S 4 Capital plc Annual Report and Accounts 2020 Seize the wth decade S4Capital plc Annual Report and Accounts 2020 Our mission To create a new age/new era digital marketing solution, which disrupts analogue models, by embracing data, content and digital media in an always-on environment for global, multinational, regional and local clients and for millennial-driven brands. Contents 1 2 Strategic Report Industry outlook 7 Letter to shareowners 39 Resilience, recovery, acceleration 14 ESG: sustainability and by Sir Martin Sorrell corporate responsibility 26 Section 172(i) statement 31 Principal risks and uncertainties 3 4 Life in the Governance and new decade financial statements 46 Twenty on the 20s 51 Governance Report 51 Leadership 51 Board of Directors 56 Executive Chairman’s governance statement 58 The role of the Board 62 Report of the Audit and Risk Committee 64 Report of the Nomination and Remuneration Committee 70 Remuneration Report 87 Directors’ report 93 Financial statements 149 Shareowner information www.s4capital.com/annualreport20 S4Capital Annual Report and Accounts 2020 1 Financial highlights Billings1 Pro-forma2 billings £653.4m £768.4m +43.4% +22.3% Like-for-like3 19.6% Revenue Pro-forma revenue £342.7m £421.1m +59.3% +20.1% Like-for-like 15.2% Gross profit Pro-forma gross profit £295.2m £369.0m +72.3% +23.7% Like-for-like +19.4% Operational EBITDA4 Pro-forma operational EBITDA £62.2m £85.1m +86.1% +30.6% Like-for-like +18.3% Operational EBITDA margin5 Pro-forma operational EBITDA margin +21.1% 23.1% +1.6 margin points +1.2 margin points Like-for-like -0.2 margin points Operating profit Pro-forma operating profit £8.1m £16.9m 2019 -£3.8m 2019 -£1.2m Adjusted operating profit6 Pro-forma adjusted operating profit £58.0m £80.5m +86.0% +29.1% Like-for-like +15.9% 2 S4Capital Annual Report and Accounts 2020 Profit before income tax Pro-forma profit before income tax £3.1m £12.1m 2019 -£9.2m 2019 -£6.7m Adjusted result before income tax7 Pro-forma adjusted result before income tax £52.9m £75.6m +105.2% +33.1% Like-for-like +19.3% Adjusted basic earnings per share Pro-forma adjusted basic earnings per share 7.9 p 9.8p 2019 5.2p 2019 7.5p Market capitalisation at 28 April 2021 Share price at 28 April 2021 £3.05bn 560p For full reconciliation from statutory to non-GAAP measures, please refer to Note 25 and the unaudited preliminary results published on 25 March 2021. Notes: 1. Billings is gross billings to clients including pass-through costs. 2. 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. Consequently the prior year comparatives will change year on year. 3. Like-for-like is a non-GAAP measure related 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. 4. Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to assess the underlying business performance. Operational EBITDA margin is operational EBITDA divided by gross profit. 5. Operational EBITDA margin is operational EBITDA divided by gross profit. 6. Adjusted operating profit is operating profit/loss adjusted for non-recurring items and recurring share-based payments. 7. Adjusted result before income tax is profit/loss before income tax adjusted for non-recurring items and recurring share-based payments. S4Capital Annual Report and Accounts 2020 3 The shape of our business 4,400 people 31 countries 57 Gross profit by region locations 73% 1 The Americas unitary structure Company locations S4 ofces From a peanut to a unicorn… 18 May: Formation and initial funding 19 April: Caramel Pictures acquired by MediaMonks. 4 of S Capital plc. April: Combination of MightyHive with ProgMedia. July: Combined with digital content June: Announcement of combination production company MediaMonks. of MediaMonks with BizTech. December: Combined with programmatic August: Combination of MediaMonks with IMA. company MightyHive. October: Combination of MediaMonks with Firewood Marketing. October: Combination of MightyHive with ConversionWorks. November: Announcement of combination of MediaMonks with WhiteBalance. 4 S4Capital Annual Report and Accounts 2020 Gross profit by practice Data & 72% 28% Digital Media Data & Content Digital Media 28% To Hercules and Perseverance > Gross profit by region Gross profit by region 18% 9% Europe, Middle Asia Pacific East & Africa Company locations S4 ofces 20 January: Announcement of combination of MediaMonks with 21 January: Announcements of Circus Marketing. combination of MediaMonks with May: Announcement of combination of MightyHive with Digodat. TOMORROW and STAUD STUDIOS. June: Announcement of combination of MightyHive with Lens10. February: MightyHive acquired the July: Announcement of combination of MightyHive with Orca Pacific. assets of Datalicious Australia. August: Announcement of combination of MightyHive with Brightblue. March: Announcement of conditional agreement to combine MediaMonks September: Announcement of combination of MediaMonks with Dare. and Jam3, completed in May. December: Business combinations of MediaMonks with Decoded and May: Announcement of agreement MightyHive with Metric Theory. to combine MightyHive and Racoon. S4Capital Annual Report and Accounts 2020 5 Strategic Report 7 Letter to shareowners 14 ESG: sustainability and corporate responsibility 26 Section 172(i) statement 31 Principal risks and uncertainties 6 S4Capital Annual Report and Accounts 2020 1 Letter to shareowners By all accounts, 2020 was an unforgettable year. We emerged stronger than we’d expected on even our most optimistic scenario. Dear shareowner A We further integrated our unitary client When the pandemic began, we compared offering around our Content and Data & its impact to that of a wartime recession. Digital Media practices. Both MediaMonks We were pretty worried when the effects and MightyHive have integrated each began to bite, but we set ourselves a vision combination into our Content and Data of how we would come out of it. We ran & Digital Media practices and brands scenarios on various outcomes; we initiated and we are starting to roll out our unitary a Coronavirus Crisis Group; and we took all brand. We already operated as a single the steps necessary to keep our people safe. P&L, pretty much from inception, so as We sent a weekly email to all our people, to develop and maintain a seamless, fully which shared everything that had happened integrated offer for our clients. in the previous seven days: the measures A We embraced the diversity, equity and we were taking; the ideas people had come inclusion and ESG opportunities and up with; and the impacts on our business. challenges with unique Black-orientated By August 2020 we were back where we’d fellowship and female executive leadership been before the pandemic in terms of top line programmes, changed hiring practices and growth. The fabric of the company was intact, education programmes and made zero we had undertaken minimal cost-cutting and carbon commitments targeting 2024. we had a strong balance sheet. A We achieved double $ and £ Unicorn A We continued to grow our top line and status in terms of stock market value, bottom line at industry leading rates and in only our second full year, while exhibited agility in developing new Content strengthening our balance sheet to take revenue streams quickly, such as robotic advantage of short-term opportunities. production, animation and online events A Our focus on both developing our and driving Data & Digital Media net advertising and marketing services revenues, particularly in the fourth quarter knowhow and geographical expansion, and into 2021. particularly in Asia Pacific, was further A We broadened and deepened our client underlined by the appointment of Miles roster. Significant new business wins Young, Warden of New College, Oxford include assignments from Google, University as a Non-Executive Director. Facebook, Amazon, Netflix, Procter & He was at Ogilvy for 35 years, running it Gamble, T-Mobile, Bayer, HP, Cisco, very successfully for eight years until 2016, Embibe, Harley Davidson, PayPal, LA28, expanding its footprint aggressively in Shopify and Verizon amongst others. growth areas such as digital content and A We continued to broaden and deepen our media and Asia Pacific, particularly China Content and Data & Digital Media practices and India – truly one of David Ogilvy’s through organic growth and by the addition ‘Gentlemen with Brains’. of a further four Content companies and six Data & Digital Media companies in both 2020 and so far in early 2021. S4Capital Annual Report and Accounts 2020 7 Strategic Report Letter to shareowners continued We achieved double $ and £ Unicorn status in terms of stock market value, in only our second full year Pride of place for these achievements age/new era, digital, data-driven, unitary should go to our (now) over 4,400 people model, which has started to gain significant in 31 countries, who have responded traction. The pandemic has, at the same unflinchingly to the colossal strain and time, accelerated adoption of digital challenge of the pandemic. Their creativity, transformation amongst consumers, across adaptability, resilience and hard work have all media and within enterprises and, in turn, made this success possible and have stimulated the demand from clients for digital started to prove the potency of our new marketing expertise. Digital pure play pays off Watch some of our senior financial and growth leaders comment on the financial 2 3 performance across all our markets, including the impact of covid-19, and taking the lead in the 2020s.