of the number of acquisitions
for the p eriod that have been completed
(see reconciliations and to understand the
A5 below) performance of the Group.
Adjusted basic Basic earnings Excludes Adjusted basic earnings
earnings per per share amortisation per share is used by management
share of intangible to understand the earnings
assets, per share of the Group
acquisition related after removing non-recurring
expenses, items and those linked
share-based to combinations.
payments and
restructuring
expenses (see
reconciliation
A6 below)
================== ================== ===================== ===================================================
Adjusted (Loss)/Profit Excludes Adjusted (loss)/profit
(loss)/profit for the amortisation for the period is used
period period of intangible by management to understand
assets, the (loss)/profit for
acquisition related the Group after removing
expenses, non-recurring items and
share-based those linked to combinations.
payments and
restructuring
expenses (see
reconciliation
A6 below)
================== ================== ===================== ===================================================
Unaudited consolidated interim balance sheet
==================================================================================================================
Net debt None See reconciliation Net debt is cash less
A7 below gross bank loans (excluding
transaction costs). This
is a key measure used
by management and in calculations
for bank covenants.
================== ================== ===================== ===================================================
Unaudited consolidated interim statement of cashflows
==================================================================================================================
Free cash Net cash Net cash flow from Free cash flow is a commonly
flow inflow/(outflow) operating activities used metric used to identify
from operating adjusted for the amount of cash at
activities investments the disposal of the Group.
in intangibles and
property, plant
and equipment, lease
liabilities,
interest
paid, security
deposits
and employment
linked
contingent
consideration
paid.
------------------ ------------------ --------------------- ---------------------------------------------------
Six months Six months Year
ended ended ended
30 June 2023 30 June 31 Dec 2022
2022
Billings and Controlled billings (A1) GBPm GBPm GBPm
====================================== ===================== ======================= ============================
Revenue 517.1 446.4 1,069.5
Pass-through expenses 408.3 319.2 821.0
====================================== ===================== ======================= ============================
Billings (1) 925.4 765.6 1,890.5
====================================== ===================== ======================= ============================
Third party billings direct to clients 1,352.8 2,068.7 3,760.7
====================================== ===================== ======================= ============================
Controlled billings (2) 2,278.2 2,834.3 5,651.2
====================================== ===================== ======================= ============================
1. Billings is gross billings to
clients
including pass-through expenses.
2. Controlled billings are billings
we influenced.
Six months Six months Year
ended ended ended
30 June 2023 30 June 31 Dec 2022
2022
Net Revenue (A2) GBPm GBPm GBPm
====================================== ===================== ======================= ============================
Revenue 517.1 446.4 1,069.5
Direct costs (71.6) (71.1) (177.8)
====================================== ===================== ======================= ============================
Net Revenue 445.5 375.3 891.7
====================================== ===================== ======================= ============================
Six months Six months
ended ended
30 June 30 June
Reconciliation to Operational EBITDA (A3) 2023 2022
GBPm GBPm
=================================================== ============ ============
Operating loss (6.4) (75.4)
Amortisation and impairment of intangible assets 24.2 24.2
Acquisition , restructuring and other expenses 5.7 69.7
Share-based payment 7.1 6.9
Depreciation of property, plant and equipment(1) 5.9 4.7
==================================================== ============ ============
Operational EBITDA 36.5 30.1
==================================================== ============ ============
1. Depreciation of property, plant and equipment is exclusive
of depreciation on right-of-use assets
Like-for-Like (A4)
Data&Digital Technology
Like-for-like revenue Content Media Services Total
Six months ended 30 June 2022 GBPm GBPm GBPm GBPm
=============================== ========= ============ ========== =======
Revenue 319.1 102.3 25.0 446.4
Impact of acquisitions 17.9 4.9 32.6 55.4
Impact of foreign exchange 12.8 (1.4) (8.5) 2.9
=============================== ========= ============ ========== =======
Like-for-like revenue (1) 349.8 105.8 49.1 504.7
% like-for-like revenue change (4.3%) 2.2% 51.1% 2.5%
=============================== ========= ============ ========== =======
1. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous period of
the existing and acquired businesses consolidated for the same
months as in 2023, applying currency rates as used in 2023.
Data&Digital Technology
Like-for-like net revenue Content Media Services Total
Six month period ended 30 June 2022 GBPm GBPm GBPm GBPm
==================================== ========= ============ ========== =======
Net revenue 250.2 100.7 24.4 375.3
Impact of acquisitions 11.0 4.7 32.2 47.9
Impact of foreign exchange 10.3 (1.3) (8.5) 0.5
==================================== ========= ============ ========== =======
Like-for-like net revenue (1) 271.5 104.1 48.1 423.7
% like-for-like net revenue change (2.5%) 2.4% 54.3% 5.1%
==================================== ========= ============ ========== =======
1. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous period of
the existing and acquired businesses consolidated for the same
months as in 2023, applying currency rates as used in 2023.
Like-for-like Operational EBITDA Total
Six month period ended 30 June 2022 GBPm
========================================== =======
Operational EBITDA 30.1
Impact of acquisitions 17.1
Impact of foreign exchange 5.1
==========================================
Like-for-like operational EBITDA (1) 52.3
% like-for-like operational EBITDA change (30.2%)
1. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous period of
the existing and acquired businesses consolidated for the same
months as in 2023, applying currency rates as used in 2023.
Pro-forma (A5)
Data&Digital Technology
Content Media Services Total
Pro-forma revenue GBPm GBPm GBPm GBPm
HY23 Revenue 334.8 108.1 74.2 517.1
Impact of acquisitions - - - -
HY23 Pro-forma revenue (1) 334.8 108.1 74.2 517.1
=========================== ========= ===================== ============ =================
HY22 Revenue 319.1 102.3 25.0 446.4
Impact of acquisitions 17.9 4.9 32.6 55.4
Impact of foreign exchange 12.8 (1.4) (8.5) 2.9
=========================== ========= ===================== ============ =================
HY22 Pro-forma revenue (1) 349.8 105.8 49.1 504.7
% pro-forma revenue change (4.3%) 2.2% 51.1% 2.5%
=========================== ========= ===================== ============ =================
1. Pro-forma relates to unaudited non-statutory and non-GAAP
consolidated results in constant currency as if the Group had
existed in full for the period and have been prepared under
comparable GAAP with no consolidation eliminations in the
pre-acquisition period.
Data&Digital Technology
Content Media Services Total
Pro-forma net revenue GBPm GBPm GBPm GBPm
========= ============== ============
HY23 net revenue 264.7 106.6 74.2 445.5
Impact of acquisitions - - - -
HY23 Pro-forma net revenue(1) 264.7 106.6 74.2 445.5
========= ============== ============ =======
HY22 net revenue 250.2 100.7 24.4 375.3
Impact of acquisitions 11.0 4.7 32.2 47.9
Impact of foreign exchange 10.3 (1.3) (8.5) 0.5
========= ============== ============ =======
HY22 Pro-forma net revenue(1) 271.5 104.1 48.1 423.7
% pro-forma net revenue change (2.5%) 2.4% 54.3% 5.1%
========= ============== ============ =======
Total
Pro-forma Operational EBITDA GBPm
HY23 operational EBITDA 36.5
Impact of acquisitions -
HY23 Pro-forma operational EBITDA (1) 36.5
HY22 Operational EBITDA 30.1
Impact of acquisitions 17.1
Impact of foreign exchange 5.1
HY22 Pro-forma operational EBITDA (1) 52.3
% pro-forma operational EBITDA change (30.2%)
Adjusted basic earnings per share (A6)
Restructuring
Acquisition Share-based and other
Reported Amortisation(1) expenses payments expenses Adjusted
Six month period ended GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2023
Operating (loss) / profit (6.4) 24.2 2.1 7.1 3.6 30.6
Net finance costs (17.5) - - - - (17.5)
Gain on net monetary
position 0.7 - - - - 0.7
=============
(Loss) / profit before
income tax (23.2) 24.2 2.1 7.1 3.6 13.8
Income tax credit/( expense) 3.5 (6.2) - - (0.8) (3.5)
=============
(Loss) / profit for
the period (19.7) 18.0 2.1 7.1 2.8 10.3
=============
1. Amortisation relates to the amortisation of the intangible
assets recognised as a result of the acquisitions.
Acquisition Share-based Restructuring
Reported Amortisation(1) expenses payments and other
expenses Adjusted
Six month period ended GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2022
Operating profit (75.4) 24.2 69.7 6.9 - 25.4
Net finance costs (9.6) - - - - (9.6)
Loss on net monetary
position (0.6) - - - - (0.6)
(Loss) / profit before
income tax (85.6) 24.2 69.7 6.9 - 15.2
Income tax expense(2) 3.3 (6.6) - - - (3.3)
=================
(Loss) / profit for
the period (82.3) 17.6 69.7 6.9 - 11.9
1. Amortisation relates to the amortisation of the intangible
assets recognised as a result of the acquisitions.
2. The comparatives as at 30 June 2022 have been restated for
the adoption of the amendment to IAS 12 (see Note 2).
Adjusted basic result per share Six months Six months
ended ended
30 June 2023 30 June
2022
Adjusted profit attributable to owners of the Company
(GBPm) 10.3 11.9
Weighted average number of ordinary shares for the
purpose of basic EPS (shares) 615,663,576 567,714,015
Adjusted basic earnings per share (pence) 1.7 2.1
Six months Year
ended ended
30 June 31 Dec
2023 2022
Net debt (A7) GBPm GBPm
Cash and bank 213.3 223.6
Loans and borrowings (excluding bank overdrafts)(1) (322.7) (333.8)
Net debt (109.4) (110.2)
Lease liabilities (54.1) (58.4)
Net debt including lease liabilities (163.5) (168.6)
1. Loans and borrowings exclude GBP6.0m (2022: GBP6.9m) of
transaction costs.
Six months Six months
ended ended
30 June 30 June
2023 2022
Free cash flow (A8) GBPm GBPm
Net cash inflow/(outflow) from operating activities 24.7 (9.7)
Employment linked contingent consideration paid - 32.3
------------
Interest paid (11.6) (6.6)
------------
Investments in intangible assets (1.1) (0.5)
------------
Investments in property, plant and equipment (3.8) (10.2)
------------
Security deposits (0.2) 0.5
------------
Payment of lease liabilities (9.7) (7.6)
Free cash flow (1.7) (1.8)
Independent review report to S(4) Capital plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed S(4) Capital plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the unaudited consolidated interim financial statements of S(4)
Capital plc for the 6 month period ended 30 June 2023 (the
"period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the unaudited consolidated interim balance sheet as at 30 June 2023;
-- the unaudited consolidated interim statement of profit or
loss and unaudited consolidated interim statement of comprehensive
income for the period then ended;
-- the unaudited consolidated interim statement of cashflows for the period then ended;
-- the unaudited consolidated interim statement of changes in
equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the unaudited
consolidated interim financial statements of S4 Capital plc have
been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the unaudited
consolidated interim financial statements and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The unaudited consolidated interim financial statements,
including the interim financial statements, is the responsibility
of, and has been approved by the directors. The directors are
responsible for preparing the unaudited consolidated interim
financial statements in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the unaudited consolidated interim
financial statements, including the interim financial statements,
the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the unaudited consolidated interim
financial statements based on our review. Our conclusion, including
our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 September 2023
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END
IR GPUMGBUPWPPM
(END) Dow Jones Newswires
September 18, 2023 02:00 ET (06:00 GMT)
S4 Capital (LSE:SFOR)
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