REG - S4 Capital PLC - AGM Statement

S4 CapitalAnnouncement

09/06/2023 07:00

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RNS Number : 1814C  S4 Capital PLC  09 June 2023

9 June 2023

S4 Capital plc ("S(4)Capital" or "the Company")

AGM Statement

Like-for-like 2023 Net Revenue Growth guidance remains at 8-12% excluding
impact of "whopper" reduction (6-10% including impact)

 

S(4)Capital plc (SFOR.L), the tech-led, new age, new era digital advertising,
marketing and technology services company announces that at the Annual General
Meeting of the Company to be held at 1pm today, Sir Martin Sorrell, Executive
Chairman of the Company, will make the following statement:

"2022 was a very strong fifth growth year for S(4)Capital, posting
like-for-like net revenue growth of 26%, together with the completion of
combinations with XX Artists in the Content practice and TheoremOne in
Technology services, although like-for-like Operational Earnings Before
Interest, Depreciation and Amortisation (EBITDA) growth and Operational EBITDA
margins were not where we targeted or wanted them to be.

The pace of like-for-like net revenue growth in the first four months of 2023
has been more modest, reflecting the slowdown in the growth rates of our two
main addressable markets, with technology platforms around 6% and technology
services to 7-10%. We maintain like-for-like 2023 net revenue growth guidance
of 8-12% excluding impact of one "whopper" reduction and 6-10% including it,
combined with a targeted steady improvement in Operational EBITDA margins to
15-16%, and with Operational EBITDA significantly skewed to the second half
of the year, as usual.

We want to take this opportunity to remind everyone of our Company's
definitive and differentiated strategy, based on four core principles. We
say "our Company", as it is both your Company as our shareowners and our
Company, as your management team. We are still 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 is
where the growth is, even more so in a post Covid-19, 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 continue to expand
our capabilities in Technology services to fully provide digital marketing
transformation services for our clients. The unique, transformational shift to
Artificial Intelligence (AI)  and Artificial Generative Intelligence (AGI)
will only accelerate the pace of digital change and our mantra or strap line
has now been modified to "faster, better, cheaper and more" to reflect our
enhanced ability to accelerate copywriting and visualisation, to automate
media planning and buying, to use AI/AGI as a super tool in our operations, to
provide hyperpersonalisation at greater scale and provide data to all our
almost 9,000 Monks in 57 offices in 32 countries. We have also initiated a new
go-to-market positioning around "Now!", of which you will hear more shortly.
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.

Having built out our Content practice over the last five years around
MediaMonks and our Data&digital media practice around MightyHive over the
same period, we added eight companies in the last seven months of 2021 and the
first five months of 2022, before the last AGM and one in the last seven
months of 2022, before this one. The pace of merger activity has lessened
recently, as we focus on deeper integration of the mergers that have been
completed from the earliest point possible and extracting synergies,
particularly revenue synergies, to underline the importance of our unitary
structure.

Since our last AGM in June of 2022, our Company has maintained its number of
Monks at under 9,000, despite significant net revenue like-for-like growth, in
32 countries (having withdrawn from Russia). At the same time, we continued to
strengthen our financial control, treasury, compliance, risk and governance
and internal audit resources and hone our pricing and estimating functions.

Forecasts for 2023 and 2024 global GDP growth have been continuously reduced
to approximately 2.0-2.5%, reflecting central banks raising interest rates
sharply (but perhaps too tardily) and government-driven fiscal tightening. The
impact of these financial policies has been deepened by three geo-political
forces - the deterioration in US/China relations, particularly over the future
of Taiwan, the war in Ukraine and Russia's territorial ambitions and the
potential nuclear capability of Iran. For the foreseeable future the world is
going to be very different to the previous 50 or so years of globalisation.
Growth will be lower and inflation and interest rates higher than previously.

As a result, geographical growth will be more difficult to find and
fragmented, with focus on the higher growth Americas, the Middle-East and Asia
Pacific. And in that lower overall growth world, the pace of digital
transformation will intensify, facilitated by AI/AGI, as clients seek to
reduce costs and maintain margins.

Our two major addressable markets, digital advertising driven by the
technology platforms and digital transformation look set to grow this year by
7-10%. According to analysts, it will then re-accelerate in 2024 and 2025 to
10-15% in the key US media market, as digital advertising reaches 75% of
client budgets by 2025. This tends to favour digitally-focused businesses like
ours, which focus on so-called "lower funnel" or performance and activation
work and which is understandably performance and results orientated.

As in previous years, the Company continues to invest 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 historically black universities and
the S(4)Women Leadership Programme with UC Berkeley are both developing their
third 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 will be implemented.

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 those 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 strong and our Company will continue to
examine strategic combinations, but only issuing equity at share price levels
prevailing in early 2022. As indicated in our Q1 results, we will shortly
start to buy back the underlying shares in stock options issued each year to
management, which amounts to approximately 1% or 6,000,000 shares to counter
dilution.

Having achieved brand awareness and brand trial over our first five years,
our focus remains on broadening and deepening existing client relationships
and conversion at scale. Our ten biggest clients achieved "whopper" status in
2022 (i.e. over $20 million of revenue), compared with six this time last
year, but we still search for bigger and deeper relationships, and a further
fourteen clients, have been identified as having "whopper" potential over the
three year plan period 2023-25. 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. We also saw significant new business
with engagements from new clients including Philips, Diageo, Pepsico,
Booking.com, Tim Horton's, Pernod Ricard, TikTok, Bridgestone, Riot Games, M1,
Walmart and Microsoft.

Geographically, we remain present in 32 countries and we do not believe that
we will have to add more than four or five markets to our existing country
tally. 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
and change in IDFA, which we are already well positioned for."

As the AGM is a hybrid, 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://stream.brrmedia.co.uk/broadcast/6475ca27c0e842f4c6ea98db
(https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstream.brrmedia.co.uk%2Fbroadcast%2F6475ca27c0e842f4c6ea98db&data=05%7C01%7CMel.Folahan%40s4capital.com%7C2185211e9d084e55739108db673a5e52%7C374278e27c39425094b9abf7897ee986%7C0%7C0%7C638217272613336625%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=%2F4SSn2FfkwjKMbHxMP2fT%2BqHT0MTLX0hqCfMFAlCZyE%3D&reserved=0)

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)7970 246 725

Elly Williamson

 

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 £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.
Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi
Company Plc for nine years.

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