TIDMSFOR
RNS Number : 0226Z
S4 Capital PLC
11 May 2023
S(4) Capital plc
("S(4) Capital", "the Company" or "the Group")
First Quarter Trading Update
Solid start; guidance re-iterated
Reported revenue and net revenue up 26.5% and 28.1% to GBP262
million and GBP219 million
Like-for-like (3) revenue and net revenue (2) growth of 6.1% and
6.8% primarily driven by Technology services
Continued client conversion at scale through land&expand
with leading clients
Strong balance sheet with net debt (6) of GBP136 million (1x
Operational EBITDA (4,5) ) at 31 March 2023
Share buyback planned in second half to offset share options
issued to our people in 2023
Full year outlook of 8-12% (9) net revenue growth and target (7)
of 15-16% Operational EBITDA/net revenue margin maintained
Key financials
GBP millions Three months Three months Reported change Like-for-like
ended ended change
31 March 31 March
2023 2022
========================== ============= ============= ================ ==============
Billings(1) 455.9 360.3 26.5% 10.4%
Revenue
Content 173.1 149.9 15.5% 1.6%
Data&digital media 53.5 49.4 8.3% 0.6%
Technology services 35.1 7.5 368.0% 51.9%
-------------------------- ------------- ------------- ---------------- --------------
Total 261.7 206.8 26.5% 6.1%
Net revenue
Content 131.4 115.6 13.7% 0.8%
Data&digital media 52.7 48.7 8.2% 0.6%
Technology services 35.0 6.8 414.7% 57.0%
========================== ============= ============= ---------------- --------------
Total 219.1 171.1 28.1% 6.8%
Net revenue by Geography
Americas 173.6 124.5 39.4% 10.9%
EMEA 32.7 33.0 -0.9% -4.7%
Asia-Pacific 12.8 13.6 -5.9% -9.9%
-------------------------- ------------- ------------- ---------------- --------------
Total 219.1 171.1 28.1% 6.8%
-------------------------- ------------- ------------- ---------------- --------------
Sir Martin Sorrell, Executive Chairman of S (4) Capital Plc
said:
"We have had a solid start to the year, with net revenue rising
7%, while maintaining a focus on balancing growth in net revenue
with costs, which is reflected in our people numbers remaining
almost constant. Net revenue growth is pretty much in line with the
Q1 constant currency growth of the major tech platforms, which
averaged 6.4%. Two and three year like-for-like net revenue stacks
are 41% and 74%. Technology services has led our growth in the
first quarter, followed by Content and Data&digital media,
reflecting the growing client focus on digital transformation.
Geographically, the Americas have led, followed by EMEA and
APAC, reflecting the growing relative importance of the North and
South America "pillar" markets, the last being affected by lack of
growth in China, although prospects are improving significantly in
the second quarter post-Covid lockdown.
We remain cautiously optimistic for the rest of the year,
despite a slowdown of forecast growth rates in our two major
addressable markets to 7-10% and expect to make continued progress,
broadening and deepening our client conversion at scale. Technology
clients continue to maintain their marketing investment, with AI
and AGI being new opportunities for exploration and we are opening
up further significant land&expand relationships in packaged
goods, financial services and technology.
We maintain our full year target of 8-12%(9) net revenue growth
and target 15-16% operational EBITDA to net revenue margin with net
debt in the range of GBP180 to GBP220 million. Any contingent
merger payments will be satisfied in 2023 and net debt in 2024 is
expected to decrease substantially given our current capital
allocation strategy. There has been considerable speculation about
the potential impact of AI and AGI on our industry with various
commentators making early decisions on potential winners and
losers. It is very early days, and the world is not even in the
foothills of exploration and development, but this new Industrial
Revolution is already set to have a major impact on productivity
and the patterns of employment. We believe it will make our
disruptive model even more inevitable for clients and are
determined to establish the leadership position and leverage it. We
are immediately seeing positive impact in four areas - use of AI as
a superpower or supertool to improve our people's effectiveness;
speeding up the creation of advertising content through faster
copywriting and visualisation; hyperpersonalisation at scale
providing more empathetic advertising assets; and improved media
planning and buying, particularly in digital improving targeting
and optimisation and catering to client concerns around TV
frequency capping and reach. The net effects of these developments
will improve the effectiveness and efficiency of what we do -
faster, better, more efficient, more and NOW!"
Q1 Trading Update
Billings were GBP455.9 million up 26.5% reported and 10.4%
like-for-like.
Revenue was up 26.5% reported to GBP261.7 million, 6.1%
like-for-like and net revenue was up 28.1% to GBP219.1 million, or
6.8% like-for-like. The full year guidance range of 8-12% excluded
the impact of one major account reduction last year and on that
basis like-for-like growth was 8% for the quarter. While net
revenue growth was at the lower end of our full year guidance
range, it was in line with our expectations. Our full year net
revenue growth guidance is maintained, given our latest forecasts
for Q2 and H2 and easier comparators.
The number of people in the rm was 8,713 at the end of the first
quarter, down 2% compared to 8,891 at the end of 2022, reflecting
more active and measured control of the balance of hiring across
the Company.
There were no new combinations in the first three months of the
year. Progress continues to be made on integration around
Media.Monks, our unitary brand, which continues to be a high
priority, with a focus on the Content and Data&digital media
practices and the Americas and Asia Pacific.
Performance by Practice
Content practice revenue was up 15.5% reported in the first
quarter to GBP173.1 million, with like-for-like growth of 1.6%.
First quarter net revenue was up 13.7% to GBP131.4 million reported
and 0.8% like-for-like. The slowdown in growth reflects a strong
comparator and a weaker addressable market in the period. Two year
and three year net revenue stacks are 34% and 65%.
Data&digital media practice first quarter reported revenue
was up 8.3% to GBP53.5 million and 0.6% like-for-like. First
quarter reported net revenue was up 8.2% to GBP52.7 million and up
0.6% like-for-like. Like Content the practice saw slower growth in
the period driven by a strong comparator and weaker market
conditions. Two year and three year net revenue stacks are 35% and
71%.
Technology services practice first quarter reported revenue was
up 368% to GBP35.1 million, 51.9% like-for-like. First quarter net
revenue was up 414.7% to GBP35.0million, up 57.0% like-for-like.
Activity with existing clients remained strong, with effective
integration starting to drive net revenue growth. Two year and
three year stacks, which include pre-merger periods are difficult
to compile, but would compare very favorably with the industry
leaders.
Performance by Geography
The Americas showed strong growth in the first quarter with
reported net revenue up 39.4% to GBP173.6 million and 10.9%
like-for-like, reflecting the continued strength of the North and
South American markets, the complementary time zones and
contiguous
supply chains.
Europe, the Middle East and Africa had a slower first quarter,
with reported net revenue down 0.9% to GBP32.7 million and
like-for-like down 4.7%, reflecting very strong comparatives last
year, slower addressable markets and year end budgeting and sales
cycles by key clients.
Asia Pacific, with reported net revenue down 5.9% to GBP12.8
million in the first quarter and down 9.9% like-for-like, with
China, in particular, still emerging from Covid lockdown, but with
the second quarter expected to be more lively. There were also
strong comparatives last year and sales cycles were slower,
particularly in Japan and Korea.
Balance Sheet
Net debt ended the first quarter at GBP135.7 million, or 1.0x
net debt/operational EBITDA. The balance sheet remains strong with
significant liquidity and long dated debt maturities. Pro-forma
Operational EBITDA for the latest twelve months to 31 March 2023
was GBP132.8 million.
Share buybacks
In order to reduce the impact of any share issue dilution caused
by the issue of share options to our people, the Company intends to
buy back approximately 5 million shares or approximately 1% of the
issued share capital over the course of the second half of the
year.
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
ended 2022 with 10 whoppers. The Company has identi ed a further 14
potential " whoppers", which could mature over the next few years
and expects to continue making progress in 2023.
While the Company is generally not seeing significant cuts or
reductions in budgets from its major clients, it is clear that Q1
2023 started cautiously for many of them with sales cycles
lengthening, particularly those in the Technology sector. With the
exception of one "whopper" scaling down last year, growth at our
major clients has been strong as a result of implementation of our
land&expand strategy, although regional and local clients have
been more volatile. Our new business pipeline remains very healthy
and in Q1 2023 the Company won assignments from new clients such as
Suntory, Marriott, BJ ' s Restaurants, CJ Bibigo, Pernod Ricard,
H&M and two global FMCG companies, who will likely join the
potential " whoppers" list in time.
Current Trading
The Company has traded solidly in the first quarter, in line
with our expectations. Based on a stronger forecast net revenue
growth rate in Q2 and into the second half, we re-iterate our full
year guidance of 8-12%(9) like-for-like net revenue growth. We
continue to manage costs tightly and with the target of delivering
Operational EBITDA margins of between 15-16%. As in previous years,
given our seasonality, 2023 will again be significantly second half
weighted. Longer term, we expect to continue to be able to deliver
strong like-for-like net revenue growth, ahead of our markets, with
Operational EBITDA margins returning to historic levels.
Strategy
The strategy of S(4) Capital remains the same. The Company's
purely digital transformation model, based on first-party data
fueling the creation, production and distribution of digital
advertising content, distributed by digital media and built on
technology platforms to ensure success and efficiency, resonates
with clients. Our tagline 'faster, better, cheaper, more' or
'speed, quality, value, more' (to which with the arrival of AI and
AGI we have added 'more') and a unitary structure both appeal
strongly, even more so in challenging and unpredictable economic
times. Our new market positioning around "NOW!" complements and
reinforces this positioning, offering clients immediate change.
N otes (in this document):
1. Billings is unaudited gross billings to client including pass through costs.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2022 being
restated to show the unaudited numbers for the previous year of the
existing and acquired businesses consolidated for the same months
as in 2023 applying currency rates as used in 2023.
4. 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.
5. Operational EBITDA is 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.
6. Net debt excludes lease liabilities.
7. This is a target and not a profit forecast.
8. Controlled billings are unaudited billings we influenced in
addition to billings that flowed through our income statement.
9. For guidance purposes 2022 pro-forma net revenue is GBP907
million, including the full year impact of 2022 combinations
TheoremOne and XX Artists and an adjustment for reduced activity on
Mondelēz.
Webcast and conference call
In line with previous reporting, a webcast and conference call
will be held at 09:00 BST in London, followed by another webcast
and call at 08:00 EDT / 13:00 BST.
09:00 BST webcast (watch only) and conference call (for
Q&A):
Webcast: https://brrmedia.news/SFOR_Q123
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Quote S4 Capital - Q1 Results when prompted by the operator
08:00 EDT / 13:00 BST webcast (watch only) and conference call
(for Q&A):
Webcast: https://brrmedia.news/SFOR_Q123US
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Quote S4 Capital - Q1 Results US when prompted by the
operator
Enquiries to
S(4) Capital plc
Sir Martin Sorrell, Executive Chairman +44 (0)20 3793 0003/ +44
(0)20 3793 0007
Mary Basterfield, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)
Elly Williamson +44 (0)7970 246 725
Ollie Simmonds
About S (4) Capital
S(4) Capital plc (SFOR.L) is the tech-led, new age/new era
digital advertising, marketing and technology services company,
established by Sir Martin Sorrell in May 2018.
Our 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
practices: Content, Data&digital media and Technology Services,
along with an emphasis on 'faster, better, cheaper, more' execution
in an always-on consumer-led environment, with a unitary
structure.
Victor Knaap, Wesley ter Haar, Christopher S. 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 8,700 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 geographic split of 60%:20%:20%. Content
currently accounts for approximately 60% of revenue,
Data&digital media 30% and Technology Services 10%. The
long-term objective for the practices 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
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END
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