Source - LSE Regulatory
RNS Number : 5392G
S4 Capital PLC
18 March 2020
 

18 March 2020

 

 

S4 Capital plc

("S4Capital" or the "Company")

 

Unaudited 2019 preliminary results

 

New age/new era digital marketing model continues to deliver strong growth

 

 

Financial Highlights

·      Billings* £455.8 million and pro-forma** billings £513.2 million

·      Revenue £215.1 million up 292% from £54.8 million, like-for-like *** up 41%, pro-forma up 37%

·      Gross profit £171.3 million up 361% from £37.2 million, like-for-like up 44%, pro-forma up 39%

·      Operational EBITDA**** £33.4 million up 612%, like-for-like up 51%, pro-forma up 47%

·      Operational EBITDA margin 19.5%, up 6.9 margin points on 2018, like-for-like 18.6%, pro-forma 20.1%

·      Operating loss £3.8 million, which includes adjusting items of £35.0 million (acquisition expenses and amortisation and share-based compensation), versus an operating loss of £8.5 million in 2018 and pro-forma operating profit of £2.5 million

·      Result before income tax £9.2 million (loss), which includes adjusting items, versus a loss of £9.1 million in 2018 and pro-forma result before income tax of £2.8 million (loss)

·      Result for the period £10.0 million (loss) which includes adjusting items after taxation versus £8.1 million (loss) in 2018 and pro-forma result for the period of £5.7 million (loss)

·      Adjusted basic net result per share 5.2p versus 1.0p in 2018 and 6.0p pro-forma

·      Basic and diluted net result per share 2.7p (loss) which includes adjusting items after tax versus 3.3p (loss) in 2018 and pro-forma adjusted basic net result per share 1.3p (loss)

·      Year-end net cash***** £23.7 million, including the £42.4 million loan drawn to partly fund the combination with MediaMonks

·      Good start to 2020 with January gross profit up over 30%, not seeing any material impact from Coronavirus, and will update the market appropriately

 

Operational Highlights in 2019 and Outlook

·      In April, MightyHive merged with ProgMedia, a leading Brazil-based data and programmatic consultancy in Latin America and MediaMonks acquired the assets of robotic food and drink studio Caramel Pictures in Amsterdam

·      In June, MediaMonks announced the combination with Adobe and digital transformation specialist BizTech. This transaction partially closed in December

·      In August, MediaMonks combined with IMA, an Amsterdam and New York-based influencer marketing agency

·      In October, MediaMonks combined with Firewood, the largest Silicon Valley-based independent digital agency and MightyHive with ConversionWorks and Datalicious, UK and South Korea- based data and analytics consultancies, partially funded by a £100 million equity raise

·      In November, MediaMonks announced the combination with WhiteBalance, an Indian-based digital creative and production agency. This transaction is expected to close in April of 2020

·      Post year end, in January 2020, MediaMonks announced its merger with Latin America-based digital agency, Circus Marketing. This transaction is expected to close in the first quarter of 2020

·      The Group now has approximately 2,500 people in 30 countries, almost double where we were this time last year

·      Significant new business assignments from Google, SoFi, Amazon, Netflix, Facebook, P&G, Nestlé, The Coca Cola Company, AB Inbev, Vodafone, Merck, Shiseido, Akzo Nobel and Ace Hardware

·      Current pipeline running at stronger level than last year

·      Appointment of three leading female, technology experienced US, Japanese and Chinese Non-Executive Directors and industry knowledgeable Executive Director to the Board

*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 2018 being restated to show the unaudited numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2019 applying currency rates as used in 2019

****Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to asses the underlying business performance

*****Net cash including bank loans

 

Sir Martin Sorrell, Executive Chairman of S4Capital plc said:

"Our first full financial year was outstandingly successful. We grew our top line and bottom line at industry leading rates. We broadened and deepened our content and data and programmatic practices through organic growth and the addition of six content and three digital media and data companies. We integrated our client offering around our content and data and programmatic practices. We broadened and deepened our client roster. We achieved $ and £ Unicorn status in terms of stock market value. We have achieved brand awareness and brand trial. We now have to demonstrate that we can achieve significant client conversion at scale, both with existing and new clients. We have not seen a material impact from Coronavirus as yet and will update the market appropriately."

 

Results webcast and conference call

A webcast will be held at 9.00am GMT. A live audio webcast of the presentation will be available during the event at: https://webcasting.brrmedia.co.uk/broadcast/5e37f241b9710760e292523c 

 

For Q&A:

UK: +44 (0)330 336 9125

US: +1 929-477-0324

Confirmation code: 7030503

 

A further conference call to cover the results will be held today at 8.00am EST / 12.00pm GMT:

US: +1 929-477-0402

UK: +44 (0)330 336 9411

Confirmation code: 4831927

 

 

Enquiries to:

 

S4Capital 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)20 7250 1446

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 S4Capital

S4Capital plc (SFOR.L) is a 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, multi-national, regional, local clients and millennial-driven influencer brands. This will be achieved initially by integrating leading businesses in three areas: first party data, digital content, digital media planning and buying, along with an emphasis on "faster, better, cheaper" or "speed, quality and value" executions in an always-on consumer-led environment, with a unitary structure.

 

Digital is by far the fastest-growing segment of the advertising market. S4Capital estimates that in 2019 digital accounted for approximately 45 per cent. or approximately $300 billion of total global advertising spend of $650 billion (excluding about $500 billion of trade support, the primary target of the Amazon advertising platform), and projects that by 2022 this share will grow to approximately 55 per cent.

 

S4Capital integrated with MediaMonks, the leading, Advertising Age A-listed creative digital content production company, led by Victor Knaap and Wesley ter Haar, in July 2018, and with MightyHive, the market-leading programmatic solutions provider for future thinking marketers and agencies, led by Pete Kim and Christopher S. Martin, in December 2018. The Company has since added six content and three data and programmatic companies to its two content and data and programmatic practices.

 

Victor Knaap, Wesley ter Har, Pete Kim, Christopher S. Martin, Scott Spirit and Peter Rademaker (formerly Chief Financial Officer of MediaMonks, now Chief Financial Officer of S4Capital), all joined the S4Capital Board as Directors. The S4Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto and Margaret Ma Connolly.

 

The company has a market capitalization of approximately £600 million ($750 million) and approximately 2,500 people in 30 countries, across the Americas, Europe, the Middle-East and Africa and Asia-Pacific.

 

Sir Martin was CEO of WPP for 33 years, building it from a £1 million "shell" company in 1985 into the world's largest advertising and marketing services company with a market capitalization of over £16 billion on the day he left, in comparison to under £6 billion currently. Prior to that he was Group Financial Director of Saatchi & Saatchi Company plc for nine years.

 

 

 

Chairman's Letter

 

Dear Shareowner,

 

My Executive colleagues, Victor Knaap, Wesley ter Haar, Pete Kim, Christopher S. Martin, Peter Rademaker, Scott Spirit and I are delighted to present our first full year results for the period ending 31 December 2019 to all our shareowners.

 

In 2019, we continued to build our existing and new client base, with significant new assignments from Google, SoFi, Amazon, Netflix, Facebook, P&G, Nestlé, The Coca Cola Company, AB Inbev, Vodafone, Merck, Shiseido, Akzo Nobel and Ace Hardware. We have one or two "Whoppers" (clients with revenues over $20 million per annum) already, but we believe we now have several more potential "Whoppertunities".

 

2019 also saw significant strengthening and deepening of our content and data practices. MediaMonks added Caramel Pictures, a robotic food and drink studio, BizTech, an Adobe specialist, IMA an influencer marketing agency, Firewood, the largest Silicon Valley digital agency, announced WhiteBalance, an Indian-based creative digital agency and, finally, after the year end, Circus, a Latin American digital agency. MightyHive was no slouch either, adding data and programmatic consultancy ProgMedia in Latin America and two data and analytics consultancies, UK-based ConversionWorks and Korea-based Datalicious. All nine additions are being rebranded over time to the MediaMonks content brand and the MightyHive data and programmatic brand. In addition, separate offices are being consolidated on a city by city basis, as existing leases end and property consolidation opportunities arise. We are also starting to increasingly consolidate our strategic, client content and data and programmatic offer at the S4Capital level.

 

Our focus on geographical expansion, particularly in Asia Pacific, was further underlined by the appointment of Scott Spirit to the Board of S4Capital plc and as Chief Growth Officer. The Board was also strengthened by the appointment of three female Non-Executive Directors. Elizabeth Buchanan has extensive media agency experience in Australasia and the United States. Naoko Okumoto is well versed in Japanese and Silicon Valley internet businesses and Hong Kong-based Margaret Ma Connolly has a grounding in Asia-Pacific and, particularly, China.

 

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 rapid inorganic expansion of the Company in 2019.

 

Billings were £455.8 million, up 671% on reported, up 46% like-for-like and up 47% pro-forma. Controlled Billings, that is billings we influenced in addition to billings that flowed through our income statement, were approximately $ 2.6 billion. Revenue was £215.1 million, up 292% reported, 41% like-for-like and 37% pro-forma.  Gross profit was £171.3 million, up 361% reported, 44% like-for-like and 39% pro-forma. Operational EBITDA was £33.4 million, up 612% on reported, 51% like-for-like and 47% pro-forma. Operational EBITDA margin was 19.5% versus 12.6% reported in 2018, 18.6% like-for-like and 20.1% pro-forma. Adjusted basic net result per share was 5.2p versus 1.0p in 2018, 3.2p like-for-like and 6.0p pro-forma. Result for the period was £10.0 million (loss), versus a reported £8.1 million (loss) in 2018, like-for-like of £17.2 million (loss) and pro-forma of £.5.7 million (loss).  Basic and diluted net result per share were 2.7p per share (loss), versus 3.3p (loss) in 2018, like-for-like 4.7p (loss) per share and pro-forma 1.3p per share (loss). Year-end net cash was £23.7 million, despite taking out a £42.4 million loan to partly fund the MediaMonks combination. In line with our first half statement in September 2019, Operational EBITDA margins improved significantly in the second half from 13.7% to 23.5%, as the first half increased investment in people yielded higher productivity in the second half.

 

Pro-forma billings were £513.2 million. Pro-forma revenue was £271.0 million and pro-forma gross profit was £224.2 million up 37% and 39% respectively on 2018. Pro-forma operational EBITDA was £45.0 million, up 47% on 2018, with operational EBITDA margin at 20.1%, up 1.1 margin points on the previous year. Pro-forma adjusted operating profit excluding adjusting items of £40.0 million, was £42.5 million, up 47% on the previous year. Pro-forma adjusted pre-tax profits were £37.1 million versus £23.6 million in the previous year, up 58%. Pro-forma adjusted result for the period was £27.0 million, up 52%. Adjusted pro-forma basic earnings per share before exceptional items were 6.0p, up from 3.9p in the previous year. In accordance with our previously announced policy, your Board will not declare a dividend, particularly bearing in mind the need to balance funding future growth versus immediate shareowner return, but will be considering the payment of a nominal dividend in the future.

 

By geography, on a pro-forma basis, the Americas accounted for 71% of gross profit against 72% in 2018.  Europe, the Middle-East and Africa represented 22% of gross profit against 24% in 2018. Asia-Pacific represented 7% of gross profit against 4% in 2018. Gross profit was up 39% in the Americas, 27% in Europe, Middle-East and Africa and 107% 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.

 

By practice, on a pro-forma basis, digital content accounted for 73% of gross profit against 76% in 2018. The data and programmatic practice represented 27% of gross profit against 24% in 2018. Gross profit was up 33% at the content practice and 59% at the data and programmatic practice. Our long-term objective is to achieve a practice distribution around two-thirds content and one-third data and programmatic, emphasising the growing importance of digital video.

 

Significant new business wins include assignments from Google, SoFi, Amazon, Netflix, Facebook, P&G, Nestlé, The Coca Cola Company, AB Inbev, Vodafone, Merck, Shiseido, Akzo Nobel and Ace Hardware amongst others. Our current pipeline is ahead of last year's level.

 

The Environment, Society and Governance

 

In 2019, the Company upped its game significantly in all three areas. We actively track our CO2 emissions and perform better than average compared to a sample of other companies. We have committed to achieve zero greenhouse gas emissions by 2024, in response to the World Economic Forum 2020 Davos Manifesto.

 

Last year, we averaged a 1.01 female to male ratio in our Content practice and 0.80 in our Media practice.

 

Across S4Capital we donated to 28 charities and, in addition, aim to contribute to society and the needs of the planet with our Projects for Good, which are all related to the United Nation's Sustainable Development Goals. In 2019, we delivered 20 Projects for Good.

 

We also launched S4 Impact Day globally, a volunteering day when all our 2500 people in 30 countries can tangibly give back to their communities of which they are a part.

 

As regards Governance, we significantly enhanced the Board with the addition of four new Directors of whom three were female as mentioned above.

 

Outlook and current trading

All-in-all, we were firing on all cylinders in 2019, with like-for-like revenue and gross profit up 41% and 44% and pro-forma revenue and gross profit growth of 37% and 39% and an adjusted operational EBITDA margin of almost 20%, after central costs. This performance is planned to continue into 2020, with budgets and plans targeting strong revenue, gross profit growth and improving operational EBITDA margin and with January showing gross profit like-for-like growth of over 30%.

 

To date, the impact of the Coronavirus pandemic has been limited. January seemed unaffected. Our Chinese operations, which are small in the context of our overall operations, were closed most of February, but have now re-opened. There have been some limited ripple effects in Europe and the United States and some offices have recently been working from home, as a precaution, with remote working technology, which digital industries are well versed in. As it is difficult to assess the impact of the crisis on our business, we will update the market appropriately. The health and wellbeing of our people, clients and stakeholders remains our priority.

 

It is clear that the Company's purely digital model based on first party data fueling digital advertising content and data and programmatic is resonating with clients. Our tag line "faster, better, cheaper" or "speed, quality, value" and unitary, one P&L structure also appeal strongly. The imperative will be to move beyond brand awareness and brand trial to client conversion at scale.

 

As with the Company's three-year plan for the period 2019-2021, which we are more than on track on, its three-year plan for 2020-2022 calls for a doubling of revenue and gross profit organically over pro-forma 2019, with an improvement in EBITDA margin.

 

Best wishes,

 

Sir Martin Sorrell

Executive Chairman


















 

















 

Condensed Consolidated Income Statement










 

For the period ended 31 December 2019 (unaudited)


























 





Unaudited



Year ended 31 December 2018



Unaudited like-for-like
Constant currency



Unaudited pro-forma FFY



Unaudited

pro-forma FFY constant currency

 





2019



Audited



2018



2019



2018

 

For the period ended 31 December




₤'000



₤'000



₤'000



₤'000



₤'000

 


















 

Revenue




215,132



54,845



152,738



270,987



197,971

 

Cost of sales




43,814



17,681



33,884



46,808



36,784

 

Gross profit




171,318



37,164



118,854



224,179



161,187

 

Net operating expenses




175,153



45,634



133,187



221,647



172,232

 

Operating (loss) / profit




(3,835)



(8,470)



(14,333)



2,532



(11,045)

 

Adjusted operating profit




31,148



4,042



20,650



42,500



28,923

 

Adjusting items




(34,983)



(12,512)



(34,983)



(39,968)



(39,968)

 

Operating (loss) / profit




(3,835)



(8,470)



(14,333)



2,532



(11,045)

 

Finance income




20



324



20



20



20

 

Finance expenses




(5,380)



(975)



(5,380)



(5,379)



(5,380)

 

Net finance expense




(5,360)



(651)



(5,360)



(5,360)



(5,360)

 

Result before income tax




(9,195)



(9,121)



(19,693)



(2,828)



(16,405)

 

Income tax expense




(845)



1,011



2,474



(2,858)



1,434

 

Result for the period




(10,040)



(8,110)



(17,219)



(5,686)



(14,971)

 

 

 

















 

Reconciliation to operational EBITDA

















 

Operating (loss) / profit




(3,835)



(8,470)



(14,333)



2,532



(11,045)

 

Adjusting items




34,983



12,512



34,983



39,968



39,968

 

Depreciation (excluding right-of-use asset depreciation)


2,260



648



1,507



2,463



1,734

 

Operational EBITDA




33,408



4,690



22,157



44,963



30,657

 

Holding costs




5,817



1,355



5,817



5,817



5,817

 

Operational EBITDA before holding costs




39,225



6,045



27,974



50,780



36,474

 


















 

Reconciliation to adjusted operating profit

















 

Operating (loss) / profit




(3,835)



(8,470)



(14,333)



2,532



(11,045)

 

Adjusting items




34,983



12,512



34,983



39,968



39,968

 

Adjusted operating profit




31,148



4,042



20,650



42,500



28,923

 


















 

Reconciliation to adjusted result before income tax
















 

Result before income tax




(9,195)



(9,121)



(19,693)



(2,828)



(16,405)

 

Adjusting items




34,983



12,512



34,983



39,968



39,968

 

Adjusted result before income tax




25,788



3,391



15,290



37,140



23,563

 


















 

Reconciliation to adjusted result for the period

















 

Result for the period




(10,040)



(8,110)



(17,219)



(5,686)



(14,971)

 

Adjusting items




34,983



12,512



34,983



39,968



39,968

 

Tax on adjusting items




(5,957)



(1,877)



(5,957)



(7,251)



(7,251)

 

Adjusted result for the period




18,986



2,525



11,807



27,032



17,747

 


















 

Earnings per share

















 

Weighted average number of shares in issue for the purpose of basic and adjusted net result per share

368,067,622



247,776,256



368,067,622



453,956,227



453,956,227

 

Net result attributable to equity owners of the Company (£'000)

(10,040)



(8,110)



(17,219)



(5,686)



(14,971)

 

Basic net result per share (pence)




(2.7)



(3.3)



(4.7)



(1.3)



(3.3)

 

Diluted net result per share (pence)




(2.7)



(3.3)



(4.7)



(1.3)



(3.3)

 


















 

Adjusted non-recurring expenses and acquisition related expenses

12,806



5,005



12,806



12,806



12,806

 

Share based compensation




7,177



0



7,177



7,177



7,177

 

Adjusted amortisation of intangible assets related to acquisitions

15,000



7,507



15,000



19,985



19,985

 

Adjusted tax on adjustments




(5,957)



(1,877)



(5,957)



(7,251)



(7,251)

 

Adjusted net result




18,986



2,525



11,807



27,032



17,747

 

Adjusted Basic net result per share (pence)




5.2



1.0



3.2



6.0



3.9

 


















 

Gross margin per territory

















 

America's




117,063



19,610



80,293



160,434



115,623

 

EMEA




40,765



15,491



31,976



48,861



38,377

 

Asia-Pacific




13,490



2,063



6,585



14,884



7,187

 

Adjusted result for the period




171,318



37,164



118,854



224,179



161,187

 





                         



                       



                       



                        



                       

 

Gross margin per practice

















 

Content




113,365



36,248



82,075



162,579



122,381

 

Programmatic




57,953



916



36,779



61,600



38,806

 

Adjusted result for the period




171,318



37,164



118,854



224,179



161,187

 

 


Unaudited consolidated statement of profit or loss for the year ended 31 December 2019

 






2019
Unaudited

May to December 2018
Audited



Notes

£'000

£'000







Revenue




215,132

54,845

Cost of sales




43,814

17,681







Gross profit



1

171,318

37,164







Personnel costs




111,572

25,153

Other operating expenses




25,803

7,304

Acquisition and set-up related expenses




12,806

5,005

Depreciation and amortisation




24,972

8,172







Total operating expenses




175,153

45,634







Operating loss




(3,835)

(8,470)







Adjusted operating profit




31,148

4,042

Adjusting items



2

(34,983)

(12,512)

Operating loss




(3,835)

(8,470)







Finance income




20

324

Finance expenses




(5,380)

(975)







Net finance expenses




(5,360)

(651)













Loss before income tax




(9,195)

(9,121)







Income tax (expense)/ credit




(845)

1,011







Loss for the period




(10,040)

(8,110)













Attributable to owners of the Company



(10,040)

(8,110)

Attributable to non-controlling interests



-

-











(10,040)

(8,110)

 

 

Loss per share is attributable to the ordinary equity holders of the Company

Basic loss per share (pence)



3

(2.7)

(3.3)

Diluted loss per share (pence)



3

(2.7)

(3.3)

 

Unaudited consolidated statement of comprehensive income for the year ended 31 December 2019

 





2019
Unaudited

May to December 2018
Audited



Notes

£'000

£'000







Loss for the period




(10,040)

(8,110)







Other comprehensive income





Items that may be reclassified to profit or loss





Foreign operations - foreign currency translation differences



(20,619)

1,870







Total comprehensive loss for the period




(30,659)

(6,240)













Attributable to owners of the company



(30,659)

(6,240)

Attributable to non-controlling interests



-

-











(30,659)

(6,240)

 

Unaudited consolidated balance sheet for the year ended
31 December 2019





31 December 2019
Unaudited

31 December 2018¹
Audited



Notes

£'000

£'000







Assets






Non-current assets






Intangible assets1



4

540,129

402,301

Right-of-use assets



5

25,779

-

Property, plant and equipment




9,730

4,007

Deferred tax assets




1,086

188

Other receivables




2,731

1,438











579,455

407,934

Current assets






Trade and other receivables




126,353

81,121

Cash and cash equivalents




66,106

25,005











192,459

106,126







Total assets




771,914

514,060







Liabilities






Non-current liabilities






Deferred tax liabilities1




54,834

41,956

Loans and borrowings




42,374

45,638

Lease liabilities



5

18,787

-

Contingent considerations




3,669

-

Other payables




4,668

5,260











124,332

92,854

Current liabilities






Trade and other payables




118,014

73,143

Contingent considerations and holdbacks




51,202

4,636

Lease liabilities



5

7,975

-

Current tax liabilities




6,751

4,107











183,942

81,886







Total liabilities




308,274

174,740













Net assets




463,640

339,320







Equity






Attributable to owners of the Company






Share capital




117,307

90,849

Reserves



6

346,233

248,371











463,540

339,220

Non-controlling interests




100

100







Total equity




463,640

339,320

 

¹ Restated, see Note 4, restatement of the initial accounting for the business combination of MightyHive Inc.

Unaudited consolidated statement of cash flows for the year ended 31 December 2019

 




2019
Unaudited

May to December
2018
Audited



Notes

£'000

£'000







Cash flows from operating activities





Loss before income tax



(9,195)

(9,121)

Financial income and expenses



5,361

651

Depreciation and amortisation



24,972

8,172

Share based compensation



7,177

-

Acquisition and set-up related expenses



12,806

5,013

Increase in trade and other receivables



(31,289)

(2,208)

Increase in trade and other payables




22,310

1,235







Cash flows from operations



32,142

3,742

Income taxes paid




(7,571)

(581)







Net cash inflows from operating activities




24,570

3,161







Cash flows from investing activities





Cash brought forward from Derriston Capital Plc



-

2,172

Investments in intangible assets



(1,578)

-

Investments in property, plant and equipment



(7,865)

(1,476)

Acquisition of subsidiaries, net of cash acquired



(56,954)

(264,186)

Financial fixed assets




(779)

5







Cash outflows from investing activities




(67,176)

(263,485)







Cash flows from financing activities





Proceeds from issuance of shares




97,451

246,500

Net proceeds from finance institutions




-

45,618

Payment of lease liabilities and interest




(6,687)

-

Repayments of loans and borrowings




(1,696)

(6,138)

Interest paid




(4,749)

(651)







Cash outflows from financing activities




89,068

285,980







Net movement in cash and cash equivalents



41,101

25,005

Cash and cash equivalents beginning of the period



25,005

-

Exchange gain/(loss) on cash and cash equivalents



(612)

-







Cash and cash equivalents at 31 December



66,106

25,005

 

Unaudited condensed consolidated statement of changes in equity for the year ended 31 December 2019

 


Share

capital

Share

premium

Other

reserves

Total

Non-controlling interests

Total
equity

£'000

£'000

£'000

£'000

£'000

£'000








Balance at 22 May 2018

-

-

-

-

-

-








Derriston Capital plc equity

625

1,689

(156)

2,158

-

2,158








Loss for the period

-

-

(8,110)

(8,110)

-

(8,110)

Foreign currency translation differences

-

-

1,870

1,870

-

1,870








Total comprehensive loss for the period

-

-

(6,240)

(6,240)

-

(6,240)








 

Transactions with owners of the Company







Issue of Ordinary Shares

90,224

51,182

205,717

347,123

-

347,123

Non-controlling interests on acquisition

-

-

-

-

100

100

Employee share schemes

-

-

(3,821)

(3,821)

-

(3,821)









90,224

51,182

201,896

343,302

100

343,402








Balance at 31 December 2018

90,849

52,871

195,500

339,220

100

339,320








Loss for the period

-

-

(10,040)

(10,040)

-

(10,040)

Foreign currency translation differences

-

-

(20,619)

(20,619)

-

(20,619)








Total comprehensive loss for the period

-

-

(30,659)

(30,659)

-

(30,659)








 

Transactions with owners of the Company







Issue of Ordinary Shares

26,331

121,182

-

147,513

-

147,513

Employee share schemes

127

249

7,090

7,466

-

7,466









26,458

121,431

7,090

154,979

-

154,979








Balance at 31 December 2019

117,307

174,302

171,931

463,540

100

463,640

 

Notes for the financial period ended 31 December 2019

 

General

SCapital plc ("SCapital" or "Company") is a public limited company. The Company has its registered office at 12 St James's Place, London, SW1A 1 NX, United Kingdom.

 

The unaudited preliminary consolidated financial information ('financial information') represents the results of the Company and its subsidiaries (together referred to as the "S⁴Capital Group" or the "Group").

 

S⁴Capital Group is a new age/ new era digital advertising and marketing services company.

 

Basis of preparation

This financial information has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. It has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs) but does not comply with full disclosure requirements.

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2019. The statutory accounts for 2019 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 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 2019. The accounting policies are materially consistent with those described in the Annual Report and Accounts 2018, which were set out on pages 79 to 87, except for changes in respect of IFRS 16 'Leases' outlined below.

 

Leasing - impact of the adoption of IFRS 16

On 1 January 2019, the Group adopted IFRS 16 Leases. The standard requires recognition of right-of-use assets and lease liabilities, representing the obligation to make lease payments for almost all lease contracts. Depreciation of the right-of-use assets and recognition of interest on the lease liabilities replaced amounts recognised as rent expense under IAS 17 in the consolidated income statement.

 

The Group adopted IFRS 16 on a modified retrospective basis. Accordingly, prior year financial information has not been restated and will continue to be reported under IAS 17 Leases. The lease liability has initially been measured at present value of the remaining lease payments, and the right-of-use asset has been set equal to the lease liability adjusted for prepayments and accruals.

 

The implementation of IFRS 16 resulted in:

// Recognition of right-of-use assets and lease liabilities recognised in the consolidated balance sheet as of 1 January 2019 of
   
£14.0 million and £13.8 million, respectively.

// A reduction in trade and other receivables (prepayments) of £0.2 million, which is now recognised in the right-of-use assets.

// A decrease of net result for the 2019 reporting period of £0.4 million, consisting of a decrease of lease expenses recognised
    under operating expenses of
£8.1 million, an increase of depreciation recognised under operating expenses of £7.7 million
    and an increase in interest expenses recognised under finance expenses of
£0.8 million.

 

When applying IFRS 16, the Group has applied the following practical expedients, on transition date:

// The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term
     leases;

// The use of hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease;

// Reliance on the previous identification of a lease (as provided by IAS 17) for all contracts that existed on the date of initial    
     application;

// Reliance on previous assessments on whether leases are onerous; and

// Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application.

 

Leasing - accounting policy from 1 January 2019

The Group leases most of its offices in cities where it operates. Other lease contracts contain equipment and vehicles.

 

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received. The assets are depreciated over the term of the lease using the straight-line method. The lease term includes periods covered by an option to extend if the Group is reasonably certain to exercise that option. Right-of-use assets are reviewed for indicators of impairment. 

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group's incremental borrowing rate is used. Lease payments included in the measurement of lease liabilities comprise fixed payments less any lease incentives receivable and variable lease payments that depend on an index or a rate as at the commencement date. Lease modifications result in remeasurement of the lease liability.   

 

The Group has elected to use the exemption not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The payments associated with these leases are recognised as net operating expenses over the lease term. 

 

Leasing - accounting policy applicable before 1 January 2019

Annual rentals payable under operating leases are charged to the operating expenses on a straight-line basis over the period of the lease.

 

New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 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 2019. These are consistent with those described in the Annual Report and Accounts 2018, which were set out on pages 79 and 80.

 

Prior year restatement - acquisition fair values
During the prior financial year, the Group acquired 100% of MightyHive Inc. The fair values of acquired net assets disclosed in the Annual report and Accounts 2018 have been finalized during the period and the condensed consolidated balance sheet as at 31 December 2018 have been restated accordingly, as required by IFRS 3. Refer to note 5 for further details.

 

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 S⁴Capital Group.

 

In the first half of 2019, S⁴Capital decided to change the composition of its reportable segments into First-party Data, Content and Programmatic. The segment disclosure which was included in the Annual Report and Accounts 2018 was mainly based on the MediaMonks Group reportable segment structure. During 2019 the MediaMonks Group has started to change its internal structure, switching to a more client centric where the pillar structure was more a production centric approach.

 

During the period, S⁴Capital 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.

// Programmatic: 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 all 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 period, S⁴Capital Group has not been active in the first party data practice. Operating segment information under the primary reporting format is disclosed below:

 

2019



First party data

Content

Programmatic

Total



£'000

£'000

£'000

£'000








Gross profit



-

113,365

57,953

171,318








Segment profit



-

25,570

13,654

39,224








Overhead cost






(5,817)

Acquisition and set-up related expenses





(12,806)

Share based compensation





(7,177)

Depreciation¹ and amortisation






(17,259)

Net finance expenses






(5,360)








Loss before income tax






(9,195)


1 Excluding GBP 7.7 million depreciation on right-of-use assets

May to December 2018



First party data

Content

Programmatic

Total



£'000

£'000

£'000

£'000








Gross profit



-

36,248

916

37,164








Segment profit



-

5,890

172

6,062








Overhead cost






(1,355)

Acquisition and set-up related expenses





(5,005)

Depreciation and amortisation






(8,172)

Net finance expenses






(651)








Loss before income tax






(9,121)

 

Key management of S⁴Capital Group uses gross profit rather than revenue to steer the company due to the fluctuating amounts of third-party costs and/or pass-through expenses, which form part of revenue.

 

2. Adjusting items

 

S⁴Capital Group uses certain adjusted earnings measures to provide additional clarity about the performance of the business. Therefore, the operating profit in the condensed consolidated income statement is also adjusted for the following items, which comprise:

/ Acquisition and set-up related expenses are not considered part of underlying trading 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 £35.0 million for the financial year ended 31 December 2019 (for the financial year ended 31 December 2018: £12.5 million).

 

The tables below provide a reconciliation of the Group's reported statutory earnings measures to its adjusted measures.

 

January to December 2019




Reported

Acquisition and set-up related expenses¹

Share based compensation


Amortisation²



Adjusted


£'000

£'000

£'000

£'000

£'000








Operating profit/ (loss)

(3,835)

12,806

7,177

15,000

31,148

Net finance expenses

(5,360)

-

-

-

(5,360)








Profit/ (loss) before income tax

(9,195)

12,806

7,177

15,000

25,788

Income tax credit/ (expense)


(845)

(2,064)

-

(3,893)

(6,802)








Profit/ (loss) for the period


(10,040)

10,742

7,177

11,107

18,986

 

1.        Non-recurring expenses relate to acquisition related bonusses of £ 7.2 million and transaction related advisory fees of £ 5.6 million.

2.        Adjusting amortisation relates to the amortisation of certain intangibles assets recognised as a result of the acquisitions. In addition, there is a (deferred) income tax credit in respect of these amortisations.

 

May to December 2018





Reported

Acquisition and set-up related expenses³


Amortisation⁴



Adjusted



£'000

£'000

£'000

£'000








Operating profit/ (loss)


(8,470)

5,005

7,507

4,042

Net finance expenses


(651)

-

-

(651)








Profit/ (loss) before income tax


(9,121)

5,005

7,507

3,391

Income tax credit/ (expense)



1,011

-

(1,877)

(866)








Profit/ (loss) for the period



(8,110)

5,005

5,630

2,525

 

3.        Non-recurring expenses relate to the total expenses for acquisition of the MediaMonks Multimedia Holding Group and the MightyHive Group in 2018.

4.        This relates to the amortisation of certain intangibles assets recognised as a result of the acquisitions of the MediaMonks Multimedia Holding Group and the MightyHive Group during the period ended 31 December 2018. In addition, there is a (deferred) income tax credit in respect of these amortisations.

 

 

3. Earnings per share

 

Earnings per share is calculated by dividing the net result attributable to the shareowners of the S⁴Capital Group by the weighted average number of Ordinary Shares in issue during the period.

 






               2019

                     2018








Loss attributable to shareowners of the Company (£'000)  




(10,040)

(8,110)

Weighted average number of ordinary shares




368,067,623

247,776,256








Basic loss per share (pence)





(2.7)

(3.3)








Diluted loss per share (pence)





(2.7)

(3.3)

 

4. Intangible assets

 


Goodwill

Customer relationships

Brands

Order Backlog

Other

Total

£'000

£'000

£'000

£'000

£'000

£'000








Cost

-

-

-

-

-

-

Accumulated amortisation

 -

-

-

-

-

-








Net book value at 22 May 2018

-

-

-

-

-

-








Acquired through business combinations

279,882

100,665

8,493

4,360

51

393,451

Foreign exchange differences cost

807

473

85

21

-

1,386

Amortisation charge for the year

-

(3,123)

(212)

(4,179)

(10)

(7,524)

Foreign exchange differences amortisation

-

(16)

(1)

(22)

1

(38)








Total transactions during the year

280,869

97,999

8,365

180

42

387,275








Cost

280,689

101,138

8,578

4,381

51

394,837

Accumulated amortisation

-

(3,139)

(213)

(4,201)

(9)

(7,562)








Net book value as previously reported

280,689

97,999

8,365

180

42

387,275








Restatement

(42,287)

50,086

5,332

-

1,895

15,026








Restated net book value at 31 December 2018

238,402

148,085

13,697

180

1,937

402,301








Acquired through business combinations

106,610

66,231

2,082

1,098

2,590

178,611

Additions

-

-

-

-

1,580

1,580

Amortisation charge for the year

-

(12,017)

(1,117)

(1,212)

(654)

(15,000)

Foreign exchange differences

(16,176)

(10,191)

(681)

(66)

(249)

(27,363)








Total transactions during the year

90,434

44,023

284

(180)

3,267

137,828








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

 

 

MightyHive Inc - restatement

As stated on page 88 of the Group's Annual Report and Accounts 2018, the initial accounting for the business combination of MightyHive Inc, acquired as of 24 December 2018, was incomplete by the end of the reporting period ending 31 December 2018. At the end of the reporting period, the identifiable intangibles acquired were not identified, were consequently not measured and were therefore not deducted from goodwill as per 31 December 2018.

 

In the first half of 2019, S⁴Capital Group has obtained the information necessary to identify and measure the identifiable intangible assets for the business combination of MightyHive Inc and has adjusted its intangible assets as of 31 December 2019, as required by IFRS 3, as follows:




31 December 2018

Adjustment

31 December 2018 restated



£'000

£'000

£'000







Goodwill


111,644

(42,287)

69,357

Intangible assets - Customer relationships


-

50,086

50,086

Intangible assets - Brand name


-

5,332

5,332

Intangible assets - Software


-

1,895

1,895

Deferred tax liabilities


-

(15,026)

(15,026)







Total



111,644

-

111,644

 

Acquisitions 2019

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and provisional goodwill are as follows of the subsidiaries acquired in 2019 are as follows:




Firewood

Other content practice

Programmatic practice

Total



£'000

£'000

£'000

£'000








Intangible assets - Customer relationships


56,135

4,966

5,129

66,231

Intangible assets - Brand names


1,694

387

-

2,082

Intangible assets - Order backlog


901

197

-

1,098

Intangible assets - Software


-

2,590

-

2,590

Property, plant and equipment


5,722

475

296

6,494

Financial fixed assets


426

49

73

548

Cash and cash equivalents


817

627

3,489

4,933

Trade and other receivables


8,878

777

1,238

10,893

Trade and other payables


(3,362)

(1,150)

(1,998)

(6,509)

Current taxation


17

(282)

(662)

(927)

Lease liabilities


(5,533)

-

(179)

(5,711)

Other non-current liabilities


(2,065)

(46)

-

(2,111)

Deferred taxation


(15,857)

(1,743)

(1,282)

(18,882)








Net assets


47,775

6,847

6,105

60,727

Goodwill


72,764

22,654

11,193

106,610








Total purchase consideration



120,539

29,501

17,297

167,337








Payment in kind (common stock)


43,551

3,092

3,471

50,113

Cash


42,690

12,898

5,115

60,703

Contingent consideration


30,429

13,394

8,580

52,403

Holdback obligations


3,870

117

132

4,118








Total purchase consideration



120,540

29,501

17,297

167,337








Purchase consideration - cash


42,690

12,898

5,115

60,703

Cash and cash equivalents


817

627

3,489

4,933








Cash outflow on acquisition (net of cash acquired)


41,873

12,271

1,626

55,770

 

 

In 2019, S4Capital Group combined with the following businesses:

 

Firewood

The Group acquired 100% of the shares of Firewood Marketing Inc (including subsidiaries) as of 25 October 2019. Firewood is a Silicon Valley-based independent digital agency and is included in the Group's Content practice.

 

Other Content practice

Other combinations in 2019 of the Group's Content practice are:

-      Assets from Caramel Pictures, as of 25 April 2019. Caramel Pictures is an Amsterdam-based robotic food and drink studio; 

-      100% of the shares of IMAgency Holding BV (including subsidiaries), as of 9 August 2019. IMA is an Amsterdam and New York-based influencer marketing agency;

-      Assets from BizTech Australia and 100% of the shares in Biztech Enterprise Solutions Canada Ltd, as of 20 December 2019. BizTech is an Adobe and digital transformation specialist.

 

Programmatic practice

Combinations in 2019 of the Group's Programmatic practice are:

-      100% of the shares of ProgMedia Consultoria Ltda and Progmedia Argentina SAS, as of 19 April 2019. ProgMedia is a Brazilian-based data and programmatic consultancy;

-      100% of the shares in Conversion Works Ltd, as of 22 October 2019. Conversion Works is an UK-based data and analytics consultancy;

-      100% of the shares in MightyHive Korea Co.,Ltd (previously Datalicious KR Co.,Ltd), as of 25 October 2019. The company is a South Korea- based data and analytics consultancy;

 

Total acquisition costs of £ 4.7 million arose as a result of the acquisitions in 2019 which have been recognised under acquisition and set-up related expenses in the statement of profit or loss. 

 

Since the acquisition date, the acquired companies contributed £ 17.1 million to the Group's revenue for the period ended 31 December 2019. If the acquisition had occurred on 1 January 2019, the Group's revenue would have been £ 271.0 million.

 

Post balance sheet events

In November 2019, MediaMonks announced the combination with WhiteBalance, Indian-based digital creative and production agency. This transaction is expected to be closed in the second quarter of 2020.

 

Post year end, in January 2020, MediaMonks announced the combination with Latin America-based digital agency, Circus Marketing. This transaction is closed in the first quarter of 2020.

 

The transaction with BizTech Kazakhstan and BizTech Russia is expected to close in the second quarter of 2020.

 

5. Leases

 

The movements in the period ended 31 December 2019 are as follows:

 

Right-of-use assets






Total






£'000








At 1 January 2019






14,042

Acquired through business combinations

Additions

Disposals






6,013

14,366

(86)

Depreciation of right-of-use assets

Foreign exchange differences






(7,713)

(843)








At 31 December 2019






25,779

 

Lease liabilities






Total






£'000








At 1 January 2019






13,847

Acquired through business combinations

Additions

Disposals






6,257

13,911

(83)

Payment of lease liabilities and interest

Foreign exchange differences






(6,687)

(483)








At 31 December 2019






26,762

 








Non-current lease liabilities

Current lease liabilities






18,787

7,975








At 31 December 2019






26,762

 

 

6. Equity

 

The movements in reserves are as follows:

 


Share

premium

Merger

reserves

Treasury

shares

Foreign exchange reserves

Retained losses

Reserves

£'000

£'000

£'000

£'000

£'000

£'000








Balance at 22 May 2018

-

-

-

-

-

-








Derriston Capital plc equity

1,689

-

-

-

(156)

1,533








Loss for the period

-

-

-

-

(8,110)

(8,110)

Foreign currency translation differences

-

-

-

1,870

-

1,870








Total comprehensive loss for the period

-

-

-

1,870

(8,110)

(6,240)








 

Transactions with owners of the Company







Issue of Ordinary Shares

51,182

205,717

-

-

-

256,899

Employee share schemes

-

-

(3,821)

-

-

(3,821)









51,182

205,717

(3,821)

-

-

253,078








Balance at 31 December 2018

52,871

205,717

(3,821)

1,870

(8,266)

248,371








Loss for the period

-

-

-

-

(10,040)

(10,040)

Foreign currency translation differences

-

-

-

(20,619)

-

(20,619)








Total comprehensive loss for the period

-

-

-

(20,619)

(10,040)

(30,659)








 

Transactions with owners of the Company







Issue of Ordinary Shares

121,182

-

-

-

-

121,182

Employee share schemes

249

-

-

-

7,090

7,339









121,431

-

-

-

7,090

128,521








Balance at 31 December 2019

174,302

205,717

(3,821)

(18,749)

(11,216)

346,233

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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