RNS
S4 Capital PLC

S4 Capital PLC - Results for the six months ended 30 June

RNS Number : 4000Y
S4 Capital PLC
09 September 2020
 

 

 

S4 Capital plc

("S4Capital" or "the Company")

 

Results for the six months ended 30 June

 

Industry leading progress despite covid-19 driven by global digital tech and healthcare focus

 

Like-for-like gross profit (net revenue) up over 12% with accelerating growth from April trough through July

 

Company well on track to deliver full year expectations with increasing client conversion at scale

 

Financial highlights

¤     Billings* £260.4 million, up 41.4% reported, up 12.7% like-for-like**, up 12.8% pro-forma***.

 

¤     Revenue £141.3 million, up 60.7% reported, up 6.9% like-for-like, up 7.8% pro-forma.

 

¤     Gross profit £124.0 million, up 76.6% reported, up 12.2% like-for-like, up 13.2% pro-forma.

 

¤     Like-for-like gross profit growth of 18.8% in Q1 and 6.5% in Q2 due to covid-19, bottoming in April at over 3%, accelerating in May to over 5%, in June to over 11% and into the second half of 2020 in July to over 18%.

 

¤     Operational EBITDA**** before central costs £20.5 million, up 69.2% reported, down 4.7% like-for-like and down 3.8% pro-forma, as the Company dealt with the impact of covid-19 by maintaining people levels and the human fabric of the firm and prioritised top-line growth. Headcount increased to 2,644 from 1,375 at the end of the first half last year, like-for-like headcount increased by 22%, to support the even stronger revenue and gross profit growth anticipated in second half and achieve expectations for 2020.

 

¤     Operational EBITDA £18.0 million, up 86.8% reported, down 6.0% like-for-like and down 5.0% pro-forma.

 

¤     Operating profit £2.5 million, which includes adjusting items of £13.8 million (acquisition expense, amortisation and share-based compensation), versus an operating loss of £6.2 million in 2019 and pro-forma operating profit of £3.0 million.

 

¤     Result before income tax £0.1 million, which includes adjusting items, versus a loss of £8.5 million in 2019 and pro-forma result before income tax of £0.7 million.

 

¤     Result for the period £0.5 million (loss) which includes adjusting items after taxation versus £8.8 million (loss) in 2019 and pro-forma result for the period of £0.1 million (loss).

 

¤     Adjusted basic net result of 2.3p per ordinary share, up over 155%, versus 0.9p per share in the first half of last year.

 

¤     Basic and diluted net result per share 0.1p (loss) which includes adjusting items after tax versus 2.5p (loss) in 2019 and pro-forma adjusted basic net result per share 0.0p.

 

¤     Liquidity continued to strengthen despite the impact of covid-19, with net cash balances throughout almost all of the half-year, despite significant merger payments, with period end net cash***** £7.2 million, which, of course, excludes the £113 million net proceeds of the share placing which took place in July. Our revolver facilities have been increased to approximately £70 million from approximately £31 million, although our actual cash flows have exceeded even the most optimistic forecasts made at the peak of the covid-19 crisis in late March.

 

¤     On 16 July, the Company announced the placing of 36,766,642 new ordinary shares at 315p, which represented a small premium to the then market price and raised approximately £113 million net proceeds, which will be used for further expansion, principally combinations, mergers and acquisitions.

 

 

 

Operational highlights

¤     As the primarily analogue advertising holding companies are forecast to savage their head counts by 50,000 or so as their net revenues fell by between 10-26% in Q2 2020, prioritising revenue and gross profit growth at this early stage of the Company's development continues to be part of its strategy, boosted by substantial human capital investment, particularly given anticipated stronger second half momentum.

 

¤     Part of our purpose is to provide jobs and long-term career opportunities for our people. We are growing S⁴Capital in a responsible and sustainable way, for the long-term benefit of all, making a meaningful difference and leaving a light footprint. Sustainability is an integral part of S4Capital's long-term business strategy, growing the world's brightest talent to create a skilled, diverse workplace and applying technology and our digital expertise for the greater good. Our strategy and activities are built around three pillars: Sustainable Production, Zero Impact Monastery and Diversity & Inclusion. In response to the recent appalling racist events in America, the Company has instituted a number of immediate programmes and changes - first to its recruitment and internal education programmes, secondly, with a matching contribution plan for a number of selected non-profits and lastly with the establishment of a Black Fellowship Programme for university graduates and S4 Scholars Programme for black high school students in the United States.

 

¤     Client roster continues to be dominated by and strengthened in technology, as well as in fast moving consumer goods (FMCG), in telecommunications and in pharmaceuticals, both by practice and geography. Notable assignments in the first half of 2020 were won with Paypal, Dole Foods, Bumble, Verizon, Shopify and Twitch, the LA 2028 Olympics, a global consumer electronics company (NDA), a global automotive company (NDA) and a global FMCG (NDA) amongst others, as our new agency consultancy model gains traction. Continued inclusion in a growing number of major client reviews. Having achieved brand awareness and brand trial over the first two years of its existence, the Company has high hopes of adding two more "whoppers" to our roster of clients - that is, clients who represent more than $20 million of revenue each year. We currently have two, Google and another well-known tech company (NDA), and a new one will be announced, we hope, very shortly. We have set a new client conversion target of "202", that is 20 clients with over $20 million annual revenue.

 

¤     By practice, Content gross profit up 109% reported, 14% like-for-like and over 15% pro-forma. Data & digital media up 18% reported, 7% both like-for-like and pro-forma.

 

¤     By geography, the Americas gross profit up 87% reported, 13% like-for-like and 14% pro-forma. EMEA was up 43% reported, up 7% like-for-like and pro-forma. Asia-Pacific was up 87% reported, up 18% like-for-like and pro-forma.

 

¤     Non-Executive Director and senior management appointments in the first half and third quarter including Miles Young.

 

¤     Content and data capabilities added in Latin America, the United States, Spain and Australia in the first half through three combinations.

 

¤     Further data, ecommerce and econometric and media optimisation capabilities added in the United States and the United Kingdom after the half year end through two combinations.

 

Outlook

¤     Although below pre-covid-19 budgets, the second half of 2020 has started strongly in line with the Q1 and Q2 revised forecasts, with July like-for-like gross profit up 18.2% and pro-forma up 14.6%.

 

¤     Given the progress in the first half of 2020 and July, the Company believes it has an even stronger fighting chance of doubling organically (meaning like-for-like) over the three years 2020-22 and delivering like-for-like double digit revenue and gross profit growth and reasonably strong margins in 2020. The Company's prospects for 2021 also look stronger given the organic growth rate, increasing client conversion at scale, significant merger activity and the likely post-covid-19 economic recovery from relatively low levels of covid-19 economic growth.

 

¤     We continue to believe that the shape of the covid-19 recession is essentially a reverse square root, with a sharp fall followed by a sharp recovery, although not immediately to prior levels. Within this, there will be some V-shaped verticals like technology, healthcare, financials, in-home entertainment and online shopping. There will be U-shaped verticals like packaged goods and autos and there will be more L-shaped verticals like travel and hospitality. We also believe that Q2 2020 represents the low point (in our case in April 2020), with significant sequential improvements in Q3 and Q4, followed by a full-throated recovery in 2021, driven by a distributed vaccine or vaccines by Q2 of 2021.

 

 

 

Sir Martin Sorrell, Executive Chairman of S4Capital Plc said

"The tragedy of covid-19 has only accelerated the speed of digital transformation and disruption at consumer, media and enterprise levels. These results confirm that S4Capital is currently in a growth sweetspot and that its digital only, faster, better, cheaper, unitary, "holy trinity" model, which combines first party data with digital content, data and digital media, is migrating from brand awareness and trial to conversion at scale. After less than two years as a listed company and with a market capitalisation of around $2.5 billion, which is well in to the top 200 FTSE companies, we are now in a position to build stronger value-adding relationships with tech, healthcare, financial and FMCG clients amongst others and with a strong and liquid balance sheet in a great financial place to expand through further combinations, which will add to our data, content, digital media and technological capabilities. We will continue to update the market on progress in reaching our new client conversion target of "202", that is 20 clients with over $20 million of annual revenues."

 

 

*Billings is gross billings to client including pass through costs

**Like-for-like relates to 2019 being restated to show the numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2020 applying currency rates as used in 2019

***Pro-forma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the S4Capital Plc Group (the group) had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations

****Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to assess the underlying business performance (also see note 13)

*****Net cash comprises cash minus bank loans

 

 

Results webcast and conference call

A webcast and conference call covering the results will be held today at 09:00 BST in London, followed by another webcast and call at 08:00 EDT / 13:00 BST. Both webcasts of the presentation will be available at www.s4capital.com during the event.

 

09:00 BST call - For dial in Q&A only:

UK: +44 (0)330 336 9411

US: +1 323-994-2093

Confirmation code: 9071519

 

08:00 EDT/13:00 BST call - For dial in Q&A only

UK: +44 (0)330 336 9411

US: +1 323-794-2590

Confirmation code: 6412423

 

Capital Markets 'Day'

 

9, 10, 11 September

 

For details, contact Scott Spirit (scott@s4capital.com)

 

 

Enquiries to

 

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)7970 246 725

Elly Williamson

Jessica Hodgson

 

Dowgate Capital Limited (Joint Corporate Broker)                      +44 (0)20 3903 7715

James Serjeant

David Poutney

 

HSBC Bank Plc (Joint Corporate Broker)                                          +44 (0)20 7991 8888

Adrian Lewis

Sam Barnett

Sam Hart

 

 

 

About S4Capital

 

S4Capital plc (SFOR.L) is the tech-led, new age, new era digital advertising and marketing services company, established by Sir Martin Sorrell in May 2018.

Its strategy is to build a purely digital advertising and marketing services business for global, multinational, regional, local clients and millennial-driven influencer brands. This will be achieved initially by integrating leading businesses in two practice areas: Data & digital media and Content, along with an emphasis on "faster, better, cheaper" executions in an always-on consumer-led environment, with a unitary structure.

Digital is by far the fastest-growing segment of the advertising market. S4Capital estimates that in 2019 digital accounted for approximately 47.5% or $275 billion of total global advertising spend of $550-600 billion (excluding about $400 billion of trade support, the primary target of the Amazon advertising platform), and projects that by 2022 this share will grow to approximately 55-60%. It is anticipated that in 2020, total global advertising spend will shrink to approximately $500-550 billion, driven by a fall in traditional media advertising expenditure. However digital advertising spend is expected to remain constant or increase slightly and therefore improve its market share of total advertising spend to over 50% for the first time.

S4Capital combined with MediaMonks, the leading AdAge A-listed creative digital content production company led by Victor Knaap and Wesley ter Haar, in July 2018 and with MightyHive, the market-leading digital media solutions provider for future thinking marketers and agencies, led by Peter Kim and Christopher S. Martin, in December 2018.

In April 2019, MightyHive combined with ProgMedia to expand operations into Latin America and MediaMonks acquired film studio Caramel Pictures to expand content studio capabilities. In June 2019, MediaMonks announced a planned combination with Australia-based BizTech, a leading marketing transformation and customer experience company. In August 2019, MediaMonks combined with Amsterdam-based digital influencer marketing agency IMA. In October 2019, MediaMonks combined with Firewood Marketing, the largest digital marketing agency based in Silicon Valley, that was recently ranked, along with MediaMonks, as one of the fastest growing agencies by Adweek, and MightyHive combined with award-winning UK-based digital analytics, biddable media and data science company ConversionWorks and South Korea-based data consultancy MightyHive Korea (formerly Datalicious). In November 2019, MediaMonks announced its combination with Delhi-based content creation and production company WhiteBalance (completed in August 2020 - the delay due to necessary merger clearance procedures) and then with fully integrated digital agency Circus Marketing in January 2020 (completed in March 2020).

In May 2020, MightyHive announced a combination with Digodat, one of the leading Latin American data consultancies, and in June 2020, MightyHive announced its combination with Lens10, a leading Australian digital strategy and analytics consultancy. In July 2020, MightyHive announced a combination with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle. In August 2020, MightyHive announced a combination with London-based Brightblue, an econometric and media optimisation consultancy.

On 16 July 2020 S4Capital announced the successful placing of 36,766,642 new ordinary shares at a price of 315p raising approximately £116m gross proceeds which will be used for further expansion and M&A purposes.

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

The Company has over 2,650 people in 30 countries across the Americas, Europe, the Middle East and Africa and Asia-Pacific and a current market capitalisation of approximately £1.9 billion (c.$2.6 billion), and would rank well into the FTSE 250. It has achieved Unicorn status in a little over one year, unique in the advertising and marketing services industry.

 

Sir Martin was CEO of WPP for 33 years, building it from a £1 million "shell" company in 1985 into the world's largest advertising and marketing services company with a market capitalisation of over £16 billion on the day he left. Today its market capitalisation is less than £8 billion. Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi Company Plc for nine years.

 

 

Summary of results

 

 

 

Six months ended 30 Jun 2020

Six months ended 30 Jun 2019

Year ended 31 Dec 2019

 

 

Like-for-like1 Six months ended 30 Jun 2019

Proforma2 Six months ended 30 Jun 2020

Proforma

Six months ended 30 Jun 2019

Notes

GBP'000

GBP'000

GBP'000

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

 

 

 

Revenue

5

141,344

87,972

215,132

 

 

132,168

144,449

133,941

Cost of sales

 

17,375

17,787

43,814

 

 

21,678

17,375

21,707

 

 

 

 

 

 

 

 

 

 

Gross profit

5

123,969

70,185

171,318

 

 

110,490

127,074

112,234

 

 

 

 

 

 

 

 

 

 

Content

 

94,410

45,215

113,365

 

 

82,818

97,515

84,562

Data & Digital media

 

29,559

24,970

57,953

 

 

27,672

29,559

27,672

 

 

 

 

 

 

 

 

 

 

America's

 

88,818

47,411

117,063

 

 

78,569

91,672

80,223

EMEA

 

23,991

16,798

40,765

 

 

22,473

24,242

22,563

Asia-Pacific

 

11,160

5,976

13,490

 

 

9,448

11,160

9,448

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

121,477

76,414

175,153

 

 

107,470

124,025

108,836

 

 

 

 

 

 

 

 

 

 

Operating profit / (loss)

 

2,492

(6,229)

(3,835)

 

 

3,020

3,049

3,398

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

 

16,265

8,736

31,148

 

 

18,108

16,823

18,486

Adjusting items

13

(13,773)

(14,965)

(34,983)

 

 

(15,088)

(13,773)

(15,088)

Operating profit / (loss)

 

2,492

(6,229)

(3,835)

 

 

3,020

3,049

3,398

 

 

 

 

 

 

 

 

 

 

Net finance expenses

 

(2,374)

(2,261)

(5,360)

 

 

(2,056)

(2,356)

(2,056)

 

 

 

 

 

 

 

 

 

 

Profit / (loss) before income tax

 

118

(8,490)

(9,195)

 

 

964

693

1,342

 

 

 

 

 

 

 

 

 

 

Adjusted result before income tax

 

13,891

6,475

25,788

 

 

16,052

14,466

16,430

Adjusting items

13

(13,773)

(14,965)

(34,983)

 

 

(15,088)

(13,773)

(15,088)

Profit / (loss) before income tax

 

118

(8,490)

(9,195)

 

 

964

693

1,342

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(641)

(329)

(845)

 

 

(1,218)

(751)

(1,358)

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

(523)

(8,819)

(10,040)

 

 

(254)

(58)

(16)

 

 

 

 

 

 

 

 

 

 

Adjusted result for the period

 

10,894

3,288

18,986

 

 

11,655

11,360

11,893

Adjusting items

13

(13,773)

(14,965)

(34,983)

 

 

(15,088)

(13,773)

(15,088)

Tax on adjusting items

 

2,356

2,858

5,957

 

 

3,179

2,356

3,179

Loss for the period

 

(523)

(8,819)

(10,040)

 

 

(254)

(58)

(16)

 

 

 

 

 

 

 

 

 

 

Operating profit / (loss)

 

2,492

(6,229)

(3,835)

 

 

3,020

3,049

3,398

Adjusting items

13

13,773

14,965

34,983

 

 

15,088

13,773

15,088

Depreciation (excl. right-of-use assets)

 

1,719

890

2,260

 

 

1,025

1,719

1,025

 

 

 

 

 

 

 

 

 

 

Operational EBITDA

 

17,984

9,626

33,408

 

 

19,133

18,543

19,511

Central costs

 

2,493

2,475

5,817

 

 

2,361

2,493

2,361

 

 

 

 

 

 

 

 

 

 

Operational EBITDA before central costs

 

20,477

12,101

39,225

 

 

21,494

21,036

21,872

 

 

 

 

 

 

 

 

 

 

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

 

465,697,844

348,354,880

368,067,622

 

 

465,697,844

474,908,603

474,908,603

 

 

 

 

 

 

 

 

 

 

Net result attributable to equity owners of the company (GBP'000)

 

(523)

(8,819)

(10,040)

 

 

(254)

(58)

(16)

 

 

 

 

 

 

 

 

 

 

Basic net result per share (pence)

 

(0.1)

(2.5)

(2.7)

 

 

(0.1)

(0.0)

(0.0)

Diluted net result per share (Pence)

 

(0.1)

(2.5)

(2.7)

 

 

(0.1)

(0.0)

(0.0)

 

 

 

 

 

 

 

 

 

 

Adjusted result for the period

 

10,894

3,288

18,986

 

 

11,655

11,360

11,893

 

 

 

 

 

 

 

 

 

 

Adjusted basic net result per share (pence)

 

2.3

0.9

5.2

 

 

2.5

2.4

2.5

 

Notes:

1.         Like-for-like is a non-GAAP measure relates to 2019 being restated to show the unaudited numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2020 applying currency rates as used in 2020;

2.         Proforma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the Group had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations.

 

3.         The key risks for the company achieving their objectives remain the same as at year end and can be found on page 21 up to and including page 26 of the Annual Report and Accounts 2019.

 

 

S4Capital is proud to report strong statutory, like-for-like and pro-forma revenue and gross profit growth for the first six months of 2020, despite the impact of covid-19. We still believe, that despite the pandemic, we have a fighting chance of achieving our target of doubling the size of the Company organically by 2022.

 

Billings were £260.4 million, up 41.4% on a reported basis, up 12.7% on a like-for-like basis and 12.8% on a pro-forma basis. Controlled Billings were approximately $1.3 billion.

 

Revenue was £141.3 million, up 60.7% from £88.0 million on a reported basis, up 6.9% on a like-for-like basis and up 7.8% on a pro-forma basis, partially reflecting the weakness of the pound sterling against the US dollar in the first half of 2020 in comparison to the first half of 2019. 

 

Reported gross profit was £124.0 million, up 76.6% from £70.2 million for the comparable period in 2019, up 12.2% like-for-like and up 13.2% pro-forma.

 

Like-for-like gross profit growth decelerated from 18.8% in Q1 to 6.5% in Q2 due to covid-19, but bottomed in April at 3.4% and accelerated to 11.2% in June and 18.2% in July, just below where it was in February.

 

Operational Earnings Before Interest, Taxes, Depreciation and Amortisation ('EBITDA') before S4Capital central costs was £20.5 million versus £12.1 million, an increase of 69.2%, primarily reflecting a covid-19-driven reduction in freelance, travel and office costs and despite an increase of 22% in the like-for-like headcount in the first half from 1,375 people to 2,644  people at the end of the first half. As outlined in both the First Quarter Trading Statement of 7 May 2020 and the AGM statement of 8 June 2020, the Group has continued to invest heavily in human capital, as it geared up for even greater expansion in the second half of the year as a result of stronger client demand and geographic and practice expansion. This will support even stronger anticipated revenues and gross profit growth in the second half of 2020, which have already been signaled in the strong results for July.

 

Operational EBITDA was £18.0 million up 86.8%, compared to £9.6 million for the comparable period last year on a reported basis. Operational EBITDA was down 6% on a like-for-like basis and down 5% on a pro-forma basis.

 

Adjusted operating profit was up 86.2% at £16.3 million on a reported basis, before adjusting items of £13.8 million, including non-recurring items, share-based compensation and amortisation of certain intangible assets. Like-for-like adjusted operating profit was down 10.2% and pro-forma adjusted operating profit was down 9.0%, primarily reflecting the impact of covid-19 and the increase in like-for-like number of people in the firm, as the Company geared up for a stronger second half.

 

Adjusted profit before income tax was £13.9 million, up 114.6% versus £6.5 million in the comparable period last year. On a like-for-like basis adjusted result before income tax was down 13.5% and down 12.0% on a pro-forma basis.

 

Adjusted profit for the period was £10.9 million, up 231.4% on a reported basis, but down 6.5% on a like-for-like basis and down 4.5% on a pro-forma basis.

 

Adjusted basic net result was 2.3p per share, versus adjusted basic net result per share of 0.9p in the first half of 2019.

 

The Board has decided that there will be no interim dividend declared for the first half of 2020, although it continues to review the advisability of declaring a modest dividend in future.

 

Gross profit, Operational EBITA and Operational EBITA margins by practice

Content practice gross profit was £94.4 million (76% of total gross profit), up 108.8% on a reported basis from last year. Gross profit on a like-for-like basis was up 14.0% and up 15.3% on a pro-forma basis.

 

Data & digital media practice gross profit was £29.6 million (24% of total gross profit), up 18.4%, from last year on a reported basis. Gross profit on a like-for-like and pro-forma basis was up 6.8%.

 

Content practice operational EBITDA before S4Capital central costs was £15.5 million, up 73% from last year, which was an easier comparative period and reflected the impact of several combinations and down 11% on a like-for-like basis and down 10% on a pro-forma basis, reflecting the impact of covid-19. The Content practice operational EBITDA margin was 16.4%, compared to 19.9% last year, reflecting increased investment in human capital to maintain the fabric of the Company during covid-19 and prepare for a stronger second half.

 

Data & digital media practice operational EBITDA before S4Capital central costs was £5.0 million, up 60% from last year and up over 24% on both a like-for-like and proforma basis, reflecting a very strong comparative first half in 2019, the impact of covid-19 on US operations in the first half and the increased investment in human capital to prepare for a stronger second half. Data & digital media practice operational EBITDA margin was 16.9%, compared to 12.5% last year, reflecting a fall in travel, office and other operating expenses during covid-19.

 

Gross Profit by Geography

Americas (72% of total) was £88.8 million, up 87.3% on a reported basis from last year. On a like-for-like basis Americas gross profit was up 13.0% and up 14.3% on a pro-forma basis reflecting the relative resilience and agility of our two practices in the United States and Canada and the strength of our market position in Latin America.

 

EMEA (19% of total gross profit) was £24.0 million, up 42.8% from last year on a reported basis. On a like-for-like basis EMEA gross profit was up 6.8% and up 7.4% on a pro-forma basis reflecting the severity of the impact of covid-19 in Q2 in the key markets of EMEA.

 

Asia Pacific (9% of total) was £11.2 million, up 86.7% on a reported basis. On a like-for-like and pro-forma basis Asia Pacific gross profit was up 18.1% reflecting the relatively rapid recovery in the region's major markets from the earlier impact of covid-19.

 

Client activity, development and integration

There has been strong individual Content practice and Data & digital media practice client development in FMCG, pharmaceutical, media, financial services, telecommunications, hospitality, retail, sport and technology. High profile wins during the first half have included PayPal, Bumble, Dole Foods, Verizon, Shopify, Twitch, the LA 2028 Olympics, a global consumer electronics company (NDA), a global automotive company (NDA) and a global FMCG (NDA).

 

Significant developments continue at Google, Procter & Gamble, LinkedIn, Facebook, Netflix, Uber, Sprint, Bayer, Electrolux, HP, Amazon, a global pharmaceutical company (NDA) and a global consumer electronics company (NDA) amongst others. The Company is increasingly being included in a number of major industry reviews, reflecting the client interest in the new era, new age agency consultancy model. We have high hopes of adding two more "whoppers" to our roster of clients - that is clients who represent more than $20 million of revenue each year. We currently have two, Google and another well-known tech company (NDA), and a new one will be announced, we hope, very shortly. We have set a new client conversion target of "202", that is 20 clients with over $20 million annual revenue.

 

There has been significant joint and integrated activity in the auto, durables, healthcare, FMCG, financial services, media, retail, sports, telecommunications and technology areas.

 

The first office integrations have been implemented successfully in Amsterdam, Buenos Aires and Singapore and following the impact of covid-19 escalated integrations are being planned in all of the 46 cities that the Company operates in, dependent on the expiration dates of existing leases. Cross-functional geographic co-operation continues to be significant. In addition, the Company is implementing sales pipeline and HR tooling to underpin its unitary structure. First steps are being taken to implement unified ERP tooling.

 

Merger and acquisition activity

This year has seen significant activity, with five transactions aimed at continuing to build our Content capabilities and building out our data and key platform capabilities and resources. After the onset of covid-19 in March, one of the objectives was to try to maintain a strong balance sheet and not be overly ambitious at this stage given the uncertainties triggered by the pandemic.

 

In January, the Content practice division built around MediaMonks combined with Circus Marketing a fully integrated digital agency with offices in Mexico, Brazil, Argentina, Colombia, Costa Rica and Chile in Latin America, Los Angeles in the United States and in Spain. Clients include Netflix, Spotify, Google, Facebook, Uber and others on its A-list roster.

 

In May, the Data & digital media practice built around MightyHive combined with Digodat, one of the leading Latin American data consultancies, with offices in Argentina, Colombia, Chile, and Mexico and clients including Google, Telecom Argentina, Banco Galicia, Cencosud, BBVA, Grupo Falabella and Intercorp.

 

In June, the same practice announced its combination with Lens10, a leading Australian digital strategy and analytics consultancy with offices in Australia and clients including CottonOn, National Rugby League, Australian Ballet and ME Bank.

 

After the end of the first half of 2020, in July, MightyHive announced its combination with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy based in Seattle and clients including Reebok, Uni-ball, OshKosh B'gosh, Godiva, Del Monte and Kenroy Home.

 

Finally, towards the end of August, MightyHive combined with BrightBlue Consulting, a London-based econometrics and media optimisation consultancy, with clients including the Coop, Royal Mail, Secret Escapes, Hiscox, NHS, LV, and Habito.  The last four combinations have significantly added to MightyHive's service capabilities, not only expanding its geographical reach in Latin America, Asia Pacific, the United States and the United Kingdom, but also functionally in data, analytics and econometrics, complementing its digital media.

 

In all cases total consideration paid or payable was approximately half in cash and half in S4Capital Ordinary Shares, with a two-year lock-up from date of issue. Multiples paid were in the range of approximately 1-2 times revenues and 5-10 times EBITDA, depending on current and forecast performance over the current and/or following year, with no earnouts. The total consideration for all five transactions is expected to be approximately £119 million. The merger pipeline is extremely strong in both Content and Data & digital media.
 

To further strengthen the Company's balance sheet and to provide flexibility in securing financing for opportunities that may occur as a result of the disruption caused by covid-19, the Company announced in July the successful placing of 36,766, 642 (7.5% of the enlarged ordinary share capital) new ordinary shares at 315p, a small premium to the then market price. This raised a further net £113 million cash to add to the Company's resources and financial strength.

 

Balance sheet liquidity

Liquidity remains strong with half-year end net cash around £7.2 million, which excludes the net cash proceeds of around £113 million from the recent share placing.

 

S4Capital remains content to contemplate leverage of up to approximately twice EBITDA, as indicated previously.

 

Outlook and July results

 

Like for like growth rates continue to accelerate, with July's revenue and gross profit up 6.9% and 18.2%, just below where it was in February.

 

As anticipated in the Company's pre-covid-19 budget and Q1 and Q2 revised forecasts, the second half is targeted to be even stronger and has started very well.

 

 

 

Unaudited consolidated interim statement of profit or loss

for the six month period ended 30 June 2020

 

 

 

 

 

Six months ended 30 Jun 2020

Six months ended 30 Jun 2019

Year ended 31 Dec 2019

Notes

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Revenue

5

 

 

141,344

87,972

215,132

Cost of sales

 

 

 

17,375

17,787

43,814

 

 

 

 

 

 

 

Gross profit

5

 

 

123,969

70,185

171,318

 

 

 

 

 

 

 

Personnel costs

 

 

 

92,412

46,606

111,572

Other operating expenses

 

 

 

14,278

12,145

25,803

Acquisition and set-up related items

13

 

 

(1,805)

7,358

12,806

Depreciation and amortisation

 

 

 

16,592

10,305

24,972

 

 

 

 

 

 

 

Total operating expenses

 

 

 

121,477

76,414

175,153

 

 

 

 

 

 

 

Operating profit /