REG - S4 Capital PLC - AGM Statement

S4 CapitalAnnouncement

16/06/2022 13:00

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RNS Number : 1700P  S4 Capital PLC  16 June 2022

( )

 

 

 16 June 2022

S4 Capital plc

 

("S(4)Capital" or "the Company")

 

AGM Statement

 

Like-for-like 2022 Gross Profit/Net Revenue Growth guidance remains at 25%

 

S(4)Capital plc (SFOR.L), the tech-led, new age, new era, digital advertising
and marketing services company, announces that at the Annual General Meeting
of the Company to be held today, Sir Martin Sorrell, Executive Chairman of the
Company, will make the following statement.

 

"2021 was a very busy fourth year for S(4)Capital, both organically and
through mergers and the tempo has been maintained in the first four months of
2022 and we remain comfortable with like-for-like 2022 gross profit/net
revenue growth guidance of 25%, combined with a targeted steady improvement in
Operational Earnings Before Interest, Depreciation and Amortisation (EBITDA)
margins, with Operational EBITDA significantly skewed to the second half of
the year.

 

I am pleased to say that, currently, relatively few (around 120) of our people
and their families have reportedly been infected by Covid-19 or developed
serious problems as a result, although we have seen a recent increase in the
number of reported cases across the globe and particularly in Latin America.
About half of our 86 Monks in Ukraine have relocated, mainly in Central and
Eastern Europe, with the other half remaining to fight. We have ceased our
operations in Russia, where we had 10 Monks.

 

First, I want to remind everyone, again, of our Company's definitive and
differentiated strategy, based on four core principles. I say "our company" as
it is both your Company as our shareowners and our Company, as your management
team.  We are tightly aligned with you - over 40% of our shareowners are
connected to our Monks or Directors. But back to those four core principles:
We are purely digital, because that's where the growth is, even more so in a
Covid-19 world. In a 24/7, always-on digital world, our business model is to
focus on first party data, which, in turn, fuels the creation, production and
distribution of digital advertising and marketing creative content through our
data & digital media planning and buying and programmatic and performance
executions. And we have recently expanded our services to include Technology
services to fully provide digital marketing transformation services for our
clients. Our mantra or strap line is "faster, better, cheaper" or "speed,
quality, value", because that's what clients want. Finally, our organisational
structure is unitary, with a single P&L, as clients want the best people
working on their business, not caring where they come from. We don't do
fragmenting earnouts.

 

Having built out our Content practice over the last four years around
MediaMonks and our Data&digital media practice around MightyHive over the
same period, we added 12 content companies and 11 data & digital media
companies before last year's AGM and eight in the last seven months of 2021
and the first five months of 2022 before this one. There has been considerable
emphasis with each merger on integration from the earliest point possible and
extracting synergies, particularly revenue synergies, to emphasise the
importance of our unitary structure.

In July 2021, MightyHive expanded its Data&digital media practice in Asia
Pacific with Salesforce specialist Destined.

In August 2021, the Company successfully raised a seven year €375 million
senior secured term loan B (TLB) and five year £100 million equivalent
multi-currency senior secured revolving credit facility to enhance facilities
for combinations. Also in August 2021, MediaMonks and MightyHive combined into
one unitary brand: Media.Monks, reflecting both our Content and
Data&digital media roots through MightyHive's iconic hexagon.

In September 2021, the newly-branded Media.Monks expanded its creative and
culture capabilities in the United States with Cashmere and added a third
practice, Technology services, through a combination with Bogotá-based
Zemoga.

In November 2021, Media.Monks combined with Miyagi, expanding its content
capabilities in Italy.

In December 2021, Media.Monks further enhanced its US Salesforce capabilities
with Chicago-based Maverick Digital.

In January 2022, Media.Monks combined with 4 Mile Analytics, a
California-based data analytics company.

In May 2022, Media.Monks added to its Technology services practice with
US-based digital marketing transformation consultancy TheoremOne. We continue
to explore in-bound and out-bound combination opportunities, but only on
pre-audit delay equity pricing.

Since our last AGM in June of 2021, our Company has almost doubled its number
of Monks to  approximately 9,000 in 33 countries, although its market
capitalisation has halved to £1.3 billion ($1.7 billion), reflecting both the
falls in global stock markets and the delay in issuing our 2021 financial
results. S(4)Capital achieved £ and $ "unicorn" status within 18 months of
its re-listing and would rank in the FTSE 200 by market capitalisation, if it
had a premium listing.

 

Our new Group Chief Financial Officer, Mary Basterfield, who has extensive
media, agency and digital experience, is focussed, apart from on our entire
business, on trying to ensure that any audit delay does not occur again. At
Board level, we will be adding a Non-Executive Director as Chairman of the
Audit Committee shortly. At the Company level, we have already added or will
add further financial control, treasury, compliance, risk and governance and
internal audit resources. Finally, at the Content practice level, which is
where the major delay issues arose around IFRS 15, in particular, we have
already strengthened the control, pricing and estimating functions.

 

Despite forecasts for 2022 global GDP growth continuing to decline from a high
of 5-6% to now under 3% and forecasts for 2022 digital advertising being
reduced from 15-20% to 10-15%, client activity remains strong. There are
significant macro-economic concerns around the impact of a perfect storm of
the withdrawal of the Covid fiscal and monetary stimulus, higher interest
rates, inflation, the war in Ukraine and the impact of extended Chinese
lockdowns. Whilst the War has affected economic activity in Central and
Eastern Europe and the Chinese Government's zero-Covid policy slowed the
economy in China and affected morale, the only noticeable impact so far on
clients is a greater emphasis on media mix modelling, measurement, activation
and results. This tends to favour digitally-focussed businesses like ours,
which focus on so called "lower funnel" work, which is understandably results
orientated. We remain comfortable with market guidance of 25% like-for- like
gross profit/net revenue growth for 2022 and target a steady improvement in
Operational EBITDA margins and Operational EBITDA significantly skewed to the
second half of the year.

 

As in previous years, the Company continues to invest heavily in talent or
human capital, in order to attract, develop and grow the human fabric of the
Company essential to achieving high organic growth rates. The S(4) Fellowship
Programme aimed at recruiting interns from the historically black universities
and the S(4)Women Leadership Programme with UC Berkeley have both completed
their second programmes, representing good examples of our diversity, equity
and inclusion initiatives.  In addition, the S(4) Scholars Programme, aimed
specifically at recruiting High School students is now live.

 

We are confident that we will be able to deliver sector leading, high double
digit like-for-like revenue and gross profit growth for 2022 and target a
steady improvement in operational earnings before interest, taxes,
depreciation and amortisation margin. We are also confident that we will
achieve our three-year plan for 2022-24 (as well as the previous three
three-year plans), which calls for a doubling of the Company organically, at
both top line and Operational EBITDA levels.

 

We always knew that our people, being digital natives, would adapt
effortlessly and productively to working from home and, as a result, we are
further developing a hybrid office model, which accommodates those of our
people who want to work more from home and who want to commute more flexibly
and provides spaces for working, interacting with colleagues and interacting
with clients. We have terminated a number of office leases, which have enabled
us to integrate our operations even faster than we originally thought in the
cities in which we operate.

The Company's cash flow remains good and our Company will continue to examine
strategic combinations, but only issuing equity at a level of 425p or higher,
the share price before the impact of the delay in our 2021 results.

 

Having achieved brand awareness and brand trial over our first four years, our
focus remains on broadening and deepening existing client relationships and
conversion at scale. Our eight biggest clients will now achieve "whopper"
status in a full year (i.e. over $20 million of revenue) compared with five
this time last year, but we still search for bigger and deeper relationships,
and a further nineteen clients, eight in technology and telecommunications
have been identified as having "whopper" potential over the three year plan
period 2022-24. Our objective remains 20 in total.  Since our last AGM we
have seen the expansion of our major client relationships with additional
assignments and geographies at brands including Google, Meta, Amazon, Paypal,
HP, Netflix, Procter & Gamble, Mondelez and BMW. We also saw significant
new business with engagements from new clients including Brewdog, Tiktok,
Diageo, Booking.com, Allianz, Miele, Instacart, Pearson, Dropbox, Canva,
Constellation Brands, M1 and the US media account of a large FMCG company,
which will become a leading account in 2023.

 

Geographically, we have added offices in Colombia and Uruguay since the last
AGM and we do not believe that we will have to add more than four or five
markets to our existing tally of 33 countries. We continue to examine our
needs for deeper strategic insight and adding technology services, along with
increasing focus on the importance of first party data and the walled gardens,
following the death of the cookie, which we are already well positioned for.

 

Finally, I would like to formally welcome Mary Basterfield as our new Group
Chief Financial Officer and Director to her first AGM and to thank both Peter
Rademaker and Peter Kim for their hard work and success as Directors, as they
choose not to seek re-election this year. We will now have a Board of 14
directors, 8 non-executive, four women, four men and six executive directors
and plan to add a new Non-Executive Director to be Chairman of the Audit
Committee shortly.

As the AGM is a hybrid AGM, shareowners will have received joining
instructions for electronic access via the Lumi AGM app, including details of
voting and Q&A functions. Details are set out in the Notice of Annual
General Meeting.

Guest access to the AGM without voting or a Q&A facility will be available
as a webcast via the following link:

https://webcasting.brrmedia.co.uk/broadcast/60b7c1d9cc74370299db7c8c
(https://webcasting.brrmedia.co.uk/broadcast/60b7c1d9cc74370299db7c8c)

 

Enquiries

 

 S(4)Capital plc                              Tel: +44 (0)20 3793 0003
 Sir Martin Sorrell, Executive Chairman
 Powerscourt (PR adviser to S(4)Capital plc)  Tel: +44 (0)778 670 2526
 Robin O'Kelly
 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, 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, 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.
S(4)Capital estimates that in 2021 digital accounted for over 60% (for the
first time) or $400-450 billion of total global advertising spend of $680-700
billion (excluding over $500 billion of trade promotion marketing, the primary
target of the Amazon advertising platform) and projects that by 2025 total
global advertising spend will expand to $975 billion and digital's share will
grow to approximately 70%, accelerated by the impact of covid-19. In fact 97%
of the projected growth in Advertising spend between 2021 and 2025 will come
from Digital. Global spend on Digital Transformation (the primary addressable
market for Technology Services) is growing at 21% CAGR and projected to be
$879bn by 2025.

 

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 combined with more than 25 companies
across Content, Data&digital media and Technology services. For a full
list, please see the S(4)Capitalwebsite.

 

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, Mary Basterfield and Scott
Spirit 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 and
Miles Young.

 

The Company now has around 9,000 people in 33 countries across the Americas,
Europe, the Middle East and Africa and Asia-Pacific and a current market
capitalisation of approximately £1.3 billion (c.$1.7 billion) and would rank
in the FTSE 200. It 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 £10.8 billion, dropping into third place behind both
Omnicom and Publicis for the first time ever. Prior to that Sir Martin was
Group Financial Director of Saatchi & Saatchi Company Plc for nine years.

 

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