TIDMSFOR
RNS Number : 4000Y
S4 Capital PLC
09 September 2020
S4 Capital plc
("S(4) Capital " or "the Company")
Results for the six months ended 30 June
Industry leading progress despite covid-19 driven by global
digital tech and healthcare focus
Like-for-like gross profit (net revenue) up over 12% with
accelerating growth from April trough through July
Company well on track to deliver full year expectations with
increasing client conversion at scale
Financial highlights
@ Billings* GBP260.4 million, up 41.4% reported, up 12.7%
like-for-like**, up 12.8% pro-forma***.
@ Revenue GBP141.3 million, up 60.7% reported, up 6.9% like-for-like, up 7.8% pro-forma.
@ Gross profit GBP124.0 million, up 76.6% reported, up 12.2% like-for-like, up 13.2% pro-forma.
@ Like-for-like gross profit growth of 18.8% in Q1 and 6.5% in
Q2 due to covid-19, bottoming in April at over 3%, accelerating in
May to over 5%, in June to over 11% and into the second half of
2020 in July to over 18%.
@ Operational EBITDA**** before central costs GBP20.5 million,
up 69.2% reported, down 4.7% like-for-like and down 3.8% pro-forma,
as the Company dealt with the impact of covid-19 by maintaining
people levels and the human fabric of the firm and prioritised
top-line growth. Headcount increased to 2,644 from 1,375 at the end
of the first half last year, like-for-like headcount increased by
22%, to support the even stronger revenue and gross profit growth
anticipated in second half and achieve expectations for 2020.
@ Operational EBITDA GBP18.0 million, up 86.8% reported, down
6.0% like-for-like and down 5.0% pro-forma.
@ Operating profit GBP2.5 million, which includes adjusting
items of GBP13.8 million (acquisition expense, amortisation and
share-based compensation), versus an operating loss of GBP6.2
million in 2019 and pro-forma operating profit of GBP3.0
million.
@ Result before income tax GBP0.1 million, which includes
adjusting items, versus a loss of GBP8.5 million in 2019 and
pro-forma result before income tax of GBP0.7 million.
@ Result for the period GBP0.5 million (loss) which includes
adjusting items after taxation versus GBP8.8 million (loss) in 2019
and pro-forma result for the period of GBP0.1 million (loss).
@ Adjusted basic net result of 2.3p per ordinary share, up over
155%, versus 0.9p per share in the first half of last year.
@ Basic and diluted net result per share 0.1p (loss) which
includes adjusting items after tax versus 2.5p (loss) in 2019 and
pro-forma adjusted basic net result per share 0.0p.
@ Liquidity continued to strengthen despite the impact of
covid-19, with net cash balances throughout almost all of the
half-year, despite significant merger payments, with period end net
cash***** GBP7.2 million, which, of course, excludes the GBP113
million net proceeds of the share placing which took place in July.
Our revolver facilities have been increased to approximately GBP70
million from approximately GBP31 million, although our actual cash
flows have exceeded even the most optimistic forecasts made at the
peak of the covid-19 crisis in late March.
@ On 16 July, the Company announced the placing of 36,766,642
new ordinary shares at 315p, which represented a small premium to
the then market price and raised approximately GBP113 million net
proceeds, which will be used for further expansion, principally
combinations, mergers and acquisitions.
Operational highlights
@ As the primarily analogue advertising holding companies are
forecast to savage their head counts by 50,000 or so as their net
revenues fell by between 10-26% in Q2 2020, prioritising revenue
and gross profit growth at this early stage of the Company's
development continues to be part of its strategy, boosted by
substantial human capital investment, particularly given
anticipated stronger second half momentum.
@ Part of our purpose is to provide jobs and long-term career
opportunities for our people. We are growing S Capital in a
responsible and sustainable way, for the long-term benefit of all,
making a meaningful difference and leaving a light footprint.
Sustainability is an integral part of S(4) Capital's long-term
business strategy, growing the world's brightest talent to create a
skilled, diverse workplace and applying technology and our digital
expertise for the greater good. Our strategy and activities are
built around three pillars: Sustainable Production, Zero Impact
Monastery and Diversity & Inclusion. In response to the recent
appalling racist events in America, the Company has instituted a
number of immediate programmes and changes - first to its
recruitment and internal education programmes, secondly, with a
matching contribution plan for a number of selected non-profits and
lastly with the establishment of a Black Fellowship Programme for
university graduates and S4 Scholars Programme for black high
school students in the United States.
@ Client roster continues to be dominated by and strengthened in
technology, as well as in fast moving consumer goods (FMCG), in
telecommunications and in pharmaceuticals, both by practice and
geography. Notable assignments in the first half of 2020 were won
with Paypal, Dole Foods, Bumble, Verizon, Shopify and Twitch, the
LA 2028 Olympics, a global consumer electronics company (NDA), a
global automotive company (NDA) and a global FMCG (NDA) amongst
others, as our new agency consultancy model gains traction.
Continued inclusion in a growing number of major client reviews.
Having achieved brand awareness and brand trial over the first two
years of its existence, the Company has high hopes of adding two
more "whoppers" to our roster of clients - that is, clients who
represent more than $20 million of revenue each year. We currently
have two, Google and another well-known tech company (NDA), and a
new one will be announced, we hope, very shortly. We have set a new
client conversion target of "20(2) ", that is 20 clients with over
$20 million annual revenue.
@ By practice, Content gross profit up 109% reported, 14%
like-for-like and over 15% pro-forma. Data & digital media up
18% reported, 7% both like-for-like and pro-forma.
@ By geography, the Americas gross profit up 87% reported, 13%
like-for-like and 14% pro-forma. EMEA was up 43% reported, up 7%
like-for-like and pro-forma. Asia-Pacific was up 87% reported, up
18% like-for-like and pro-forma.
@ Non-Executive Director and senior management appointments in
the first half and third quarter including Miles Young.
@ Content and data capabilities added in Latin America, the
United States, Spain and Australia in the first half through three
combinations.
@ Further data, ecommerce and econometric and media optimisation
capabilities added in the United States and the United Kingdom
after the half year end through two combinations.
Outlook
@ Although below pre-covid-19 budgets, the second half of 2020
has started strongly in line with the Q1 and Q2 revised forecasts,
with July like-for-like gross profit up 18.2% and pro-forma up
14.6%.
@ Given the progress in the first half of 2020 and July, the
Company believes it has an even stronger fighting chance of
doubling organically (meaning like-for-like) over the three years
2020-22 and delivering like-for-like double digit revenue and gross
profit growth and reasonably strong margins in 2020. The Company's
prospects for 2021 also look stronger given the organic growth
rate, increasing client conversion at scale, significant merger
activity and the likely post-covid-19 economic recovery from
relatively low levels of covid-19 economic growth.
@ We continue to believe that the shape of the covid-19
recession is essentially a reverse square root, with a sharp fall
followed by a sharp recovery, although not immediately to prior
levels. Within this, there will be some V-shaped verticals like
technology, healthcare, financials, in-home entertainment and
online shopping. There will be U-shaped verticals like packaged
goods and autos and there will be more L-shaped verticals like
travel and hospitality. We also believe that Q2 2020 represents the
low point (in our case in April 2020), with significant sequential
improvements in Q3 and Q4, followed by a full-throated recovery in
2021, driven by a distributed vaccine or vaccines by Q2 of
2021.
Sir Martin Sorrell, Executive Chairman of S(4) Capital Plc
said
" The tragedy of covid-19 has only accelerated the speed of
digital transformation and disruption at consumer, media and
enterprise levels. These results confirm that S(4) Capital is
currently in a growth sweetspot and that its digital only, faster,
better, cheaper, unitary, "holy trinity" model, which combines
first party data with digital content, data and digital media, is
migrating from brand awareness and trial to conversion at scale.
After less than two years as a listed company and with a market
capitalisation of around $2.5 billion, which is well in to the top
200 FTSE companies, we are now in a position to build stronger
value-adding relationships with tech, healthcare, financial and
FMCG clients amongst others and with a strong and liquid balance
sheet in a great financial place to expand through further
combinations, which will add to our data, content, digital media
and technological capabilities. We will continue to update the
market on progress in reaching our new client conversion target of
"20(2) ", that is 20 clients with over $20 million of annual
revenues. "
*Billings is gross billings to client including pass through
costs
**Like-for-like relates to 2019 being restated to show the
numbers for the previous year of the existing and acquired
businesses consolidated for the same months as in 2020 applying
currency rates as used in 2019
***Pro-forma numbers relate to unaudited full year non-statutory
and non-GAAP consolidated results in constant currency as if the
S(4) Capital Plc Group (the group) had existed in full for the year
and have been prepared under comparable GAAP with no consolidation
eliminations
****Operational EBITDA is EBITDA adjusted for non-recurring
items and recurring share-based payments and is a non-GAAP measure
management uses to assess the underlying business performance (also
see note 13)
*****Net cash comprises cash minus bank loans
Results webcast and conference call
A webcast and conference call covering the results will be held
today at 09:00 BST in London, 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 call - For dial in Q&A only:
UK: +44 (0)330 336 9411
US: +1 323-994-2093
Confirmation code: 9071519
08:00 EDT/13:00 BST call - For dial in Q&A only
UK: +44 (0)330 336 9411
US: +1 323-794-2590
Confirmation code: 6412423
Capital Markets 'Day'
9, 10, 11 September
For details, contact Scott Spirit (scott@s4capital.com)
Enquiries to
S(4) Capital Plc +44 (0)20 3793 0003
Sir Martin Sorrell, Executive Chairman
Peter Rademaker, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor) +44 (0)7970 246 725
Elly Williamson
Jessica Hodgson
Dowgate Capital Limited (Joint Corporate Broker) +44 (0)20 3903 7715
James Serjeant
David Poutney
HSBC Bank Plc (Joint Corporate Broker) +44 (0)20 7991 8888
Adrian Lewis
Sam Barnett
Sam Hart
About S(4) Capital
S(4) Capital plc (SFOR.L) is the tech-led, new age, new era
digital advertising and marketing services company, established by
Sir Martin Sorrell in May 2018.
Its strategy is to build a purely digital advertising and
marketing services business for global, multinational, regional,
local clients and millennial-driven influencer brands. This will be
achieved initially by integrating leading businesses in two
practice areas: Data & digital media and Content, along with an
emphasis on "faster, better, cheaper" executions in an always-on
consumer-led environment, with a unitary structure.
Digital is by far the fastest-growing segment of the advertising
market. S(4) Capital estimates that in 2019 digital accounted for
approximately 47.5% or $275 billion of total global advertising
spend of $550-600 billion (excluding about $400 billion of trade
support, the primary target of the Amazon advertising platform),
and projects that by 2022 this share will grow to approximately
55-60%. It is anticipated that in 2020, total global advertising
spend will shrink to approximately $500-550 billion, driven by a
fall in traditional media advertising expenditure. However digital
advertising spend is expected to remain constant or increase
slightly and therefore improve its market share of total
advertising spend to over 50% for the first time.
S(4) Capital combined with MediaMonks, the leading AdAge
A-listed creative digital content production company led by Victor
Knaap and Wesley ter Haar, in July 2018 and with MightyHive, the
market-leading digital media solutions provider for future thinking
marketers and agencies, led by Peter Kim and Christopher S. Martin,
in December 2018.
In April 2019, MightyHive combined with ProgMedia to expand
operations into Latin America and MediaMonks acquired film studio
Caramel Pictures to expand content studio capabilities. In June
2019, MediaMonks announced a planned combination with
Australia-based BizTech, a leading marketing transformation and
customer experience company. In August 2019, MediaMonks combined
with Amsterdam-based digital influencer marketing agency IMA. In
October 2019, MediaMonks combined with Firewood Marketing, the
largest digital marketing agency based in Silicon Valley, that was
recently ranked, along with MediaMonks, as one of the fastest
growing agencies by Adweek, and MightyHive combined with
award-winning UK-based digital analytics, biddable media and data
science company ConversionWorks and South Korea-based data
consultancy MightyHive Korea (formerly Datalicious). In November
2019, MediaMonks announced its combination with Delhi-based content
creation and production company WhiteBalance (completed in August
2020 - the delay due to necessary merger clearance procedures) and
then with fully integrated digital agency Circus Marketing in
January 2020 (completed in March 2020).
In May 2020, MightyHive announced a combination with Digodat,
one of the leading Latin American data consultancies, and in June
2020, MightyHive announced its combination with Lens10, a leading
Australian digital strategy and analytics consultancy. In July
2020, MightyHive announced a combination with Orca Pacific, a
market leading full-service Amazon agency and boutique consultancy
firm based in Seattle. In August 2020, MightyHive announced a
combination with London-based Brightblue, an econometric and media
optimisation consultancy.
On 16 July 2020 S(4) Capital announced the successful placing of
36,766,642 new ordinary shares at a price of 315p raising
approximately GBP116m gross proceeds which will be used for further
expansion and M&A purposes.
Victor, Wesley, Pete, Christopher and Peter Rademaker (formerly
Chief Financial Officer of MediaMonks, now Chief Financial Officer
of S(4) Capital), all joined the S(4) Capital Board as Directors.
The S(4) Capital Board also includes Rupert Faure Walker, Paul Roy,
Daniel Pinto, Sue Prevezer, Elizabeth Buchanan, Scott Spirit, Naoko
Okumoto, Margaret Ma Connolly and Miles Young.
The Company has over 2,650 people in 30 countries across the
Americas, Europe, the Middle East and Africa and Asia-Pacific and a
current market capitalisation of approximately GBP1.9 billion
(c.$2.6 billion), and would rank well into the FTSE 250. It has
achieved Unicorn status in a little over one year, unique in the
advertising and marketing services industry.
Sir Martin was CEO of WPP for 33 years, building it from a 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. Today its
market capitalisation is less than GBP8 billion. Prior to that Sir
Martin was Group Financial Director of Saatchi & Saatchi
Company Plc for nine years.
Summary of results
Like-for-like(1) Proforma(2) Proforma
Six months Six months Six months Six months Six months
ended ended Year ended ended ended ended
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 30 Jun
2020 2019 2019 2019 2020 2019
========================
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ===== =========== =========== =========== ================ =========== ===========
Revenue 5 141,344 87,972 215,132 132,168 144,449 133,941
Cost of sales 17,375 17,787 43,814 21,678 17,375 21,707
Gross profit 5 123,969 70,185 171,318 110,490 127,074 112,234
Content 94,410 45,215 113,365 82,818 97,515 84,562
Data & Digital media 29,559 24,970 57,953 27,672 29,559 27,672
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
America's 88,818 47,411 117,063 78,569 91,672 80,223
EMEA 23,991 16,798 40,765 22,473 24,242 22,563
Asia-Pacific 11,160 5,976 13,490 9,448 11,160 9,448
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
Total operating expenses 121,477 76,414 175,153 107,470 124,025 108,836
Operating profit / (
loss
) 2,492 (6,229) (3,835) 3,020 3,049 3,398
Adjusted operating
profit 16,265 8,736 31,148 18,108 16,823 18,486
( 13,773
Adjusting items 13 ) (14,965) (34,983) (15,088) (13,773) (15,088)
Operating profit /
(loss) 2,492 (6,229) (3,835) 3,020 3,049 3,398
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
( 2,374 ( 2,356
Net finance expenses ) (2,261) (5,360) (2,056) ) (2,056)
Profit / (loss) before
income tax 118 (8,490) (9,195) 964 693 1,342
Adjusted result before
income
tax 13,891 6,475 25,788 16,052 14,466 16,430
( 13,773
Adjusting items 13 ) (14,965) (34,983) (15,088) (13,773) (15,088)
Profit / (loss) before
income
tax 118 (8,490) (9,195) 964 693 1,342
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
( 641 ( 751
Income tax expense ) (329) (845) (1,218) ) (1,358)
( 523 ( 58
Loss for the period ) (8,819) (10,040) (254) ) (16)
======================== ===== =========== =========== =========== ================ =========== ===========
Adjusted result for the
period 10,894 3,288 18,986 11,655 11,360 11,893
Adjusting items 13 (13,773) (14,965) (34,983) (15,088) (13,773) (15,088)
Tax on a djusting items 2,356 2,858 5,957 3,179 2,356 3,179
Loss for the period (523) (8,819) (10,040) (254) (58) (16)
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
Operating profit /
(loss) 2,492 (6,229) (3,835) 3,020 3,049 3,398
Adjusting items 13 13,773 14,965 34,983 15,088 13,773 15,088
Depreciation (excl.
right-of-use
assets) 1,719 890 2,260 1,025 1,719 1,025
Operational EBITDA 17,984 9,626 33,408 19,133 18,543 19,511
Central costs 2,493 2,475 5,817 2,361 2,493 2,361
Operational EBITDA
before
central costs 20,477 12,101 39,225 21,494 21,036 21,872
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
Weighted average number
of shares in issue for
the
purpose of basic and
adjusted
net result per share 465,697,844 348,354,880 368,067,622 465,697,844 474,908,603 474,908,603
Net result attributable
to equity owners of the
company (GBP'000) (523) (8,819) (10,040) (254) (58) (16)
Basic net result per
share ( 2.7
(pence) (0.1) (2.5) ) (0.1) (0.0) (0.0)
Diluted net result per ( 2.7
share (Pence) (0.1) (2.5) ) (0.1) (0.0) (0.0)
Adjusted result for the
period 10,894 3,288 18,986 11,655 11,360 11,893
Adjusted basic net
result
per share (pence) 2.3 0.9 5.2 2.5 2.4 2.5
------------------------ ----- ----------- ----------- ----------- ---------------- ----------- -----------
Notes:
1. Like-for-like is a non-GAAP measure relates to 2019 being
restated to show the unaudited numbers for the previous year of the
existing and acquired businesses consolidated for the same months
as in 2020 applying currency rates as used in 2020;
2. Proforma numbers relate to unaudited full year non-statutory
and non-GAAP consolidated results in constant currency as if the
Group had existed in full for the year and have been prepared under
comparable GAAP with no consolidation eliminations.
3. The key risks for the company achieving their objectives
remain the same as at year end and can be found on page 21 up to
and including page 26 of the Annual Report and Accounts 2019.
S(4) Capital is proud to report strong statutory, like-for-like
and pro-forma revenue and gross profit growth for the first six
months of 2020, despite the impact of covid-19. We still believe,
that despite the pandemic, we have a fighting chance of achieving
our target of doubling the size of the Company organically by
2022.
Billings were GBP260.4 million, up 41.4% on a reported basis, up
12.7% on a like-for-like basis and 12.8% on a pro-forma basis.
Controlled Billings were approximately $1.3 billion.
Revenue was GBP141.3 million, up 60.7% from GBP88.0 million on a
reported basis, up 6.9% on a like-for-like basis and up 7.8% on a
pro-forma basis, partially reflecting the weakness of the pound
sterling against the US dollar in the first half of 2020 in
comparison to the first half of 2019.
Reported gross profit was GBP124.0 million, up 76.6% from
GBP70.2 million for the comparable period in 2019, up 12.2%
like-for-like and up 13.2% pro-forma.
Like-for-like gross profit growth decelerated from 18.8% in Q1
to 6.5% in Q2 due to covid-19, but bottomed in April at 3.4% and
accelerated to 11.2% in June and 18.2% in July, just below where it
was in February.
Operational Earnings Before Interest, Taxes, Depreciation and
Amortisation ('EBITDA') before S(4) Capital central costs was
GBP20.5 million versus GBP12.1 million, an increase of 69.2%,
primarily reflecting a covid-19-driven reduction in freelance,
travel and office costs and despite an increase of 22% in the
like-for-like headcount in the first half from 1,375 people to
2,644 people at the end of the first half. As outlined in both the
First Quarter Trading Statement of 7 May 2020 and the AGM statement
of 8 June 2020, the Group has continued to invest heavily in human
capital, as it geared up for even greater expansion in the second
half of the year as a result of stronger client demand and
geographic and practice expansion. This will support even stronger
anticipated revenues and gross profit growth in the second half of
2020, which have already been signaled in the strong results for
July.
Operational EBITDA was GBP18.0 million up 86.8%, compared to
GBP9.6 million for the comparable period last year on a reported
basis. Operational EBITDA was down 6% on a like-for-like basis and
down 5% on a pro-forma basis.
Adjusted operating profit was up 86.2% at GBP16.3 million on a
reported basis, before adjusting items of GBP13.8 million,
including non-recurring items, share-based compensation and
amortisation of certain intangible assets. Like-for-like adjusted
operating profit was down 10.2% and pro-forma adjusted operating
profit was down 9.0%, primarily reflecting the impact of covid-19
and the increase in like-for-like number of people in the firm, as
the Company geared up for a stronger second half.
Adjusted profit before income tax was GBP13.9 million, up 114.6%
versus GBP6.5 million in the comparable period last year. On a
like-for-like basis adjusted result before income tax was down
13.5% and down 12.0% on a pro-forma basis.
Adjusted profit for the period was GBP10.9 million, up 231.4% on
a reported basis, but down 6.5% on a like-for-like basis and down
4.5% on a pro-forma basis.
Adjusted basic net result was 2.3p per share, versus adjusted
basic net result per share of 0.9p in the first half of 2019.
The Board has decided that there will be no interim dividend
declared for the first half of 2020, although it continues to
review the advisability of declaring a modest dividend in
future.
Gross profit, Operational EBITA and Operational EBITA margins by
practice
Content practice gross profit was GBP94.4 million (76% of total
gross profit), up 108.8% on a reported basis from last year. Gross
profit on a like-for-like basis was up 14.0% and up 15.3% on a
pro-forma basis.
Data & digital media practice gross profit was GBP29.6
million (24% of total gross profit), up 18.4%, from last year on a
reported basis. Gross profit on a like-for-like and pro-forma basis
was up 6.8%.
Content practice operational EBITDA before S(4) Capital central
costs was GBP15.5 million, up 73% from last year, which was an
easier comparative period and reflected the impact of several
combinations and down 11% on a like-for-like basis and down 10% on
a pro-forma basis, reflecting the impact of covid-19. The Content
practice operational EBITDA margin was 16.4%, compared to 19.9%
last year, reflecting increased investment in human capital to
maintain the fabric of the Company during covid-19 and prepare for
a stronger second half.
Data & digital media practice operational EBITDA before S(4)
Capital central costs was GBP5.0 million, up 60% from last year and
up over 24% on both a like-for-like and proforma basis, reflecting
a very strong comparative first half in 2019, the impact of
covid-19 on US operations in the first half and the increased
investment in human capital to prepare for a stronger second half.
Data & digital media practice operational EBITDA margin was
16.9%, compared to 12.5% last year, reflecting a fall in travel,
office and other operating expenses during covid-19.
Gross Profit by Geography
Americas (72% of total) was GBP88.8 million, up 87.3% on a
reported basis from last year. On a like-for-like basis Americas
gross profit was up 13.0% and up 14.3% on a pro-forma basis
reflecting the relative resilience and agility of our two practices
in the United States and Canada and the strength of our market
position in Latin America.
EMEA (19% of total gross profit) was GBP24.0 million, up 42.8%
from last year on a reported basis. On a like-for-like basis EMEA
gross profit was up 6.8% and up 7.4% on a pro-forma basis
reflecting the severity of the impact of covid-19 in Q2 in the key
markets of EMEA.
Asia Pacific (9% of total) was GBP11.2 million, up 86.7% on a
reported basis. On a like-for-like and pro-forma basis Asia Pacific
gross profit was up 18.1% reflecting the relatively rapid recovery
in the region's major markets from the earlier impact of
covid-19.
Client activity, development and integration
There has been strong individual Content practice and Data &
digital media practice client development in FMCG, pharmaceutical,
media, financial services, telecommunications, hospitality, retail,
sport and technology. High profile wins during the first half have
included PayPal, Bumble, Dole Foods, Verizon, Shopify, Twitch, the
LA 2028 Olympics, a global consumer electronics company (NDA), a
global automotive company (NDA) and a global FMCG (NDA).
Significant developments continue at Google, Procter &
Gamble, LinkedIn, Facebook, Netflix, Uber, Sprint, Bayer,
Electrolux, HP, Amazon, a global pharmaceutical company (NDA) and a
global consumer electronics company (NDA) amongst others. The
Company is increasingly being included in a number of major
industry reviews, reflecting the client interest in the new era,
new age agency consultancy model. We have high hopes of adding two
more "whoppers" to our roster of clients - that is clients who
represent more than $20 million of revenue each year. We currently
have two, Google and another well-known tech company (NDA), and a
new one will be announced, we hope, very shortly. We have set a new
client conversion target of "20(2) ", that is 20 clients with over
$20 million annual revenue.
There has been significant joint and integrated activity in the
auto, durables, healthcare, FMCG, financial services, media,
retail, sports, telecommunications and technology areas.
The first office integrations have been implemented successfully
in Amsterdam, Buenos Aires and Singapore and following the impact
of covid-19 escalated integrations are being planned in all of the
46 cities that the Company operates in, dependent on the expiration
dates of existing leases. Cross-functional geographic co-operation
continues to be significant. In addition, the Company is
implementing sales pipeline and HR tooling to underpin its unitary
structure. First steps are being taken to implement unified ERP
tooling.
Merger and acquisition activity
This year has seen significant activity, with five transactions
aimed at continuing to build our Content capabilities and building
out our data and key platform capabilities and resources. After the
onset of covid-19 in March, one of the objectives was to try to
maintain a strong balance sheet and not be overly ambitious at this
stage given the uncertainties triggered by the pandemic.
In January, the Content practice division built around
MediaMonks combined with Circus Marketing a fully integrated
digital agency with offices in Mexico, Brazil, Argentina, Colombia,
Costa Rica and Chile in Latin America, Los Angeles in the United
States and in Spain. Clients include Netflix, Spotify, Google,
Facebook, Uber and others on its A-list roster.
In May, the Data & digital media practice built around
MightyHive combined with Digodat, one of the leading Latin American
data consultancies, with offices in Argentina, Colombia, Chile, and
Mexico and clients including Google, Telecom Argentina, Banco
Galicia, Cencosud, BBVA, Grupo Falabella and Intercorp.
In June, the same practice announced its combination with
Lens10, a leading Australian digital strategy and analytics
consultancy with offices in Australia and clients including
CottonOn, National Rugby League, Australian Ballet and ME Bank.
After the end of the first half of 2020, in July, MightyHive
announced its combination with Orca Pacific, a market leading
full-service Amazon agency and boutique consultancy based in
Seattle and clients including Reebok, Uni-ball, OshKosh B'gosh,
Godiva, Del Monte and Kenroy Home.
Finally, towards the end of August, MightyHive combined with
BrightBlue Consulting, a London-based econometrics and media
optimisation consultancy, with clients including the Coop, Royal
Mail, Secret Escapes, Hiscox, NHS, LV, and Habito. The last four
combinations have significantly added to MightyHive's service
capabilities, not only expanding its geographical reach in Latin
America, Asia Pacific, the United States and the United Kingdom,
but also functionally in data, analytics and econometrics,
complementing its digital media.
In all cases total consideration paid or payable was
approximately half in cash and half in S(4) Capital Ordinary
Shares, with a two-year lock-up from date of issue. Multiples paid
were in the range of approximately 1-2 times revenues and 5-10
times EBITDA, depending on current and forecast performance over
the current and/or following year, with no earnouts. The total
consideration for all five transactions is expected to be
approximately GBP119 million. The merger pipeline is extremely
strong in both Content and Data & digital media.
To further strengthen the Company's balance sheet and to provide
flexibility in securing financing for opportunities that may occur
as a result of the disruption caused by covid-19, the Company
announced in July the successful placing of 36,766, 642 (7.5% of
the enlarged ordinary share capital) new ordinary shares at 315p, a
small premium to the then market price. This raised a further net
GBP113 million cash to add to the Company's resources and financial
strength.
Balance sheet liquidity
Liquidity remains strong with half-year end net cash around
GBP7.2 million, which excludes the net cash proceeds of around
GBP113 million from the recent share placing.
S(4) Capital remains content to contemplate leverage of up to
approximately twice EBITDA, as indicated previously.
Outlook and July results
Like for like growth rates continue to accelerate, with July's
revenue and gross profit up 6.9% and 18.2%, just below where it was
in February.
As anticipated in the Company's pre-covid-19 budget and Q1 and
Q2 revised forecasts, the second half is targeted to be even
stronger and has started very well.
Unaudited consolidated interim statement of profit or loss
for the six month period ended 30 June 2020
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
=================================
Notes GBP'000 GBP'000 GBP'000
================================= ===== ========== ========== ==========
Revenue 5 141,344 87,972 215,132
Cost of sales 17,375 17,787 43,814
Gross profit 5 123,969 70,185 171,318
Personnel costs 92,412 46,606 111,572
Other operating expenses 14,278 12,145 25,803
Acquisition and set-up related
items 13 (1,805) 7,358 12,806
Depreciation and amortisation 16,592 10,305 24,972
Total operating expenses 121,477 76,414 175,153
Operating profit / ( loss
) 2,492 (6,229) (3,835)
Adjusted operating profit 16,265 8,736 31,148
Adjusting items 13 (13,773) (14,965) (34,983)
Operating profit / ( loss
) 2,492 (6,229) (3,835)
--------------------------------- ----- ---------- ---------- ----------
Finance income - - 20
Finance expenses (2,374) (2,261) (5,380)
Net finance expenses (2,374) (2,261) (5,360)
Profit / (l oss ) before
income tax 118 (8,490) (9,195)
Income tax expense (641) (329) (845)
Loss for the period (523) (8,819) (10,040)
================================= ===== ========== ========== ==========
Attributable to owners of the Company (523) (8,819) (10,040)
Attributable to non-controlling - - -
interests
(523) (8,819) (10,040)
================================= ===== ========== ========== ==========
Loss per share is attributable to the ordinary equity holders of
the Company
Basic loss per share (pence) 7(0.1) (2.5) (2.7)
Diluted loss per share (pence) 7(0.1) (2.5) (2.7)
Unaudited consolidated interim statement of comprehensive
income
for the six month period ended 30 June 2020
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
======================================
GBP'00 GBP'000 GBP'000
0
====================================== ========== ========== ==========
Loss for the period (523) (8,819) (10,040)
Other comprehensive income
Items that may be reclassified
to profit or loss
Foreign operations - foreign currency
translation differences 34,341 1,494 (20,620)
34,341 1,494 (20,620)
Total comprehensive gain / ( loss
) for the period 33,818 (7,325) (30,660)
======================================= ========== ========== ==========
Attributable to owners of the company 33,818 (7,325) (30,660)
Attributable to non-controlling - -
interests
33,818 (7,325) (30,660)
====================================== ========== ========== ==========
Unaudited consolidated interim balance sheet
as at 30 June 2020
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019(1) 2019 (1)
=================================
Notes GBP' 0 GBP' 0 GBP'000
00 00
================================= ===== ========== ============ ==========
Assets
Non-current assets
Intangible assets 8 611,962 404,646 540,129
Right-of-use assets 23,127 16,159 25,779
Property, plant and equipment 12,880 5,692 9,730
Deferred tax assets 993 190 1,086
Other receivables 2,606 2,033 2,731
651,568 428,720 579,455
Current assets
Trade and other receivables 9 120,409 95,589 126,353
Cash and cash equivalents 84,972 26,944 66,106
205,381 122,533 192,459
Total assets 856,949 551,253 771,914
================================= ===== ========== ============ ==========
Liabilities
Non-current liabilities
Loans and borrowings 10 45,800 46,253 42,374
Lease liabilities 17,579 9,844 18,787
Contingent considerations 410 16 3,669
Other payables 2,159 2,089 2,007
Deferred tax liabilities 56,446 40,563 54,834
122,394 98,765 121,671
Current liabilities
Trade and other payables 11 124,949 95,322 118,014
Loans and borrowings 10 31,935 - -
Contingent considerations
and holdbacks 15,858 8,013 51,202
Lease liabilities 6,769 6,468 7,975
Tax liabilities 13,475 5,548 6,751
192,986 115,351 183,942
Total liabilities 315,380 214,116 305,613
================================= ===== ========== ============ ==========
Net assets 541,569 337,137 466,301
================================= ===== ========== ============ ==========
Equity
Attributable to owners of the company
Share capital 122,530 91,038 117,307
Reserves 418,939 245,999 348,894
541,469 337,037 466,201
Non-controlling interests 100 100 100
Total equity 541,569 337,137 466,301
================================= ===== ========== ============ ==========
Note:
1. Restated for the initial accounting for the business combination of MightyHive Inc.
Unaudited consolidated interim statement of cash flows
for the six month period ended 30 June 2020
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
==========================================
Notes GBP'00 GBP'0 GBP'000
0 0 0
========================================== ===== ========== ========== ==========
Cash flows from operating
activities
Profit / (l oss ) before
income tax 118 (8,490) (9,195)
Finance income and expenses 2,374 2,262 5,360
Depreciation and amortisation 16,592 10,305 24,972
Share based compensation 6,141 1,319 7,177
Decrease / (i ncrease ) in trade
and other receivables 11,936 (14,184) (31,288)
Increase in trade and other
payables 405 22,464 35,116
Cash flows from operations 37,566 13,676 32,142
Income taxes paid (1,246) (2,147) (7,571)
Net cash flows from operating
activities 36,320 11,529 24,571
=========================================== ===== ========== ========== ==========
Cash flows from investing
activities
Investments in intangible assets (49) - (1,578)
Investments in property, plant
and equipment (4,192) (947) (7,865)
Acquisition of subsidiaries, net
of cash acquired (40,876) (2,571) (56,954)
Financial fixed assets 192 (592) (779)
Cash flows from investing
activities (44,925) (4,110) (67,176)
=========================================== ===== ========== ========== ==========
Cash flows from financing activities
Proceeds from issuance
of shares 126 - 97,451
Amount draw down during the period 10 31,025 - 22,418
Payment of lease liabilities
and interest (5,688) (4,494) (6,687)
Repayments of loans and
borrowings - - (24,119)
Interest paid (474) (1,105) (4,744)
Cash flows from financing
activities 24,989 (5,599) 84,319
=========================================== ===== ========== ========== ==========
Net movement in cash and cash equivalents 16,384 1,820 41,714
Cash and cash equivalents beginning
of the period 66,106 25,005 25,005
Exchange gain / (loss) on cash
and cash equivalents 2,482 119 (613)
Cash and cash equivalents
at end of period 84,972 26,944 66,106
=========================================== ===== ========== ========== ==========
Unaudited consolidated interim statement of changes in
equity
for the six month period ended 30 June 2020
Foreign
Number Share Share Merger Other exchange Retained Non-controlling Total
of shares capital premium reserves reserves reserves losses Total interests equity
==============
Equity GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== =========== ======= ======= ======== ======== ======== ======== ======== =============== ========
Balance at 1
January 201 9 363,396,923 90,849 52,871 205,717 (847) 1,870 (8,266) 342,194 100 342,294
Comprehensive
loss for the
period
Loss for the ( 8,819 ( 8,819
period - - - - - - (8,819) ) - )
Foreign
currency
translation
differences - - - - - 1,494 - 1,494 - 1,494
Transactions
with owners of
the company
Issue of
Ordinary
Shares 600,673 150 694 - - - - 844 - 844
Employee
share
schemes 155,689 39 64 - - - 1,221 1,324 - 1,324
Balance at 30 ( 15,864
June 201 9 364,153,285 91,038 53,629 205,717 ( 847 ) 3,364 ) 337,037 100 337,137
============== =========== ======= ======= ======== ======== ======== ======== ======== =============== ========
Comprehensive
loss for the
period
Loss for the ( 1,221 ( 1,221
period - - - - - - (1,221) ) - )
Foreign
currency
translation ( 22,114 ( 22,114
differences - - - - - (22,114) - ) - )
Transactions
with owners of
the company
Issue of
Ordinary
Shares 104,723,961 26,181 120,488 - - - - 146,669 - 146,669
Employee
share
schemes 350,013 88 185 - (313) - 5,870 5,830 - 5,830
Balance as at
31 December
2019 469,227,259 117,307 174,302 205,717 (1,160) (18,750) (11,215) 466,201 100 466,301
============== =========== ======= ======= ======== ======== ======== ======== ======== =============== ========
Comprehensive
loss for the
period
Loss for the ( 523
period - - - - - - ( 523 ) ) - (523)
Foreign
currency
translation
differences - - - - - 34,341 - 34,341 - 34,341
Transactions
with owners of
the company
Issue of
Ordinary
Shares 20,275,846 5,068 30,364 - (250) - - 35,182 - 35,182
Employee
share
schemes 619,074 155 390 - ( 426 ) - 6,149 6,268 - 6,268
Balance as at ( 1,836 ( 5,589
30 June 2020 490,122,179 122,530 205,056 205,717 ) 15,591 ) 541,469 100 541,569
============== =========== ======= ======= ======== ======== ======== ======== ======== =============== ========
Notes to the unaudited consolidated interim financial
statements
for the six month period ended 30 June 2020
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'). An overview of
the subsidiaries is provided in note 14 on page 108 of the Annual
Report and Accounts 2019.
S(4) Capital Group is a new age/new era digital advertising and
marketing services company.
2. Basis of preparation
A. Statement of compliance
The unaudited consolidated interim financial statements is a
condensed set of financial information and has been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority. They have been prepared in
accordance with IAS 34, Interim Financial Reporting.
The unaudited consolidated interim financial statements were
authorized for issue by the Board of Directors on 9 September
2020.
B. Functional and presentation currency
The unaudited consolidated interim financial statements are
presented in pounds sterling (GBP or GBP), the Company's functional
currency. All financial information in pounds sterling has been
rounded to the nearest thousand unless otherwise indicated.
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 87 to 95 of the Annual Report
and Accounts 2019. No changes have been made to the Group's
accounting policies in the period ended 30 June 2020.
Certain new accounting standards and interpretations have been
published that are not mandatory for the six-month reporting period
ending 30 June 2020 and have not yet been early adopted by the
Group. These standards are not expected to have a material impact
on the Group in the current or future reporting periods and on
foreseeable future transactions.
4. Statutory information and independent review
The unaudited consolidated interim financial statements for the
six month period ended 30 June 2020 and the financial information
for the year ended 31 December 2019 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 2019
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 below at the end of the document.
5. Segment information
A. Revenue from operations
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
=========
GBP'00 GBP'0 GBP'000
0 0 0
========= ========== ========== ==========
Services 141,344 87,972 215,132
Total 141,344 87,972 215,132
============ ========== ========== ==========
B. Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the
Directors and executive management of S Capital Group.
During the period, S Capital Group has been active in two
segments.
@ Content: Creative content, campaigns and assets at a global
scale for paid, social and earned media - from digital platforms
and apps to brand activations that aim to convert consumers at
every possible touchpoint.
@ Data & digital media: this technology and services
practice encompasses full-service campaign management analytics,
creative production and ad serving, platform and systems
integration and transition and training and education.
The customers are businesses across various industries.
The Directors and executive management monitor the results of
the operating segments separately for the purpose of making
decisions about resource allocation and performance assessment
prior to charges for tax, depreciation and amortisation.
During the reporting period management changed the name of
Programmatic to Data & digital media. The activities of the
segment remain the same.
During the period, S Capital Group has not been active in the f
irst-party d ata practice. Operating segment information under the
primary reporting format is disclosed below:
Data &
First-party digital
data Content media Total
=======================================
Six months ended 30 June GBP'000 GBP'000 GBP'000 GBP'000
2020
======================================= =========== ======= ======== ========
Gross profit - 94,410 29,559 123,969
Segment profit - 15,491 4,987 20,478
( 2,493
Overhead cost )
Adjusted non-recurring and acquisition ( 13,773
related expenses )
( 1,719
Depreciation(1) and amortisation )
( 2,375
Finance expenses )
Profit before income tax 118
========================================= =========== ======= ======== ========
(1) Depreciations is exclusive of depreciation on right-of-use
assets.
Data &
First-party digital
data Content media Total
=======================================
Six months ended 30 June GBP'000 GBP'000 GBP'000 GBP'000
2019
======================================= =========== ======= ======== =======
Gross profit - 45,215 24,970 70,185
Segment profit - 8,980 3,121 12,101
Overhead cost (2,475)
Adjusted non-recurring and acquisition
related expenses (8,676)
Depreciation(1) and amortisation (7,179)
Finance expenses (2,261)
( 8,490
Loss before income tax )
========================================= =========== ======= ======== =======
(1) Depreciations is exclusive of depreciation on right-of-use
assets.
Data &
First-party digital
data Content media Total
=======================================
Year ended 31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000
======================================= =========== ======= ======== ========
Gross profit - 113,365 57,953 171,318
Segment profit - 25,570 13,654 39,224
Overhead cost (5,817)
Adjusted non-recurring and acquisition
related expenses (19,983)
Depreciation(1) and amortisation (17,259)
Finance expenses (5,360)
Loss before income tax (9,195)
========================================= =========== ======= ======== ========
(1) Depreciations is exclusive of depreciation on right-of-use
assets.
6. Income tax
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
===============================
GBP'000 GBP'000 GBP'000
=============================== ========== ========== ==========
Current tax for the year (3,004) (1,798) (4,022)
Adjustments for current tax of
prior years 7 (1) (36)
Total current tax (2,997) (1,799) (4,058)
Decrease in deferred tax 2,356 1,470 3,213
Income tax expense (641) (329) ( 845 )
================================== ========== ========== ==========
7. Earnings per share
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
==================================== =========== =========== ===========
Loss attributable to shareowners
of the company (GBP'000) (523) (8,819) (10,040)
Weighted average number of ordinary
shares 465,697,844 348,354,880 368,067,622
Basic loss per share (0.1) (2. 5 ) (2.7)
======================================= =========== =========== ===========
Diluted loss per share (0.1) (2. 5 ) (2.7)
======================================= =========== =========== ===========
Earnings per share is calculated by dividing the net result
attributable to the shareowners of the S(4) Capital Group by the
weighted average number of Ordinary Shares in issue during the
period.
8. Intangible assets
Customer
Goodwill relationships Brands Order Backlog Other Total
==============================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======== ============== ======= ============= ======= ========
Cost 238,237 151,224 13,910 4,381 1,946 409,698
Accumulated amortisation - (3,139) (213) (4,201) (9) (7,562)
Net book value at 1 January
2019 238,237 148,085 13,697 180 1,937 402,136
============================== ======== ============== ======= ============= ======= ========
Acquired through business
combinations 6,027 1,059 - - 1 7,087
Amortisation charge for ( 6,288
the year - (5,438) (473) (178) (199) )
Foreign exchange differences 1,531 167 14 (2) 1 1,711
Total transactions during
the period 7,558 (4,212) (459) (180) (197) 2,510
============================== ======== ============== ======= ============= ======= ========
Cost 245,795 152,450 13,924 4,379 1,948 418,496
( 13,850
Accumulated amortisation - (8,577) (686) (4,379) (208) )
Net book value at 3 0 June
2019 245,795 143,873 13,238 - 1,740 404,646
============================== ======== ============== ======= ============= ======= ========
Acquired through business
combinations 100,583 65,172 2,082 1,098 2,589 171,524
Additions - - - - 1,578 1,578
Amortisation charge for ( 8,712
the year - (6,579) (644) (1,034) (455) )
( 28,907
Foreign exchange differences (17,542) (10,358) (695) (64) (248) )
Total transactions during
the period 83,041 48,235 743 - 3,464 135,483
============================== ======== ============== ======= ============= ======= ========
Cost 328,836 206,706 15,276 5,464 6,364 562,646
Accumulated amortisation - (14,598) (1,295) (5,464) (1,160) (22,517)
Net book value at 31 December
2019 328,836 192,108 13,981 - 5,204 540,129
============================== ======== ============== ======= ============= ======= ========
Acquired through business
combinations 40,111 - - - - 40,111
Additions - - - - 49 49
Amortisation charge for
the year - (7,874) (819) - (745) (9,438)
Foreign exchange differences 25,738 14,001 1,008 - 364 41,111
Total transactions during
the period 65,849 6,127 189 - (332) 71,833
============================== ======== ============== ======= ============= ======= ========
Cost 394,685 222,046 16,405 5,863 6,887 645,886
Accumulated amortisation - (23,811) (2,235) (5,863) (2,015) (33,924)
Net book value at 30 June
2020 394,685 198,235 14,170 - 4,872 611,962
============================== ======== ============== ======= ============= ======= ========
BizTech Group
On 20 December 2019, MediaMonks acquired the assets from BizTech
Australia and 100% of the shares in BizTech Enterprise Solutions
Canada Ltd. BizTech is an Adobe and digital transformation
specialist. The transaction with BizTech Kazakhstan and BizTech
Russia is expected to close in the third quarter of 2020. The
initial accounting for the business combination of the BizTech
Group was incomplete by the end of the six-month reporting period
ended 30 June 2020. At the end of the reporting period, the
identifiable intangibles acquired were not identified, are
consequently not measured and are therefore not deducted from
goodwill. During the measurement period in 2020, S(4) Capital Group
will obtain the information necessary to identify and measure the
identifiable intangible assets and retrospectively adjust the
provisional amounts recognised at the acquisition date.
Circus Marketing
On 8 January 2020, S(4) Capital Plc announced the combination of
MediaMonks with the fully integrated digital agency Circus
Marketing for a total consideration of USD 53.3 million. The
combination was completed on 12 March 2020. The initial accounting
for the business combination of the Circus Marketing Group was
incomplete by the end of the six-month reporting period ended 30
June 2020. Since the acquisition date, Circus Marketing contributed
GBP 10.1 million to the Group's revenue and GBP 1.5 million into
the Group's profit for the six-month reporting period ended 30 June
2020 and added approximately GBP 2.3 million of net assets to the
balance sheet of the Group. At the end of the reporting period, the
identifiable intangibles acquired were not identified, are
consequently not measured and are therefore not deducted from
goodwill. During the measurement period in 2020, S(4) Capital Group
will obtain the information necessary to identify and measure the
identifiable intangible assets and retrospectively adjust the
provisional amounts recognized at the acquisition date.
9. Trade and other receivables
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
==================
GBP'000 GBP'000 GBP'000
================== ========== ========== ==========
Trade receivables 108,830 89,021 119,632
Prepayments 3,921 1,980 2,073
Accrued income 5,355 2,096 3,790
Other receivables 2,303 2,492 858
Total 120,409 95,589 126,353
===================== ========== ========== ==========
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. A provision for expected
credit loss of GBP 2.0 million was recognised on the Group's trade
receivables at the end of the period (30 June 2019 GBP 1.2 million,
31 December 2019 GBP 1.4 million).
10. Loans and borrowings
Transaction
Bank loans costs Total
======================================
Loans and borrowings GBP'000 GBP'000 GBP'000
====================================== ========== =========== ========
Principal amount 46,516 (975) 45,541
Accumulated charges to profit
or loss - 97 97
Balance as at 1 January
201 9 46,516 (878) 45,638
========================================= ========== =========== ========
Charged to profit-or-loss - 98 98
Exchange rate differences 519 (2) 517
Total transactions during
the period 519 96 615
========================================= ========== =========== ========
Principal amount 47,035 (977) 46,058
Accumulated charges to profit
or loss - 195 195
Balance as at 30 June 201
9 47,035 (782) 46,253
========================================= ========== =========== ========
Additions 22,418 (205) 22,213
Repayments (24,119) - (24,119)
Charged to profit-or-loss - 110 110
Exchange rate differences (2,119) 36 (2,083)
Total transactions during
the period (3,820) (59) (3,879)
========================================= ========== =========== ========
Principal amount 43,215 (1,134) 42,081
Accumulated charges to profit-or-loss - 293 293
Balance as at 31 December
2019 43,215 (841) 42,374
========================================= ========== =========== ========
Additions 31,025 25 31,050
Repayments - - -
Charged to profit-or-loss - 126 126
Exchange rate differences 4,293 (109) 4,184
Total transactions during
the period 35,318 42 35,360
========================================= ========== =========== ========
Principal amount 78,533 (1,240) 77,293
Accumulated charges to profit-or-loss - 442 442
Balance as at 30 June 2020 78,533 (798) 77,735
========================================= ========== =========== ========
Repayment obligations coming
12 months 31,935 - 31,935
Non-current b alance as
at 30 June 2020 46,598 (798) 45,800
========================================= ========== =========== ========
As of 6 July 2018, S(4) Capital Group signed a facility
agreement, consisting of:
@ A EUR 25.0 million term loan facility
@ A USD 28.9 million term loan facility; and
@ A multicurrency Revolving Credit Facility (RCF) of EUR 35
million, which was fully drawn at the end of the reporting period
(31 December 2019 nil, 31 December 2018 EUR 2 million was
drawn).
The interest of the facilities is the aggregate of the variable
interest rate (LIBOR or, in relation to any loan in euro, EURIBOR)
and a margin based on leverage (between 1.25% and 3.00%). During
the reporting period, the average interest rate of the outstanding
loans amounts to 1.71% (six month period ending 30 June 2019 3.32%,
12 month period ending 31 December 2019 2.92%). The average
effective interest rate for the outstanding loans is 1.65% (six
month period ending 30 June 2019 3.22%, 12 month period ending 31
December 2019 2.84%) and during the period interest expense of GBP
0.6 million (six month period ending 30 June 2019 1.0 million, 12
month period ending 31 December 2019 GBP 2.0 million) million was
recognised.
The duration of the facility agreement is five years; therefore,
the termination date of the facility agreement is 6 July 2023. S(4)
Capital Group shall repay each of the loans in full on the
termination date.
The bank loans impose certain covenants on the Group. The loan
agreement states that (subject to certain exceptions) S(4) Capital
Group will not provide any other security over its assets and
receivables and will ensure that the following financial ratios,
measured at the end of any relevant period of 12 months ending each
semi-annual date in a financial year commencing on 30 June 2019,
are met:
@ net debt will not exceed 300% of the earnings before interest,
tax, depreciation and amortisation; and
@ net finance charges will not exceed 300% of the earnings
before interest, tax, depreciation and amortisation.
During the period S(4) Capital Group is in compliance with these
covenants.
11. Trade and other payables
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
================
GBP'000 GBP'000 GBP'000
================ ========== ========== ==========
Trade payables 85,584 76,988 88,986
Accruals 21,701 13,399 14,447
Deferred income 17,664 4,935 14,581
Total 124,949 95,322 118,014
=================== ========== ========== ==========
12. Related party transactions
Details of compensation for key management personnel are
disclosed on pages 64 to 66 of the Annual Report and Accounts 2019.
S(4) Capital Group did not have any other related party
transactions during the financial period.
13. Reconciliation to non-GAAP measures of performance
Management includes non-GAAP measures as they consider these
measures to be both useful and necessary. They are used by
management for internal performance analyses; the presentation of
these measures facilitates comparability with other companies,
although management's measures may not be calculated in the same
way as similarly titled measures reported by other companies; and
these measures are useful in connection with discussions with the
investment community.
Acquisition
and set-up
related Share based
Reported Amortisation(1) expenses(2) compensation Adjusted
==================================
Six months ended 30 Jun GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2020
================================== ======== =============== ============ ============= ========
Operating profit / (loss) 2,492 9,438 (1,805) 6,141 16,265
( 2,374 ( 2,374
Net finance expenses ) - - - )
Profit / (loss) before income tax 118 9,438 (1,805) 6,141 13,892
( 2,997
Income tax expense ( 641 ) (2,356) - - )
Profit / (loss) for the ( 523
period ) 7,082 (1,805) 6,141 10,895
=================================== ======== =============== ============ ============= ========
(1) Amortisation relates to the amortisation of certain
intangible assets recognised as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to
acquisition related advisory fees of GBP 5.4 million, bonuses of
GBP 1.0 million and revaluation of contingent considerations of GBP
8.2 million credit .
Acquisition
and set-up
related Share based
Reported Amortisation(1) expenses(2) compensation Adjusted
==================================
Six months ended 30 Jun GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2019
================================== ======== =============== ============ ============= ========
( 6,229
Operating profit / (loss) ) 6,288 7,358 1,319 8,736
Net finance expenses (2,261) - - - (2,261)
( 8,490
Profit / (loss) before income tax ) 6,288 7,358 1,319 6,475
Income tax expense (329) (1,291) (1,567) - (3,187)
Profit / (loss) for the ( 8,819
period ) 4,997 5,791 1,319 3,288
=================================== ======== =============== ============ ============= ========
(1) Amortisation relates to the amortisation of certain
intangible assets recognised as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to
acquisition related bonuses of GBP 6.3 million and transaction
related advisory fees of GBP 1.1 million.
Acquisition
and set-up
related Share based
Reported Amortisation(1) expenses(2) compensation Adjusted
==================================
Year ended 31 Dec 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ======== =============== ============ ============= ========
Operating profit / (loss) (3,835) 15,000 12,806 7,177 31,148
Net finance expenses (5,360) - - - (5,360)
Profit / (loss) before income tax (9,195) 15,000 12,806 7,177 25,788
Income tax expense (845) (3,893) (2,064) - (6,802)
Profit / (loss) for the
period (10,040) 11,107 10,742 7,177 18,986
=================================== ======== =============== ============ ============= ========
(1) Amortisation relates to the amortisation of certain
intangible assets recognised as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to
acquisition related bonuses of GBP 7.2 million and transaction
related advisory fees of GBP 5.6 million.
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
=======================================
Reconciliation to adjusted operational GBP'000 GBP'000 GBP'000
EBITDA
======================================== ========== ========== ==========
Operating profit / ( loss ) 2,492 (6,229) (3,835)
Amortisation of intangible assets 9,438 6,288 15,000
Acquisition and set-up related
expenses (1,805) 7,358 12,806
Share based compensation 6,141 1,319 7,177
Depreciation property, plant and
equipment(1) 1,719 890 2,260
Operational EBITDA 17,984 9,626 33,408
========================================== ========== ========== ==========
(1) Depreciation property, plant and equipment is exclusive of
depreciation on right-of-use assets
Six months Six months Year ended
ended 30 ended 30 31 Dec
Jun 2020 Jun 2019 2019
======================
Billings (1) GBP'000 GBP'000 GBP'000
====================== ========== ========== ==========
Revenue 141,344 87,972 215,132
Pass-through expenses 119,105 96,262 240,648
Billings 260,449 184,234 455,780
========================= ========== ========== ==========
(1) Billings is gross billings to client including pass-through
expenses
Six months Six months Year ended
Adjusted Basic net result ended 30 ended 30 31 Dec
per share Jun 2020 Jun 2019 2019
==================================== =========== =========== ===========
Weighted average number of shares
in issue 465,697,844 348,354,880 368,067,622
Adjusted net result attributable
to equity of owners of the company
(GBP'000) 10,895 3,288 18,986
Adjusted Basic net result
per share 2.3 0.9 5.2
======================================= =========== =========== ===========
14. COVID-19
A summary of the Group's operational response in relation to
COVID-19 is presented on page 2 and 3 of the Annual Report and
Accounts 2019.
Whilst the full financial impact of the crisis for the remainder
of 2020 and 2021 is impossible to predict, the Group's actual cash
flows have exceeded even the most optimistic forecasts made at the
peak of the COVID-19 crisis in late March. In August the Group has
carried out a new sensitivity analyses on their forecasted
cash-flows for the remainder of 2020 and 2021 gaming substantial
falls in revenue, with cost corrections, compared to budget, which
indicate viability and the Group will comply with the covenants set
in the loan agreement. Accordingly, the Directors continue to adopt
the going concern basis in preparing the unaudited consolidated
interim financial statements.
Liquidity continued to strengthen despite of COVID-19, therefore
the group repaid its revolving credit facility of EUR 35 million in
August 2020, which was fully utilized in advance of announced
mergers in March 2020. The Group also signed an additional facility
agreement, consisting of a multicurrency Revolving Credit Facility
of EUR 43.5 million, increasing its total available credit
facilities to EUR 78.5 million, currently fully unutilized.
15. Events occurring after the reporting period
A. Mergers and acquisitions
@ On 26 May 2020, MightyHive announced the combination with
Digodat, a leading Latin American data and analytics consultancy.
The combination has closed on 10 July 2020;
@ In November 2019, MediaMonks announced the combination with
WhiteBalance, Indian-based digital creative
and production agency. This combination has completed on 27 August 2020.
@ On 27 August 2020, MightyHive combined with Brightblue
Consulting, an award-winning UK based data analytics and
measurement consultancy.
@ On 30 June 2020, MightyHive announced the combination with
Lens10, a leading Australian digital strategy and analytics
consultancy, pending Foreign Investment Review Board and Australian
Competition and Consumer Commission.
@ The total consideration for the above four transactions is
expected to be approximately GBP 55 million.
@ On 29 July 2020, MightyHive announced the combination with
Orca Pacific, a market leading full-service Amazon agency and
boutique consultancy firm based in Seattle.
@ The transaction with BizTech Kazakhstan and BizTech Russia is
expected to close in the second half-year of 2020.
B. Equity placing
On 16 July, the Company announced the placing of 36,766,642 new
ordinary shares at 315p, which represented a small premium to the
then market price and raised approximately GBP113 million net
proceeds, which will be used for further expansion, principally
mergers and acquisitions.
C. New facility agreement
As of 15 July 2020, S(4) Capital Group signed an additional
facility agreement, consisting of a multicurrency Revolving Credit
Facility (RCF) of EUR 43.5 million, of which at the end of the
reporting period nil is drawn. The interest of the facilities is
the aggregate of the variable interest rate (LIBOR or, in relation
to any loan in euro, EURIBOR) and a margin based on leverage
(between 2.00% and 3.75%). The duration of the facility agreement
is three years; therefore, the termination date of the facility
agreement is July 2023. S(4) Capital Group shall repay each of the
loans in full on the termination date.
The bank loans impose certain covenants on the Group. The loan
agreement states that (subject to certain exceptions) S(4) Capital
Group will not provide any other security over its assets and
receivables and will ensure that the following financial ratios,
measured at the end of any relevant period of 12 months ending each
semi-annual date in a financial year, are met:
@ net debt will not exceed 300% of the earnings before interest,
tax, depreciation and amortisation; and
@ net finance charges will not exceed 300% of the earnings
before interest, tax, depreciation and amortisation.
During the period S(4) Capital group complied with the covenants
set in the loan agreement.
Responsibility statement
We confirm that to the best of our knowledge:
@ The set of interim financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting;
@ The interim management report includes a fair review of the
information required by DTR 4.2.7R of the Disclosure and
Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year and
their impact on the set of financial statements; and a description
of the principal risks and uncertainties for the remaining six
months of the year; and
@ The interim management report includes a fair review of the
information required by DTR 4.2.8R of the Disclosure and
Transparency Rules, being related party transactions (note 12) that
have taken place in the first six months of the current financial
year and that have materially affected the financial position or
performance of the entity during that period; and any changes in
the related party transactions described in the last annual report
that could do so.
Signed on behalf of the Board on 9 September 2020
Sir Martin Sorrell Peter Rademaker
Executive Chairman Group Chief Financial Officer
Independent review report to the members of S(4) Capital Plc
Report on the unaudited consolidated interim financial
statements
Our conclusion
We have reviewed S(4) Capital Plc's unaudited consolidated
interim financial statements (the "interim financial statements")
in the Interim results 2020 report of S(4) Capital Plc for the 6
month period ended 30 June 2020. 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 International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
We have reviewed
The interim financial statements comprise:
@ the unaudited consolidated interim balance sheet as at 30 June 2020;
@ 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 cash flows 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 Interim results
2020 report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim results 2020 report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim
results 2020 report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim results 2020 report based on
our review. 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.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. 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 Interim
results 2020 report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
9 September 2020
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END
IR FFFSIAEITIII
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September 09, 2020 02:00 ET (06:00 GMT)
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