Final Results

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: [phone]

US: [phone]

Confirmation code: 7030503

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

US: [phone]

UK: [phone]

Confirmation code: 4831927

Enquiries to:

S4Capital plc	[phone]
Sir Martin Sorrell, Executive Chairman
Peter Rademaker, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)	[phone]
Elly Williamson
Jessica Hodgson
Dowgate Capital Limited (Joint Corporate Broker)	[phone]
James Serjeant
David Poutney
HSBC Bank plc (Joint Corporate Broker)	[phone]
Adrian Lewis
Sam Barnett
Sam Hart

About S⁴ Capital

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

S ⁴ Capital plc ("S ⁴ Capital" 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

 

END

 

 

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