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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
S4 Capital Plc | LSE:SFOR | London | Ordinary Share | GB00BFZZM640 | ORD 25P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-2.58 | -5.17% | 47.30 | 48.00 | 49.62 | 50.00 | 48.00 | 48.10 | 2,627,742 | 16:35:09 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Offices-holdng Companies,nec | 1.07B | -159.63M | -0.2743 | -1.75 | 279.32M |
TIDMSFOR
RNS Number : 4656T
S4 Capital PLC
25 March 2021
25 March 2021
S(4) Capital plc
("S(4) Capital" or the "Company")
Unaudited 2020 preliminary results
New age/new era digital marketing model starts to convert at scale
Significant growth in like-for-like and pro-forma billings, revenue, gross profit and EBITDA
Announcement of MediaMonks conditional combination with Jam3
Financial Highlights
-- Billings* GBP653.4 million, up 43.4% reported, up 19.6% like-for-like*** and pro-forma** billings GBP768.4 million, up 22.3%.
-- Revenue GBP342.7 million, up 59.3% reported from GBP215.1 million, like-for-like up 15.2%, pro-forma up 20.1%.
-- Gross profit GBP295.2 million, up 72.3% reported from GBP171.3 million, like-for-like up 19.4%, pro-forma up 23.7%.
-- Operational EBITDA**** GBP62.2 million, up 86.1% reported, like-for-like up 18.3%, pro-forma up 30.6%.
-- Operational EBITDA margin 21.1%, up 1.6 margin points on 2019 reported, like-for-like down 0.2 margin points, pro-forma up 1.2 margin points.
-- Operating profit GBP8.1million versus an operating loss of GBP3.8 million in 2019. Operating profit is after charging GBP49.9 million of Adjusting Items relating to acquisitions, amortisation and share based payments (including GBP7.4 million in deferred, contingent combination payments tied to continued employment). Pro-forma operating profit of GBP16.9 million versus an operating loss of GBP1.2 million in 2019.
-- Profit before income tax GBP3.1 million, after charging adjusting items, versus a loss of GBP9.2 million in 2019 and pro-forma profit before income tax of GBP12.1 million
-- Statutory result for the period GBP3.9 million (loss) after charging adjusting items after taxation versus GBP10.0 million (loss) in 2019 and pro-forma result for the period of GBP1.2 million (loss)
-- Adjusted basic net result per share 7.9p versus 5.2p in 2019 and 9.8p pro-forma
-- Basic and diluted net result per share 0.8p (loss) which includes adjusting items after tax versus 2.7p (loss) in 2019 and pro-forma adjusted basic net result per share 0.2p (loss)
-- Year-end net cash***** GBP51.6 million, even after significant combination payments since GBP113 million net fundraising in July 2020, reflecting strong liquidity from operations and EBITDA conversion to cash flow from operating activities of 99% versus 74% in 2019
-- Good start to 2021 with like-for-like January gross profit well ahead of budget and with budgeted gross profit growth like-for-like for 2021 of 25%
*Billings is gross billings to client including pass through costs
**Pro-forma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the group had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations
***like-for-like relates to 2019 being restated to show the unaudited numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2020 applying currency rates as used in 2020
****Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to assess the underlying business performance. Operational EBITDA margin is operational EBITDA divided by Gross Profit.
*****Net cash including bank loans
Strategic and operational Highlights
-- In January, MediaMonks announced a combination with Circus Marketing, a fully integrated digital agency, based in the Americas and Spain (consolidated as from March 2020).
-- In May, MightyHive announced a combination with Digodat, a leading Latin American data & analytics consultancy (consolidated as from July).
-- In June, MightyHive announced a combination with Lens 10, a leading Australian digital strategy & analytics consultancy (consolidated as from October).
-- In July, MightyHive announced a combination with Orca Pacific, a Seattle-based, Amazon-managed service provider (consolidated as from August) and raised GBP113 million net proceeds from a placing.
-- In August, MightyHive, announced a combination with BrightBlue Consulting, an award-winning UK-based, data analytics and measurement consultancy (consolidated as from September).
-- In September, BMW/MINI announced a new agency partner network in Europe, called THE MARCOM ENGINE which included MediaMonks, which would be "at the heart of the new constellation". On the same day, MediaMonks announced a combination with Dare.Win, an award-winning, Paris-based, digital creative agency.
-- In November, Mondēlez International confirmed that MediaMonks had won its competitive pitch to manage its tech infrastructure and websites globally, plus content production for North America, Latin America, Asia, Middle-East and Africa.
-- Post year end:
o In January 2021, MediaMonks announced combinations with Decoded Advertising, an integrated, creative, technology and media agency, based in New York and also combined with Tomorrow, an award-winning, Shanghai-based, creative agency and with Staud Studios, a high-end creative, production studio, specialising in the automotive industry.
o Also, in January, MightyHive announced a combination with Metric Theory, an integrated performance marketing agency, providing services across search, social and commerce media. Metric Theory and Decoded Advertising were completed on 31 December, 2020 after the market was closed. As a result, the balance sheets of both combinations are included in the consolidated balance sheet of the Group.
o In February, MightyHive acquired the assets of Datalicious Australia, a Sydney, Melbourne and Brisbane-based data & analytics company.
o Today, S(4) Capital announced that it has entered into a conditional agreement in relation to a combination of MediaMonks with highly awarded design and experience agency, Jam3, based in Toronto with offices in Amsterdam, Los Angeles and Uruguay.
o The pace of on-boarding both the new BMW/MINI and Mondēlez "Whoppers" has intensified during the first and second quarters of 2021.
-- Addition of functional talent teams in fashion and luxury, social media and government communications from leading competitors, the first during 2020 and the last two in 2021.
-- Launch of both S4 Fellowship Programme for students from Historically Black Colleges and Universities and in due course, High Schools in the United States and S4 Women Leadership Programme in association with UC Berkeley in California.
-- The Group now has approximately 4,400 people in 31 countries, trending towards double where we were this time last year.
-- In addition to new client BMW/MINI and the significant broadening of our relationship with Mondēlez, there were major new remits from clients such as Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer & HP and major new assignments from Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon amongst others, reflecting the strong tech orientation of the Company's client base and the growing healthcare and FMCG focus.
-- Current pipeline running at stronger level than last year
-- Appointment of Miles Young, a leading, industry-knowledgeable Non-Executive Director, to the Board.
Sir Martin Sorrell, Executive Chairman of S(4) Capital plc said:
"Our second full financial year was again outstandingly successful. Having established brand awareness and secured brand trial in the back end of 2018 and in 2019, we set about converting client relationships at scale and now have five "Whoppers" secure or in sight, in line with our ultimate 20 squared objective, that is 20 clients each generating revenues of over $20 million per annum.
Pride of place for these achievements should go to our (now) over 4,400 people in 31 countries, who have responded unflinchingly to the colossal strain and challenge of the pandemic. Their creativity, adaptability, resilience and hard work have made this success possible and have started to prove the potency of our new age/new era, digital, data-driven, unitary model, which has started to gain significant traction. The pandemic has, at the same time, accelerated adoption of digital transformation amongst consumers, across all media and within enterprises and, in turn, stimulated the demand from clients for digital marketing expertise.
We continued to grow our top line and bottom line at industry leading rates, despite covid-19 and exhibited agility in developing new content revenue streams quickly, such as robotic production, animation and on-line events and driving data & digital marketing net revenues, particularly in the fourth quarter and into this year. We continued to broaden and deepen our Content and Data & digital media practices through organic growth and by the addition of a further four Content and six Data & digital media companies in 2020 and so far in early 2021. We further integrated our unitary client offering around our Content and Data & digital media practices. We broadened and deepened our client roster. We embraced the diversity, equity and inclusion and ESG opportunities and challenges with unique black-orientated fellowship and female executive leadership programmes, changed hiring practices and education programmes and made zero carbon commitments targeting 2024. We achieved double $ and GBP Unicorn status in terms of stock market value, in only our second full year, while strengthening our balance sheet to take advantage of short-term opportunities.
2021 has started strongly, well in line with our latest three year plan to double organically in three years and we are focused on three objectives for the year - to bed down our two new "Whoppers" and develop and identify five more; to roll-out our unitary branding; and to continue to broaden and deepen our digital client offering by combination. We believe 2021 and 2022 will be very strong years economically, as the world rebounds from the pandemic and spends and invests the huge pandemic-driven fiscal and monetary stimulus. Digital marketing expenditure is closely correlated, but not dependent on GDP growth, just as traditional media spending used to be in the last century."
Results webcast and conference call
A webcast will be held at 8.00am GMT. A live webcast of the presentation will be available during the event at: https://brrmedia.news/9ms2h
For Q&A:
UK: +44 (0)330 336 9125
US: +1 323-794-2093
Confirmation code: 6050306
A further live webcast conference call to cover the results will be held today at 9.00am EDT / 13.00pm GMT and will be available at: https://brrmedia.news/9fjjd
For Q&A
US: +1 323-794-2093
UK: +44 (0)330 336 9434
Confirmation code: 2926753
Enquiries to:
+44 (0)20 3793 S(4) Capital plc 0003 Sir Martin Sorrell, Executive Chairman Peter Rademaker, Chief Financial Officer Scott Spirit, Chief Growth Officer Dowgate Capital Limited +44 (0)20 3903 (Joint Corporate Broker to S(4) Capital plc) 7715 James Serjeant David Poutney Jefferies International Limited +44 (0)20 7029 (Joint Corporate Broker to S(4) Capital plc) 8000 Tony White Harry Le May Morgan Stanley & Co. International plc +44 (0)20 7425 (Joint Corporate Broker to S(4) Capital plc) 8000 Paul Baker Alex Smart +44 (0)7970 246 725 / (0)7917 886 Powerscourt (PR Advisor) 576 Elly Williamson Jack Shelley
Chairman's Letter
Dear Shareowner,
My Executive colleagues, Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Peter Rademaker, Scott Spirit, Michel de Rijk and I are delighted to present our third full year results for the period ending 31 December 2020 to our fellow shareowners.
In 2020, we continued to build our existing relationships with clients such as Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer and Mondēlez and won significant new business from BMW/MINI, Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon. Tech clients account for around 55% of revenues, with a growing cadre of healthcare and FMCG clients.
We now project five "Whoppers" (clients with revenues over $20 million per annum), as opposed to only two at this time last year. We have also now identified five more potential "Whoppers", where we currently project $5-15 million of revenue per annum and potentially could break through the $20 million per annum level. We are also in the process of identifying five more potential "Whoppers" currently generating under $10 million per annum, bringing the total actual and potential "Whoppers" to 15 out of the target of 20.
2020 also saw significant strengthening and deepening of our Content and Data & digital media practices. MediaMonks broadened and deepened its geographical footprint in 2020 and so far in 2021, adding North and Latin American and Spanish content capabilities with Circus Marketing, entering the French market with Dare.Win , combining with Decoded in the United States, doubling up in Shanghai with Tomorrow and opening up in Germany with Staud Studios to build on the BMW/MINI relationship. MediaMonks also added significant talent from competitors in the areas of fashion and luxury, new digital media social content and digital government communications. MightyHive was even more active in 2020 and so far in 2021 , building its data & analytics capability inside and outside the United States through the addition of Digodat in Latin America, Lens 10 in Australia and New Zealand, Orca Pacific specialising in the Amazon platform in Seattle, BrightBlue Consulting in the UK and a second Datalicious operation in Australia to complement South Korea. MightyHive also stepped up its performance media capabilities adding Metric Theory.
Both MediaMonks and MightyHive have integrated each combination into our Content and Data & digital media practices and brands and we are starting to roll out our unitary brand. We already operated as a single P&L, pretty much from inception, so as to develop and maintain a seamless, fully integrated offer for our clients. In addition, although nothing good can be said to have come from it , the pandemic did enable us to consolidate separate offices on a city-by-city basis faster, as existing leases were terminated more quickly . In addition, property consolidation will be assessed faster as vaccinations start to kick-in and lockdowns ease, starting in the second quarter of 2021. There is little doubt that we will not go back to the old normal in terms of office location, layout and use. There will be more flexible working from home, probably about 40% of the working week, with more flexible commuting times, more dispersed working and living patterns and different office layouts, with separate spaces for our people to meet, to work and to engage with clients. We are also starting to increasingly consolidate our strategic, client content and data and programmatic offer at the S (4) Capital level.
Our focus on both developing our advertising and marketing services know how and geographical expansion, particularly in Asia Pacific, was further underlined by the appointment of Miles Young, Warden of New College, Oxford University as a non-executive director . He was formerly my colleague at WPP, where he was at Ogilvy for 35 years and ran it very successfully for eight years until 2016, expanding their footprint aggressively in growth areas such as digital content and media and Asia Pacific, particularly China and India - truly one of David Ogilvy's "Gentlemen with Brains".
Summary of results
Condensed Consolidated Income Statement For the period ended 31 Dec 2020 (unaudited) Like Year Year for like ended ended cc Proforma Proforma Year Year Year 31 ended ended ended Dec 31 Dec 31 Dec 31 Dec 30 Dec 2020 2019 2019 2020 2019 For the period ended 31 December LIR'000 LIR'000 YoY% LIR'000 YoY% LIR'000 LIR'000 YoY% ---------------- ---- ------------ ------------ ------------ ------------ ------------ Revenue 342,687 215,132 59% 297,410 15% 421,092 350,576 20% Cost of sales 47,505 43,814 8% 50,129 -5% 52,137 52,324 0% ------------------------ ------------ ------------ ------------ ------------ ------------ Gross profit 295,182 171,318 72% 247,281 19% 368,955 298,252 24% Net operating expenses 287,049 175,153 64% 247,079 16% 352,008 299,422 18% Operating profit/ (loss) 8,133 (3,835) - 202 3919% 16,948 (1,170) - ------------------------ ------------ ------------ ------------ ------------ ------------ Adjusted operating profit 57,950 31,148 86% 50,019 16% 80,453 62,335 29% Adjusting items (49,817) (34,983) - (49,817) - (63,505) (63,505) - ------------------------ ------------ ------------ ------------ ------------ ------------ Operating profit/ (loss) 8,133 (3,835) - 202 3919% 16,948 (1,170) - Net finance expense (5,037) (5,360) - (5,672) - (4,821) (5,530) - ------------------------ ------------ ------------ ------------ ------------ ------------ Profit / (loss) before income tax 3,096 (9,195) - (5,469) - 12,126 (6,700) - Income tax expense (7,025) (845) - (3,436) - (13,323) (6,543) - ------------------------ ------------ ------------ ------------ ------------ ------------ Loss for the period (3,929) (10,040) - (8,905) - (1,197) (13,243) - ------------------------ ------------ ------------ ------------ ------------ ------------ Reconciliation to operational EBITDA Operating profit / (loss) 8,133 (3,835) 202 16,948 (1,170) Adjusting items 49,817 34,983 49,817 63,505 63,505 Depreciation (excluding right-of-use asset depreciation) 4,228 2,260 2,520 4,679 2,829
----------------------- Operational EBITDA 62,178 33,408 86% 52,539 18% 85,132 65,164 31% Central costs 6,112 5,817 5,859 6,112 5,859 ------------------------ Operational EBITDA before central costs 68,290 39,225 74% 58,398 17% 91,244 71,023 28% ======================= ============ ============ ====== ============ ====== ============ ============ ====== Reconciliation to adjusted operating profit ---------------- ---- ------------ ------------ ------------ ------------ ------------ Operating profit / (loss) 8,133 (3,835) 202 16,948 (1,170) Adjusting items 49,817 34,983 49,817 63,505 63,505 Adjusted operating profit 57,950 31,148 86% 50,019 16% 80,453 62,335 29% ======================== ============ ============ ====== ============ ====== ============ ============ ====== Reconciliation to adjusted result before income tax ---------------------- ------------ ------------ ------------ ------------ ------------ Result before income tax 3,096 (9,195) (5,469) 12,126 (6,700) Adjusting items 49,817 34,983 49,817 63,505 63,505 Adjusted result before income tax 52,913 25,788 105% 44,348 19% 75,631 56,805 33% ======================== ============ ============ ====== ============ ====== ============ ============ ====== Reconciliation to adjusted result for the period ---------------- ---- ------------ ------------ ------------ ------------ ------------ Result for the period (3,929) (10,040) (8,905) (1,197) (13,243) Adjusting items 49,817 34,983 49,817 63,505 63,505 Tax on adjusting items (6,996) (5,957) (6,996) (10,401) (10,401) Adjusted result for the period 38,892 18,986 105% 33,916 15% 51,907 39,861 30% ======================== ============ ============ ====== ============ ====== ============ ============ ====== Earnings per share ---------------- ---- ------------ ------------ ------------ ------------ ------------ Weighted average number of shares in issue for the purpose of basic and adjusted net result per share 493,290,974 368,067,662 493,290,974 529,788,744 529,788,744 Net result attributable to equity owners of the Company (GBP'000) (3.929) (10,040) (8,905) (1,197) (13,243) Basic net result per share (pence) -0.8 -2,7 -1.8 -0.2 -2.5 Diluted net result per share (pence) -0.8 -2,7 -1.8 -0.2 -2.5 Adjusted non-recurring expenses and acquisition related expenses 15,768 12,806 15,768 15,768 15,768 Share based compensation 12,331 7,177 12,331 12,331 12,331 Revaluation contingent considerations (1,430) 0 (1,430) (1,430) (1,430) Adjusted amortisation of intangible assets related to acquisitions 23,148 15,000 23,148 36,836 36,836 Adjusted tax on adjustments (6,996) (5,957) (6,996) (10,401) (10,401) Adjusted net result 38,892 18,986 33,916 51,907 39,861 Adjusted Basic net result per share (pence) 7.9 5.2 53% 6.9 15% 9.8 7.5 30% ======================= ============ ============ ====== ============ ====== ============ ============ ====== Gross margin per territory ---------------- ---- ------------ ------------ ------------ ------------ ------------ Americas 206,316 117,062 76% 173,258 19% 270,550 216,543 25% EMEA 58,233 40,765 43% 52,776 10% 65,216 58,618 11% Asia-Pacific 30,633 13,490 127% 21,248 44% 33,190 23,091 44% Total 295,182 173,318 72% 247,281 19% 368,955 298,252 24% ======================== ============ ============ ====== ============ ====== ============ ============ ====== Gross margin per practice ---------------- ---- ------------ ------------ ------------ ------------ ------------ Content 220,497 113,365 95% 182,792 21% 264,671 210,117 26% Programmatic 74,685 57,953 29% 64,489 16% 104,285 88,135 18% Total 295,182 171,318 72% 247,281 19% 368,955 298,252 24% ======================== ============ ============ ====== ============ ====== ============ ============ ======
Turning to the results themselves, we thought it would be most useful to compare the reported results not only with last year's reported results, but also on an unaudited like-for-like and unaudited pro-forma basis, particularly given the continued rapid inorganic expansion of the Company in 2020.
Billings were GBP653.4 million, up 43.4% on a reported basis, up 19.6% like-for-like and up 22.3% pro-forma. Controlled Billings, that is billings we influenced in addition to billings that flowed through our income statement, were approximately GBP2.3 billion (2019: GBP1.9 billion). Revenue was GBP342.7 million, up 59.3% from GBP215.1 million on a reported basis, up 15.2% like-for-like, and up 20.1% on a pro-forma basis. Gross profit was GBP295.2 million, up 72.3% reported, up 19.4% like-for-like, and up 23.7% pro-forma. Operating profit was GBP8.1 million versus an operating loss of GBP3.8 million in 2019. Operational EBITDA was GBP62.2 million, up 86.1% reported, up 18.3% like-for-like, and up 30.6% pro-forma. Operational EBITDA margin was 21.1%, up 1.6 margin points versus 19.5% reported in 2019, down 0.2 margin points like-for-like and, up 1.2 margin points pro-forma. Adjusted basic net result per share was 7.9p versus 5.2p in 2019, 6.9p like-for-like and 9.8p pro-forma. Statutory result for the period was GBP3.9 million (loss), versus a reported GBP10.0 million (loss) in 2019, after charging under IFRS GBP7.4 million of combination payments, which were tied to the continued employment of key merger share-owning principals. Although such contractual provisions result in a non-cash charge to the income statement, your Board believes this is a better commercial approach given the nature of our business. Basic and diluted net result per share were 0.8p (loss) per share, versus 2.7p (loss) in 2019, like-for-like 1.8p (loss) per share and pro-forma 0.2p (loss) per share. Year-end net cash was GBP51.6 million, despite making GBP83 million in cash combination payments, since the GBP113 million gross equity fundraising in July 2020 and reflecting strong cash flow from operating activities with 99% operating cash flow conversion from EBITDA. In line with our first half statement in September 2020, Operational EBITDA margins improved significantly in the second half from 14.5% to 25.8%, as the first half increased investment in people yielded higher productivity in the second half.
Pro-forma billings were GBP768.4 million. Pro-forma revenue was GBP421.1 million and pro-forma gross profit was GBP369.0 million up 20.1% and 23.7% respectively in 2019. Pro-forma operational EBITDA was GBP85.1 million, up 30.6% on 2019, with operational EBITDA margin at 23.1%, up 1.2 margin points on the previous year. Pro-forma adjusted operating profit excluding adjusting items of GBP63.5 million, is GBP80.5 million, up 29.1% on the previous year. Pro-forma adjusted pre-tax profits were GBP75.6 million versus GBP56.8 million in the previous year, up 33.1%. Pro-forma adjusted result for the period was GBP51.9million, up 30.2%. Adjusted pro-forma basic earnings per share before exceptional items were 9.8p, up from 7.5p in the previous year. The Board continues to recommend no dividend given the growth opportunities that beckon.
By geography, on a pro-forma basis, the Americas accounted for 73.3% of gross profit against 72.6% in 2019. Europe, the Middle-East and Africa represented 17.7% of gross profit against 19.7% in 2019. Asia-Pacific represented 9.0% of gross profit against 7.7% in 2019. Growth in gross profit was up 24.9% in the Americas, 11.3% in Europe, Middle-East and Africa and 43.7% in Asia-Pacific. Our long-term objective is to achieve a geographic distribution of 40% in the Americas, 20% in Europe, the Middle-East and Africa and 40% in Asia-Pacific, particularly given the likely continuing rise of China and India and despite the US/China trade frictions.
By practice, on a pro-forma basis, Content accounted for 71.7% of gross profit against 70.4% in 2019. The Data & digital media practice represented 28.3% of gross profit against 29.6% in 2019. Growth in gross profit was up 26.0% like-for-like at the Content practice and up 18.3% at the Data & digital media practice. Our long-term objective is to achieve a practice distribution around two-thirds Content and one-third Data & digital media, emphasising the growing importance of digital video.
Significant new business wins include assignments from Google, Facebook, Amazon, Netflix, Procter & Gamble, T-Mobile, Bayer, HP, Cisco, Embibe, Harley Davidson, PayPal, LA28, Shopify and Verizon amongst others as we expanded our tech client portfolio and presence in healthcare and FMCG. Encouragingly, our current pipeline is proportionally ahead of last year's level.
The Environment, Social and Governance
In 2020, the Company upped its game significantly in all three areas. We actively track our CO(2.) emissions and perform competitively with a sample of other similar companies in the areas of gender and diversity. We have committed to achieving zero greenhouse gas emissions by 2024, in response to the World Economic Forum 2020 Davos Manifesto and were the first advertising and marketing firm to commit to the Amazon Climate Challenge, which has a longer term objective in relation to zero emissions. We are seeking B Corp status by the end of the year.
Last year, we averaged a 0.82 female to male ratio across the firm, representing a significant improvement over last year's ratio of 0.47. In response to the tragic killing of George Floyd and the surge behind the Black Lives Matter movement, we organised a firm-wide, matched contribution campaign, which raised $0.3 million for four key black charities. We, immediately, also began to intensify changes in our hiring and educational policies in relation to diversity, equality and inclusion, with a public commitment to publish annually and improve our diversity numbers so as to be representative of the communities we work in. We are already approximately 40% People of Colour in the United States, with strong Hispanic and Asian representation, in particular. In the markets we can legally measure, we are approximately 5% Black, which, for example in the United States, still represents significant under-representation of the communities we work in. In California, such a percentage may be representative, but nationally, where the proportion is 13% and in New York, where it is 25%, it is unacceptable. These are our objectives. We have also hired our first Fellows (and Fellowesses) in the S4 Fellowship Programme, who exclusively come from Historically Black Colleges and Universities in the United States. We have outstanding recruits for this four-year, multi-practice programme, who will be evangelising the programme across the United States shortly into High Schools too. Finally, we have just started the S4 Women Leadership Programme, identifying 50 female leaders from across the firm to study on-line with UC Berkeley, California for the next 18 months.
Across S(4) Capital we donated an additional $0.4 million to charities and also aim to contribute to society and the needs of the planet with our Projects for Good, which are all related to the United Nations Sustainable Development Goals. In 2020, we delivered 41 Projects for Good.
We also launched S(4) Impact Day globally, a volunteering day when all our 4,400 people in 31 countries can tangibly give back to the communities of which they are a part.
As regards Governance, we continued to enhance the Board with the addition of one new Director, now with four female and four male Non-Executive Directors. The recommendations of Lord Hill's Report to the UK's Chancellor of the Exchequer also provides a possible pathway to a premium or standard listing with fund indexation, if, of course, the recommendations are accepted.
Outlook and current trading
All-in-all, we continued to fire on all cylinders in 2020, with like-for-like revenue and gross profit up 15.2% and 19.4% and pro-forma revenue and gross profit growth of 20.1% and 23.7% and a pro-forma operational EBITDA margin of over 23%, after central costs. January 2021 like-for-like gross profit growth was strong and ahead of budget . This performance is planned to continue into 2021, with budgets and plans targeting strong revenue, gross profit growth and improving operational EBITDA margin and the three-year plan for 2021-3 targeting a doubling of the firm organically, excluding combinations.
There is no doubt that covid-19 has had a devastating impact on the global economy and society. Our people have been put under immense strain, particularly with the illness and loss of family members. We applaud their resilience, hard work and success and thank them for all their efforts. We took the view that we would not make significant reductions in the number of people in the firm, nor rely in any significant way on government support or funding. This was a bold thing to do, particularly in the pressure cooker of the end of the first quarter and beginning of the second quarter in 2020. Our Content practice, representing about three quarters of our business pivoted very quickly to robotic production and animation and converting live events to virtual ones. We, therefore, created significant new content revenue streams very quickly, with April 2020 being the weakest like-for-like growth month, but still a growth month. There was then a steady progression in the Content practice gross profit organic growth rate through 2020 and into 2021. The Data & digital media practice was more impacted by covid-19 in Quarters 2 and 3 2020, but still grew gross profit organically significantly over those quarters, with the growth accelerating markedly in Quarter 4 and into 2021.
Overall, it is clear that covid-19 has accelerated the adoption of digital transformation and digital media at three levels. Firstly, at the consumer level, with consumers buying groceries and essentials on-line, educating their kids on-line, using financial services on-line and gorging on on-line entertainment and gaming. Secondly, media trends have been accelerated, with the streamers like Netflix and Disney+ gaining on free to air tv, traditional newspapers and magazines under greater pressure from digital alternatives and traditional outdoor being increasingly eclipsed by digital outdoor. Finally, enterprise adoption of digital transformation has accelerated, as covid-19 disrupted steady state growth and during that disruption "change agents" have been given more oxygen to implement digital organisational change.
It is also clear that the Company's purely digital model based on first party data (reinforced by the recent privacy policy decisions by Apple and Google) fuelling the creation, production and distribution of digital advertising content and distributed by digital media is increasingly resonating with clients. Our tag line "faster, better, cheaper" or "speed, quality, value" and unitary, one P&L structure also appeal strongly. The imperatives for 2021 continue to be to move beyond brand awareness and brand trial to greater client conversion at scale and achieving our 20 squared objective as rapidly as possible; to roll out our unitary branding; and to broaden and deepen our service capability through mergers and combination .
Best wishes,
Sir Martin Sorrell
Executive Chairman
About 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 2020 digital accounted for over 50% (for the first time) or $290 billion of total global advertising spend of $525 billion (excluding over $500 billion of trade promotion marketing, the primary target of the Amazon advertising platform), and projects that by 2022 this share will grow to approximately 60% and by 2024 to approximately 66%, accelerated by the impact of covid-19.
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 and Circus (see below), as one of the fastest growing agencies by Adweek, and MightyHive combined with award-winning UK-based digital analytics, biddable media and data science company ConversionWorks and South Korea-based data and analytics consultancy MightyHive Korea. In November 2019, MediaMonks announced its combination with Delhi-based content creation and production company WhiteBalance (completed in August 2020 - the delay due to necessary merger clearance procedures) and then with fully integrated digital agency Circus Marketing in January 2020 (completed in March 2020).
In May 2020, MightyHive announced a combination with Digodat, one of the leading Latin American data and analytics consultancies, and in June 2020, MightyHive announced its combination with Lens10, a leading Australian digital strategy and analytics consultancy. In July 2020, MightyHive announced a combination with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle. In August 2020, MightyHive announced a combination with London-based Brightblue, an econometric and media optimisation consultancy. In September 2020, MediaMonks announced its combination with Dare.Win, expanding its geographical presence to France. In January 2021, MediaMonks announced its combination with integrated creative, technology and media agency Decoded Advertising, Shanghai based creative agency TOMORROW and Stuttgart based automotive specialist STAUD STUDIOS. MightyHive also announced its combination with integrated digital performance marketing agency Metric Theory. In February 2021, MightyHive acquired the assets of Datalicious, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific.
On 16 July 2020, S(4) Capital announced the successful placing of 36,766,642 new ordinary shares at a price of 315p raising approximately GBP116 million gross proceeds which will be used for further expansion and combination purposes.
Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Peter Rademaker and Scott Spirit all joined the S(4) Capital Board as Directors. The S(4) Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly and Miles Young.
The Company now has over 4,400 people in 31 countries across the Americas, Europe, the Middle East and Africa and Asia-Pacific and a current market capitalisation of approximately GBP2.5 billion (c.$3.5 billion), and would rank around the FTSE 150. It achieved Unicorn status in a little over one year, unique in the advertising and marketing services industry
Sir Martin was CEO of WPP for 33 years, building it from a 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 GBP11 billion. Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi Company Plc for nine years.
Unaudited consolidated statement of profit or loss
For the year ended 31 December 2020
2020 2019 Unaudited Unaudited ====================================== Notes GBP'000 GBP'000 ====================================== ===== ========== ========== Revenue 342,687 215,132 Cost of sales 47,505 43,814 Gross profit 295,182 171,318 Personnel costs 205,135 111,572 Other operating expenses 30,561 25,803 Acquisition and set-up related expenses 14,338 12,806 Depreciation and amortisation 37,015 24,972 Total operating expenses 287,049 175,153 Operating profit (loss) 8,133 (3,835) Adjusted operating profit 57,950 31,148 Adjusting items (49,817) (34,983) Operating profit (loss) 8,133 (3,835) --------------------------------------- ----- ---------- ---------- Finance income 698 20 Finance expenses (5,735) (5,380) Net finance expenses (5,037) (5,360) Profit (loss) before income tax 3,096 (9,195) Income tax expense 5 (7,025) (845) Loss for the year (3,929) (10,040) ======================================= ===== ========== ========== Attributable to owners of the Company (3,929) (10,040) Attributable to non-controlling - - interests (3,929) (10,040) ====================================== ===== ========== ==========
Loss per share is attributable to the ordinary equity holders of the Company
Basic loss per share (pence) 3(0.8) (2.7) Diluted loss per share (pence) 3(0.8) (2.7)
Unaudited consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019 Unaudited Unaudited ====================================== GBP'000 GBP'000 ====================================== ========== ========== Profit (loss) for the year (3,929) (10,040) Other comprehensive income (loss) Items that may be reclassified to profit or loss Foreign operations - foreign currency translation differences 2,905 (20,620) Total other comprehensive income (loss) 2,905 (20,620) Total comprehensive loss for the year (1,024) (30,660) ============================================= ========== ========== Attributable to owners of the Company (1,024) (30,660) Attributable to non-controlling - - interests (1,024) (30,660) ========================================= ========== ==========
Unaudited consolidated balance sheet
At 31 December 2020
2020 2019 Unaudited Unaudited ====================================== Notes GBP'000 GBP'000 ====================================== ===== ========== ========== Assets Non-current assets Intangible assets 4 799,129 540,129 Right-of-use assets 21,653 25,779 Property, plant and equipment 14,537 9,730 Deferred tax assets 2,068 1,086 Other receivables 2,125 2,731 839,512 579,455 Current assets Trade and other receivables 181,391 126,353 Cash and cash equivalents 142,052 66,106 323,443 192,459 Total assets 1,162,955 771,914 ======================================= ===== ========== ========== Liabilities Non-current liabilities Deferred tax liabilities 62,100 54,834 Loans and borrowings 44,819 42,374 Lease liabilities 5 15,942 18,787 Contingent consideration 32,593 3,669 Other payables 1,941 2,007 157,395 121,671 Current liabilities Trade and other payables 191,125 118,014 Contingent consideration and holdback 35,742 51,202 Loans and borrowings 45,623 - Lease liabilities 7,047 7,975 Tax liabilities 12,480 6,751 292,017 183,942 Total liabilities 449,412 305,613 ======================================= ===== ========== ========== Net assets 713,543 466,301 ======================================= ===== ========== ========== Equity Attributable to owners of the Company Share capital 135,516 117,307 Reserves 577,927 348,894 713,443 466,201 Non-controlling interests 100 100 Total equity 713,543 466,301 ======================================= ===== ========== ==========
Unaudited consolidated statement of cash flows
For the year ended 31 December 2020
2020 2019 Unaudited Unaudited ========================================== GBP'000 GBP'000 ========================================== ========== ========== Cash flows from operating activities Profit (loss) before income tax 3,096 (9,195) Financial income and expenses 5,037 5,360 Depreciation and amortisation 37,015 24,972 Share based compensation 12,331 7,177 Acquisition and set-up related expenses 14,338 12,806 Increase in trade and other receivables (29,282) (31,288) Increase in trade and other payables 29,893 22,310 Cash flows from operations 72,428 32,142 Income taxes paid (10,758) (7,571) Net cash flows from operating activities 61,670 24,571 ================================================= ========== ========== Cash flows from investing activities Investments in intangible assets (34) (1,578) Investments in property, plant and equipment (7,396) (7,865) Acquisition of subsidiaries, net of cash acquired (124,155) (56,954) Financial fixed assets 871 (779) Cash flows from investing activities (130,714) (67,176) ================================================= ========== ========== Cash flows from financing activities Proceeds from issuance of shares 113,386 97,451 Additional borrowings 45,378 22,418 Payment of lease liabilities and interest (12,175) (6,687) Repayments of loans and borrowings (24,119) Interest paid (742) (4,744) Cash flows from financing activities 145,847 84,319 ================================================= ========== ========== Net movement in cash and cash equivalents 76,803 41,714 Cash and cash equivalents beginning of the year 66,106 25,005 Exchange gain/(loss) on cash and cash equivalents (857) (613) Cash and cash equivalents at 31 December 142,052 66,106 ================================================= ========== ==========
Unaudited consolidated statement of changes in equity
For the year ended 31 December 2020
Foreign Number Share Share Merger Other exchange Accumulated Non-controlling Total of shares capital premium reserves reserves(1) 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 2019 363,396,923 90,849 52,871 205,717 (847) 1,870 (8,266) 342,194 100 342,294 Comprehensive loss for the year Loss for the year - - - - - - (10,040) (10,040) - (10,040) Foreign currency translation differences - - - - - (20,620) - (20,620) - (20,620) Total comprehensive loss for the year - - - - (20,620) (10,040) (30,660) (30,660) Transactions with owners of the Company Issue of Ordinary Shares 105,324,634 26,331 121,182 - - - - 147,513 - 147,513 Employee share schemes 505,702 127 249 - (313) - 7,091 7,154 - 7,154 Balance at 31 December 2019 469,227,259 117,307 174,302 205,717 (1,160) (18,750) (11,215) 466,201 100 466,301 Comprehensive loss for the year Profit for the year - - - - (3,929) (3,929) - (3,929) Foreign currency translation differences - - - - 2,905 - 2,905 - 2,905 Total comprehensive loss for the year - - - 2,905 (3,929) (1,024) - (1,024) Transactions with owners of the Company Issue of Ordinary Shares 36,766,642 9,192 103,995 113,187 - 113,187 Business combinations 34,744,022 8,686 84,564 28,655 121,905 - 121,905 Employee share schemes 1,327,535 331 1,334 (454) 11,963 13,174 - 13,174 723,729 Balance at 31 December 2020 542,065,458 135,516 364,195 205,717 27,041 (15,845) (3,181) 713,443 100 713,543 ============== =========== ======= ======= ======== =========== ======== =========== ======== =============== ========
Notes to the consolidated financial statements
General information
S(4) Capital plc ('S(4) Capital' or 'Company'), is a public Company, limited by shares, incorporated on 14 November 2016 in the United Kingdom. The Company has its registered office at 12 St James's Place, London, SW1A 1NX, United Kingdom.
The unaudited preliminary consolidated condensed financial statements represent the results of the Company and its subsidiaries (together referred to as 'S(4) Capital Group' or the 'Group').
S(4) Capital Group is a new age/new era digital advertising and marketing services company.
Basis of preparation
The financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. They have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU.
On 31 December 2020 EU-adopted IFRS was brought into UK law and became UK-adopted international accounting standards, with future changes to IFRS being subject to endorsement by the UK Endorsement Board. The Consolidated Financial Statements will transition to UK-adopted international accounting standards for financial periods beginning 1 January 2021.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2020. The statutory accounts for 2020 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course. The unaudited financial information is prepared under the historical cost basis, unless stated otherwise in the accounting policies.
Accounting policies
The accounting policies will be included in the Annual Report and Accounts 2020. The accounting policies are materially consistent with those described in the Annual Report and Accounts 2019, which were set out on pages 87 to 95.
New and amended standards adopted by the Group
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.
Critical accounting estimates and judgements
The critical accounting estimates and judgments will be included in the Annual Report and Accounts 2020. These are consistent with those described in the Annual Report and Accounts 2019, which were set out on pages 87 and 89.
1. Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Directors and executive management of S Capital Group.
During the year, S Capital Group has been active in two segments.
// Content Practice: Creative content, campaigns and assets at a global scale for paid, social and earned media - from digital platforms and apps to brand activations that aim to convert consumers at every possible touchpoint.
// Data & Digital media: this technology and services practice encompasses full-service campaign management analytics, creative production and ad serving, platform and systems integration and transition and training and education.
The customers are primarily businesses across technology, FMCG and media & entertainment.
The Directors and executive management monitor the results of the operating segments separately for the purpose of making decisions about resource allocation and performance assessment prior to charges for tax, depreciation and amortisation.
Operating segment information under the primary reporting format is disclosed below:
Data & Content Digital Practice media Total ======================================= 2020 GBP'000 GBP'000 GBP'000 ======================================= ========= ======== ======== Gross profit 220,497 74,685 295,182 Segment profit (1) 45,609 21,603 67,212 Overhead cost (5,034) Adjusted non-recurring and acquisition related expenses (26,669) Depreciation(2) and amortisation (27,376) Net finance expenses (5,037) Profit before income tax 3,096 ========================================== ========= ======== ========
(1) Including GBP 9.6 million depreciation on right-of-use assets
(2) Excluding GBP 9.6 million depreciation on right-of-use assets
Data & Digital Content media Total ======================================= 2019 GBP'000 GBP'000 GBP'000 ======================================= ======= ======== ======== Gross profit 113,365 57,953 171,318 Segment profit(1) 25,570 13,654 39,224 Overhead cost (5,817) Adjusted non-recurring and acquisition related expenses (19,983) Depreciation(2) and amortisation (17,259) Net finance expenses (5,360) Loss before income tax (9,195) ========================================== ======= ======== ========
(1) Including GBP 7.7 million depreciation on right-of-use assets
(2) Excluding GBP 7.7 million depreciation on right-of-use assets
Key management of S(4) Capital Group uses gross profit rather than revenue to manage the Group due to the fluctuating amounts of third-party costs and/or pass-through expenses, which form part of revenue.
2. Adjusting items
S Capital Group uses certain adjusted earnings measures to provide additional clarity about the performance of the business. Therefore, the operating profit in the condensed consolidated income statement is also adjusted for the following items, which comprise:
// Acquisition and set-up related expenses are not considered part of underlying trading and are material one-off expense or income, which are relevant to an understanding of the underlying performance of the Group.
// Amortisation of certain fair value adjustments recorded in respect of finite-life intangible assets recognised in the purchase price allocation of the acquisitions.
// Share based compensation.
The adjusting items amount to GBP49.8 million for the financial year ended 31 December 2020 (for the financial year ended 31 December 2019: GBP35.0 million). The tables below provide a reconciliation of the Group's reported statutory earnings measures to its adjusted measures
Acquisition and set-up related Share based Reported Amortisation(1) expenses(2) compensation Adjusted =========================== January to December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 =========================== ======== =============== ============ ============= ======== Operating profit 8,133 23,148 14,338 12,331 57,950 Net finance expenses (5,037) - - - (5,037) Profit before income tax 3,096 23,148 14,338 12,331 52,913 Income tax expense (7,025) (5,758) (1,238) - (14,021) (Loss) profit for the year (3,929) 17,390 13,100 12,331 38,892
(1) Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to acquisition related bonuses of GBP2.2 million and transaction related advisory fees of GBP13.6 million and the accounting for contingent considerations of GBP1.4 million.
Acquisition and set-up related Share based Reported Amortisation(1) expenses(2) compensation Adjusted ================================ January to December 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ================================ ======== =============== ============ ============= ======== Operating (loss) profit (3,835) 15,000 12,806 7,177 31,148 Net finance expenses (5,360) - - - (5,360) (Loss) profit before income tax (9,195) 15,000 12,806 7,177 25,788 Income tax credit / (expense) (845) (3,893) (2,064) - (6,802) (Loss) profit for the year (10,040) 11,107 10,742 7,177 18,986 ================================= ======== =============== ============ ============= ========
(1) Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.
(2) Acquisition and set-up related expenses relate to acquisition related bonuses of GBP7.2 million and transaction related advisory fees of GBP5.7 million.
3. Earnings per share 2020 2019 ========================================== =========== =========== Income (Loss) attributable to shareowners of the Company (GBP'000) (3,929) (10,040) Weighted average number of ordinary shares 493,290,974 368,067,622 Basic loss per share (pence) (0.8) (2.7) ============================================== =========== =========== Diluted loss per share (pence) (0.8) (2.7) ---------------------------------------------- ----------- -----------
Earnings per share is calculated by dividing the net result attributable to the shareowners of the S(4) Capital Group by the weighted average number of Ordinary Shares in issue during the year.
4. Intangible assets Customer Goodwill relationships Brands Order Backlog Other Total ============================== GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ============================== ======== ============== ======= ============= ======= ======== Net book value at 1 January 2019 238,237 148,085 13,697 180 1,937 402,136 ============================== ======== ============== ======= ============= ======= ======== Acquired through business combinations 106,610 66,231 2,082 1,098 2,590 178,611 Additions - - - - 1,578 1,578 Amortisation charge for the year - (12,017) (1,117) (1,212) (654) (15,000) Foreign exchange differences (16,011) (10,191) (681) (66) (247) (27,196) Total transactions during the year 90,599 44,023 284 (180) 3,267 137,993 ============================== ======== ============== ======= ============= ======= ======== Cost 328,836 206,706 15,276 5,464 6,364 562,646 Accumulated amortisation - (14,598) (1,295) (5,464) (1,160) (22,517) Net book value at 31 December 2019 328,836 192,108 13,981 - 5,204 540,129 ============================== ======== ============== ======= ============= ======= ======== Acquired through business combinations 228,376 39,379 1,059 3,065 2,269 274,148 Addition 34 34 Reclassifications (2,793) 2,298 211 (284) Amortisation charge for the year (17,747) (1,866) (1,919) (1,616) (23,148) Foreign exchange differences 5,503 2,303 294 56 94 8,250 Total transactions during the year 231,086 26,233 (302) 1,202 781 259,000
============================== ======== ============== ======= ============= ======= ======== Cost 559,922 250,583 16,799 8,805 8,745 844,854 Accumulated amortisation - (32,243) (3,121) (7,604) (2,757) (45,725) Net book value at 31 December 2020 559,922 218,340 13,678 1,201 5,988 799,129 ============================== ======== ============== ======= ============= ======= ========
Acquisitions 2020
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and provisional goodwill of the subsidiaries acquired in financial year 2020 are as follows:
Data & Content digital Total Practice media practice Fair value ============================== GBP'000 GBP'000 GBP'000 ============================== ====== === === ========= =============== ============= Intangible assets - Customer relationships 21,836 17,543 39,379 Intangible assets - Brand names 663 396 1,059 Intangible assets - Order backlog 1,652 1,413 3,065 Intangible assets - Software - 2,269 2,269 Property, plant and equipment 2,110 343 2,453 Financial fixed assets 165 102 267 Cash and cash equivalents 12,259 7,555 19,814 Trade and other receivables 30,753 7,408 38,160 Trade and other payables (34,601) (5,423) (40,026) Current taxation 567 (985) (418) Lease liabilities (674) - (674) Other non-current liabilities (385) (1,553) (1,937) Deferred taxation (6,619) (5,045) (11,664) Net assets 27,726 24,023 51,749 Goodwill 126,908 101,469 228,376 Total purchase consideration 154,634 125,492 280,125 ================================================== ========= =============== ============= Payment in kind (common stock) 24,293 49,379 73,671 Cash 73,361 50,079 123,442 Deferred consideration 29,222 5,890 35,111 Contingent consideration 27,757 20,143 47,899 Total purchase consideration 154,634 125,492 280,125 ================================================== ========= =============== ============= Purchase consideration - cash 73,361 50,079 123,440 Cash and cash equivalents 12,259 7,555 19,814 Cash outflow on acquisition (net of cash acquired) 61,102 42,524 103,626 ================================================== ========== =============== ===========
In 2020, S(4) Capital Group combined with the following businesses:
Content Practice
Combinations in 2020 of the Group's Content Practice are:
// On 8 January 2020, S(4) Capital plc announced (completed and control passed on 12 March 2020) the combination of MediaMonks with the fully integrated digital agency Circus Network.
// On 10 September 2020, S(4) Capital plc announced that MediaMonks has entered into exclusivity in relation to a combination with Dare.Win, an award-winning Paris based digital creative agency. The combination expands MediaMonks' geographical presence to France, Europe's third largest advertising market. At the end of the reporting year, the opening balance sheet has not been agreed upon and therefore the calculated goodwill is provisional.
// In November 2019, S(4) Capital plc announced (completed and control passed on 27 August 2020) the combination of MediaMonks with WhiteBalance, Indian-based digital creative and production agency.
// On 4 January 2021, S(4) Capital plc announced (completed and control passed on 31 December 2020) the combination of MediaMonks with Decoded Advertising, a San Francisco-based marketing agency. Decoded Advertising buys media across search, social and ecommerce properties.
Data & digital media practice
Combinations in 2020 of the Group's Data & digital media practice are:
// On 26 May 2020, S(4) Capital plc announced (completed and control passed on 10 July 2020) the combination of MightyHive with Digodat, a leading Latin American data and analytics consultancy.
// On 30 June 2020, S(4) Capital plc announced the combination of MightyHive with Lens10, a leading Australian digital strategy and analytics consultancy, pending Foreign Investment Review Board and Australian Competition and Consumer Commission.
// On 29 July 2020, S(4) Capital plc announced the combination of MightyHive with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle.
// On 27 August 2020, S(4) Capital plc announced the combination of MightyHive with Brightblue Consulting, an award-winning UK based data analytics and measurement consultancy
// On 4 January 2021, S(4) Capital plc announced (completed and control passed on 31 December 2020) the combination of MightyHive with Metric Theory, an US-based agency fully integrated agency covering creative, media and technology
The goodwill represents the potential growth opportunities and synergy effects from the acquisition. The goodwill is not deductible for tax purposes. Trade receivables net of expected credit losses acquired are considered to be fair value and are expected to be collectable in full.
The contingent considerations are contingent on the acquired companies achieving their 2020 results and, in some cases their 2021 and 2022 results, as determined upon acquiring the subsidiary. The contingent considerations are included for the maximum amount of the consideration expected.
The total acquisition costs of GBP10.8 million (2019: GBP4.7 million) have been recognised under acquisition and set-up related expenses in the statement of profit or loss.
Firewood
Contingent consideration arising from business combinations is fair valued, with key inputs including the probability of success, consideration of potential delays and the expected levels of future revenues. In 2020, Management has identified changes in certain key assumptions with respect to the acquisition of Firewood Marketing Inc that caused the calculated fair value to vary compared to the initial calculated fair value. Revaluations of Contingent consideration are recognised in Selling, general and administrative costs and include a decrease of GBP8.8 million in 2020 (2019: nil) based on revised milestone probabilities, and revenue forecasts, relating mainly to the acquisition of Firewood Marketing.
Events occurring after the reporting period
On 11 January 2021, S(4) Capital plc announced that TOMORROW, an award-winning Shanghai-based creative agency, is combined with MediaMonks, S (4) Capital's Content Practice. The combination expands MediaMonks' existing capabilities and presence in China, the world's second largest advertising market.
On 20 January 2021, S(4) Capital plc announced a combination with Staud Studios, a German high-end creative production studio specialising in the automotive industry. Pursuant to the terms of the Transaction, we have agreed to issue 661,927 ordinary shares of 25 pence each in the capital of the Company, credited as fully paid, as initial consideration. The Initial Consideration Shares will be subject to a restriction on sale until 22 January 2023.
On 1 February 2021, S(4) Capital plc announced that MightyHive has acquired the assets of Datalicious, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific. Datalicious is a specialised data and analytics consultancy, helping marketers make sense of their data. Datalicious tracks and analyzes customer interactions across multiple marketing channels, so clients can drive the most impact from their marketing dollars and create targeted and personalised customer experiences and staff and clients in the financial services, telecommunications and media industries will become part of S (4) Capital's expanding Data and Digital media practice at MightyHive.
On 25 March 2021, S(4) Capital announced that it has entered into a conditional agreement in relation to a combination of MediaMonks with the highly awarded design and experience agency, Jam3, based in Toronto with offices in Amsterdam, Los Angeles and Uruguay
5. Income tax expense
The corporate income tax charge comprises the following:
2020 2019 GBP'000 GBP'000 ================================= ========= ======== Current tax for the year (12,970) (4,022) Adjustments for current tax of prior years (203) (36) Total current tax (13,173) (4,058) Movement in deferred tax 6,148 3,213 Income tax expense in profit or loss (7,025) (845) ================================== ========= ======== 2020 2019 GBP'000 GBP'000 ======== ======== Income (Loss) before income taxes 3,096 (9,195) Tax credit at the UK rate of 19% (2019:19%) (589) 1,747 Tax effect of amounts which are non-deductible (taxable) (4,245) (2,074) Differences in overseas tax rates (1,988) (554) Adjustment for current taxes of prior years (203) 36 Income tax expense in profit or loss (7,025) (845) ======================================= ======== ========
The applicable tax rate is based on the proportion of the contribution to the result by the Group entities and the tax rate applicable in the respective countries. The applicable tax rate in the respective countries ranges from 17% to 35%. The effective tax rate used to calculate the actual tax charge for the year deviates from the applicable tax rate mainly because of non-deductible items, amortisation, accelerated capital allowances over depreciation on plant, property and equipment and differences in overseas tax rates.
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