TIDMSFOR
RNS Number : 2756G
S4 Capital PLC
14 November 2022
S(4) Capital PLC
14 November 2022
S(4) Capital plc
("S(4) Capital", "the Company" or "the Group")
Third Quarter Trading Update
Top-line momentum more than maintained in the Third Quarter with
like-for-like Gross Profit/Net Revenue up over 29%
Third quarter Operational EBITDA(1) improves significantly over
the first half
Operational EBITDA for 2022 in line with July revised target of
approximately GBP120 million(2)
Continued client conversion at scale with ten "whoppers" now in
sight and top 50 clients' average revenue grows by 70% year on
year
Macro political and economic pressures will continue to offer
significant growth opportunities given our digital offering and
disruptive model as clients move "down the funnel" and accelerate
digital marketing transformation
Key financials
GBP millions Three months Three months change change change
ended ended Reported Like-for-like(4) Pro-forma(5)
30 Sep 2022 30 Sep 2021(3)
======================= ============= ====================== ========== ================== ==============
Billings(6) 484.2 320.1 51.3% 21.3% 21.3%
Revenue
Content 208.2 128.5 62.0% 24.2% 24.2%
Data&Digital media 58.0 48.9 18.6% 15.5% 15.5%
Technology services 33.9 1.0 3290.0% 75.6% 75.6%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 300.1 178.4 68.2% 26.5% 26.5%
Gross profit/net
revenue
Content 159.7 94.7 68.6% 28.1% 28.1%
Data&Digital media 57.0 48.7 17.0% 15.2% 15.2%
Technology services 33.2 1.0 3220.0% 73.8% 73.8%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 249.9 144.4 73.1% 29.3% 29.3%
Gross profit/net
revenue by Geography
Americas 193.5 102.2 89.3% 30.5% 30.5%
EMEA 39.8 27.9 42.7% 37.7% 37.7%
Asia-Pacific 16.6 14.3 16.1% 3.1% 3.1%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 249.9 144.4 73.1% 29.3% 29.3%
GBP millions Nine months Nine months change change change
ended ended Reported Like-for-like(4) Pro-forma(5)
30 Sep 2022 30 Sep 2021(3)
======================= ============= ====================== ========== ================== ==============
Billings(6) 1,264.1 865.5 46.1% 23.4% 24.8%
Revenue
Content 527.2 327.9 60.8% 27.6% 30.4%
Data&Digital media 160.3 128.8 24.5% 20.4% 20.7%
Technology services 59.0 1.0 5800.0% 82.7% 65.9%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 746.5 457.7 63.1% 29.0% 31.2%
Gross profit/net
revenue
Content 409.9 251.8 62.8% 26.7% 28.7%
Data&Digital media 157.7 128.3 22.9% 20.1% 20.3%
Technology services 57.6 1.0 5660.0% 80.0% 64.3%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 625.2 381.1 64.1% 28.4% 30.0%
Gross profit/net
revenue by Geography
Americas 472.9 271.0 74.5% 27.8% 29.9%
EMEA 106.7 76.2 40.0% 36.6% 36.6%
Asia-Pacific 45.6 33.9 34.5% 17.5% 17.5%
----------------------- ------------- ---------------------- ---------- ------------------ --------------
Total 625.2 381.1 64.1% 28.4% 30.0%
Notes (in this document):
1. Operational EBITDA is EBITDA adjusted for acquisition related
expenses, non-recurring items and recurring share-based payments,
and includes right-of-use assets depreciation. It is a non-GAAP
measure management uses to assess the underlying business
performance.
2. This is a target and not a profit forecast.
3. For the three and nine months ended 30 September 2021,
Technology services was previously included within the Content
practice, which has now been restated and Technology services is
now reported as a separate practice.
4. Like-for-like is a non-GAAP measure and relates to 2021 being
restated to show the unaudited numbers for the previous year of the
existing and acquired businesses consolidated for the same months
as in 2022, applying currency rates as used in 2022.
5. 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 in the
pre-acquisition period.
6. Billings is gross billings to client including pass through
costs.
7. Controlled billings is billings we influenced in addition to
billings that flowed through our income statement.
8. Net debt comprises cash minus gross bank loans (excluding
transaction costs).
Sir Martin Sorrell, Executive Chairman of S (4) Capital Plc
said:
"Despite the current macro political and economic gloom and
slowing tech growth, our top-line momentum has been more than
maintained in the third quarter and remains relatively strong into
the fourth quarter. This is an enormous credit to our people and
their ability to operationalise our purely digital, data-driven,
faster, better, more efficient and unitary model, with all three
practices growing their top lines strongly. Two year and three year
like-for-like gross profit/net revenue stacks are 72% and 94% for
the third quarter and 75% and 91% for the year to date. Operational
EBITDA continues to progress in line with the revised target issued
in July. Ten "whoppers" are now in sight, half of our long-term
20(2) objective, also demonstrating the conversion at scale power
of our disruptive model. We are in the midst of developing our
three year plan for 2023-5 and our budgets for 2023. Despite the
current economic uncertainties, the leading technology platforms
are still forecast by the sell side to grow by up to 10% next year
and digital transformation spending is forecast to continue to grow
in the range of 20%. Given the reduction in global GDP growth rate
forecasts for 2022 and 2023 and the likelihood of recession in some
parts of the world, clients will be moving "down the funnel", as we
say, prioritising performance and activation, measurement of
marketing ROI and media mix modelling, which plays to our
strengths. We believe this changing market environment will
continue to offer significant growth opportunities given our client
profile, relative size and disruptive model."
Q3 Trading Update
Following a strong first six months, the Company continued to
progress, registering a similarly strong third quarter gross
profit/net revenue performance, with two year and three year gross
pro t/net revenue stacks of 72% and 94%, in line or ahead of the
performances of the technology companies and platforms. Billings
were GBP484.2 million up 51% reported and 21% like-for-like.
Controlled Billings(7) were GBP1.4 billion. Revenue was up over 68%
reported to GBP300.1 million, 27% like-for-like and gross pro t/net
revenue up 73% to GBP249.9 million, 29% like-for-like.
Year to date billings were up 46% reported to GBP1.3 billion, up
23% like-for-like. Controlled Billings were GBP4.0 billion. Year to
date, revenue is up 63% reported to GBP746.5 million, 29%
like-for-like and gross pro t/net revenue up 64% reported to
GBP625.2 million, 28% like-for-like.
Unlike the rst six months of 2022, both reported and
like-for-like earnings before interest, depreciation and
amortisation (EBITDA) re ected the improved control of hiring
across the Company, as the number of people across the globe
remained pretty constant through the third quarter, whilst gross
profit/net revenue accelerated. The impact of this change in
emphasis was most marked in the Content practice, which started to
improve operational EBITDA significantly. The Data&Digital
media practice was not as strong in gross profit/net revenue growth
and in operational EBITDA conversion in the third quarter, but
continued to benefit from the uncertainty and the increase in the
marketing vix index as a result of both Apple's decision around
IDFA and Google's around deprecation of third party cookies.
Technology services continues to perform very strongly at all
levels.
The number of people in the rm was 8,956 at the end of the third
quarter (including XX Artists), down 1% compared to 9,041 at the
end of the second quarter, reflecting more active and measured
control of hiring across the Company.
These gures include the impact of a Content combination with XX
Artists from 1 July 2022; Data&Digital media includes 4Mile
from 11 January 2022; Technology services includes TheoremOne from
16 May 2022. Significant progress continues to be made on
integration around Media.Monks, our unitary brand, which continues
to be a high priority.
Performance by Practice
Content practice revenue was up 62% reported in the third
quarter to GBP208.2 million, with like-for-like up 24%. Third
quarter gross pro t/net revenue was up 69% to GBP159.7 million
reported and 28% like-for-like. Third quarter like-for-like gross
profit/net revenue two year and three year stacks are industry
leading at 69% and 97%.
Year-to-date Content practice reported revenue was up 61% to
GBP527.2 million and 28% like-for-like. Content reported gross pro
t/net revenue was up 63% to GBP409.9 million and 27% like-for-like.
Year to date like-for-like gross pro t/net revenue two year and
three year stacks are industry leading at 74% and 93%.
Data&Digital media practice third quarter reported revenue
was up 19% to GBP58.0 million and 16% like-for-like. Third quarter
reported gross pro t/net revenue was up 17% to GBP57.0 million and
up 15% like-for-like. Third quarter like-for-like gross profit/net
revenue two year and three year stacks are industry leading at 60%
and 66%.
Year-to-date Data&Digital media practice reported revenue
was up 25% to GBP160.3 million and up 20% like-for-like. Gross pro
t/net revenue was up 23% to GBP157.7 million and 20% like-for-like.
As with Content, Data&Digital media year to date like-for-like
gross pro t/net revenue two year and three year stacks are industry
leading at 66% and 73%.
Technology services practice third quarter reported revenue was
up 3,290% to GBP33.9 million, 76% like-for-like. Third quarter
reported gross profit/net revenue was up 3,220% to GBP33.2 million,
up 74% like-for-like. Two year and three-year stacks are difficult
to compile historically, but would rank with industry leaders such
as Accenture Interactive and Globant.
Year-to-date Technology services reported revenue was up 5,800%
to GBP59.0 million, like-for-like up 83%. Reported gross profit/net
revenue was up 5,660% to GBP57.6 million, with like-for-like up 80%
again. Two year and three year stacks are difficult to compile, but
would compare very favourably with the industry leaders.
Performance by Geography
The Americas showed strong growth in the third quarter with
reported gross pro t/net revenue up 89% to GBP193.5 million and 31%
like-for-like. Year-to-date the Americas reported gross pro t/net
revenue was up 75% to GBP472.9 million and 28% like-for- like.
Europe, the Middle East and Africa also grew signi cantly in the
third quarter, with reported gross pro t/net revenue up 43% to
GBP39.8 million and like-for-like up 38%. Year-to-date reported
gross pro t/net revenue was up 40% to GBP106.7 million and
like-for- like up 37%.
Asia Paci c was the slowest growth region, chiefly impacted by
China's zero-covid policy driven slowdown, with reported gross pro
t/net revenue up 16% to GBP16.6 million in the third quarter and up
3% like-for-like. Year-to-date reported gross pro t/net revenue
grew 35% to GBP45.6 million and like-for-like was up 18%.
Balance Sheet
Year end 2022 net debt(8) is still expected to be in the range
of GBP130-170 million, after the initial combination payment for XX
Artists and contingent consideration related to prior combinations.
Net debt ended the third quarter at GBP157.7 million, or 1.2x net
debt/operational EBITDA. The balance sheet remains strong with
sufficient liquidity and long dated debt maturities. Pro-forma
Operational EBITDA for the latest twelve months to 30 September
2022 was GBP126.2 million.
Client Development and Momentum
The Company developed a 20(2) client objective in 2020. That is,
to develop twenty clients with more than $20 million revenue per
year, termed "whoppers". The company has made signi cant progress
in deepening existing relationships and winning new accounts and
now has ten "whoppers" in 2022 or at run rate. The Company has
identi ed a further 14 potential "whoppers", which could mature
over the next few years.
Q3 was another strong quarter for new business with signi cant
land & expand assignments from existing major clients, with the
average size of our top 50 clients growing 70% year on year. The
Company also won new business from clients including Commonwealth
Bank of Australia, Pernod Ricard, Moncler, Richemont, NuBank and
significant NDA'd assignments at Technology, FMCG, Finance and
Retail clients, who will all be significant clients in 2023. Top
line momentum continues to look relatively strong into the fourth
quarter, with limited negative impact so far from the macro
political or economic pressures.
Given the Company's current market valuation, mergers or
combinations are currently off the table, that is, unless merger or
combination partners are prepared to accept equity values as part
of their consideration of around 425p per share - as TheoremOne and
XX Artists did. That was our share value before our recent
challenges and more in line with the general market declines from
our peak market capitalisation.
People and ESG
We also continue to expand our e orts in the areas of diversity,
equity and inclusion, particularly in hiring, education and
development programmes, such as the S(4) Women Leadership Program
for our senior female leadership and the black minority focused
S(4) Capital Graduate Fellowship Program, now also aimed at high
schools, as well as universities. A diverse workforce is a business
imperative and we are relatively well positioned, with 40% people
of colour and gender balance already in the United States and the
United Kingdom, to compete for assignments that increasingly demand
diverse teams as a pre-requisite. We still, however, have to raise
the proportion of black people we employ, which is currently 6-7%,
to the levels that exist in the communities in which we operate,
which is currently 13% for example in the United States and which
we are committed to do. Our climate change commitment is to net
zero by 2024, well ahead of industry pledges, as well as the
commitments to the Amazon and World Economic Forum Climate pledges,
which are less demanding, and to achieve B Corp status.
Current Trading
The Company continues to trade in line with our top line
objective for 2022 of 25% like-for-like gross profit/net revenue
growth and profitability objective of Operational EBITDA of
approximately GBP120 million. We have seen little negative impact
so far in the remainder of 2022 from the current macro political
and economic gloom.
The Company is preparing a new three-year plan for the period
2023-5 and preliminary budgets for 2023. Whilst we have seen little
or no impact on our top-line progress from the more than transitory
inflation, the higher than previous interest rates, the war in the
Ukraine and the continued friction between the US and China and the
long-term ambitions of Russia and Iran, it would be foolhardy to
believe that both our industry and our growth may be unaffected.
Following patchy third quarter reporting by the tech platforms,
hardware and software companies, sell side analyst forecasts for
them in 2023 have been pegged back to up to 10%, versus 8-9% this
year. We believe that the forecast growth of the major platforms
and like-for-like growth at Alphabet/Google, Meta/Facebook, Amazon,
TikTok and the newer advertising platform entrants such as
Microsoft, Apple, Netflix and Disney+, in particular, will offer
significant opportunities for us in 2023 and beyond. All this along
with continued robust forecast digital transformation spending
growth in the range of 20%, will provide disruptive opportunities
and increased desire for digital marketing transformation as GDP
growth and clients' top-line growth slow and they focus more on
costs - and move "down the funnel", emphasising activation and
performance, ROI on marketing investment and media mix modelling,
which plays to our strengths.
Webcast and conference call
A video webcast and conference call covering the trading update
will be held today at 08.00 GMT, followed by another webcast and
call at 08.00 EST / 13.00 GMT.
8:00am GMT webcast (watch only) and conference call (for
Q&A):
Webcast: https://brrmedia.news/S4_Q3
Conference call:
UK: +44 (0) 808 109 0700
US: +1 866 966 5335
Password: Quote S4 when prompted by the operator
8am EST / 1pm GMT webcast (watch only) and conference call (for
Q&A):
Webcast: https://brrmedia.news/S4_Q3_US
Conference call:
UK: +44 (0) 808 109 0700
US: +1 866 966 5335
Password: Quote S4 when prompted by the operator
Enquiries to:
S(4) Capital plc +44 (0)20 3793 0003
Sir Martin Sorrell (Executive
Chairman)
Powerscourt (PR Advisor) +44 (0)7970 246 725
Elly Williamson/ Jane Glover
About S (4) Capital
S(4) Capital plc (SFOR.L) is the tech-led, new age/new era
digital advertising and marketing services company, established by
Sir Martin Sorrell in May 2018.
Its strategy is to build a purely digital advertising and
marketing services business for global, multinational, regional,
and local clients, and millennial-driven influencer brands. This
will be achieved by integrating leading businesses in three
practice areas: Content, Data&Digital media and Technology
services, along with an emphasis on "faster, better, more
efficient" executions in an always-on consumer-led environment,
with a unitary structure.
Digital is by far the fastest-growing segment of the advertising
market. S(4) Capital estimates that in 2021 digital accounted for
over 60% or $420-450 billion of total global advertising spend of
$700-750 billion (excluding over $500 billion of trade promotion
marketing, the primary target of the Amazon advertising platform)
and projects that by 2022 total global advertising spend will
expand to $770-850 billion and digital's share will grow to
approximately 65% and by 2024 to approximately 70%, accelerated by
the impact of covid-19.
In 2018, S(4) Capital combined with MediaMonks, the leading
AdAge A-listed creative digital content production company led by
Victor Knaap and Wesley ter Haar and then with MightyHive, the
market-leading digital media solutions provider for future thinking
marketers and agencies, led by Peter Kim and Christopher S.
Martin.
Since then, MediaMonks and MightyHive have combined with more
than 25 companies across Content, Data&Digital media and
Technology services. For a full list, please see the S(4) Capital
website.
In August 2021, S(4) Capital launched its unitary brand by
merging MediaMonks and MightyHive into Media.Monks, represented by
a dynamic logo mark that features MightyHive's iconic hexagon. As
the operational brand, Media.Monks underpins S(4) Capital's
agility, digital knowledge and efficiency and is the next step in
delivering on its foundational promise to unify Content,
Data&Digital media and Technology services.
Victor Knaap, Wesley ter Haar, Christopher Martin, Scott Spirit
and Mary Basterfield all joined the S(4) Capital Board as Executive
Directors. The S(4) Capital Board also includes Rupert Faure
Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan,
Naoko Okumoto, Margaret Ma Connolly, Miles Young and Colin Day.
The Company now has approximately 9,000 people in 32 countries
with approximately 70% of revenue across the Americas, 20% across
Europe, the Middle East and Africa and 10% across Asia-Pacific. The
longer-term objective is a split of 60%:20%:20%. Content currently
accounts for approximately 65% of revenue, Data&Digital media
35% and Technology services 10%. The long-term objective is a split
of 50%:25%:25%.
Sir Martin was CEO of WPP for 33 years, building it from a GBP1
million "shell" company in 1985 into the world's largest
advertising and marketing services company, with a market
capitalisation of over GBP16 billion on the day he left. Prior to
that Sir Martin was Group Financial Director of Saatchi &
Saatchi Company Plc for nine years.
Disclaimer
This announcement includes 'forward-looking statements'. All
statements other than statements of historical facts included in
this announcement, including, without limitation, those regarding
the Company's financial position, business strategy, plans and
objectives of management for future operations (including
development plans and objectives relating to the Company's
services) are forward-looking statements.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These factors include but are not limited to those
described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These
forward- looking statements speak only as at the date of this
announcement. S(4) Capital expressly disclaims any obligation or
undertaking to update or revise any forward-looking statements
contained herein to reflect actual results or any change in the
assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of the Company for the
current or future years would necessarily match or exceed the
historical published earnings per share of the Company.
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any website accessible from hyperlinks on its website for any other
website, is incorporated into, or forms part of, this announcement
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