REG - S4 Capital PLC - S4 Capital Q1 2025 Trading Update
Thu 07:01
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RNS Number : 7839H S4 Capital PLC 08 May 2025
8 May 2025
S(4)Capital plc
First Quarter Trading Update
("S(4)Capital", "the Company" or "the Group")
First quarter like-for-like(3) net revenue(2) down 11.4%, reported down 12.2%,
reflecting continuing technology client caution and headwind from one key
client in Technology Services
Constant currency net revenue and operational EBITDA(1,7) full year targets
unchanged and expected to be broadly similar to 2024, with greater second half
weighting than last year and usual, reflecting the timing of revenue from
significant new business
Net debt(6) £144.8 million at first quarter end versus £206.0 million at
first quarter end last year and target for the end of 2025 remains a range of
£100-140 million
Continued focus on larger, scaled relationships, pricing, billability and
margin improvement
Tariffs create short-term uncertainty, but opportunity for long-term
technology adoption, particularly AI, to implement greater efficiency in a
slower growth world
Key financials
£ millions Three months ended Three months ended change Reported change change
Like-for-like(3) Pro-forma(4)
31 March 2025 31 March 2024
Billings(5) 463.3 430.1 7.7% 8.6% 8.6%
Revenue
Marketing Services 162.6 185.9 (12.5%) (11.3%) (11.3%)
Technology Services 15.5 24.3 (36.2%) (36.5%) (36.5%)
Total 178.1 210.2 (15.3%) (14.3%) (14.3%)
Net revenue
Marketing Services 148.3 162.2 (8.6%) (7.5%) (7.5%)
Technology Services 15.4 24.2 (36.4%) (36.9%) (36.9%)
Total 163.7 186.4 (12.2%) (11.4%) (11.4%)
Net revenue by Geography
Americas 130.5 146.7 (11.0%) (10.5%) (10.5%)
EMEA 24.3 29.4 (17.3%) (15.9%) (15.9%)
Asia-Pacific 8.9 10.3 (13.6%) (11.0%) (11.0%)
Total 163.7 186.4 (12.2%) (11.4%) (11.4%)
Sir Martin Sorrell, Executive Chairman of S(4)Capital Plc said:
"As indicated previously, trading in the first quarter reflects the continuing
impact of, to say the least, volatile global macroeconomic conditions. As a
result, clients remain generally cautious, with technology clients, which
account for almost half our revenue, in particular, continuing to prioritise
capital expenditure on AI over operating expenditure, such as marketing. As
anticipated, our Technology Services Practice continued to be affected by a
reduction in one of our larger relationships. Our liquidity and cashflow was
much improved compared with the first quarter of 2024 and net debt was at a
similar level to the year-end. This was despite the first quarter, as usual,
being the lowest quarter of activity and reflecting our focus on working
capital and cost control.
The global macroeconomic environment has become even more challenging in 2025.
Assessing the impact of US imposed tariffs has been added to the three
principal risks around US/China relations, Russia/Ukraine and
Iran/Middle-East. Clients, therefore, are likely to remain cautious. However,
once the levels of tariffs are negotiated and impacts assessed, we believe
clients will become more selective about the geographies in which they operate
in order to find growth and focused on implementing technologies, such as, but
not only AI, to drive efficiency in a slower growth, higher inflation and
higher interest rate environment. This may be the time when AI-adoption
accelerates at scale. With that said, we expect an improved performance in
the second half of the year, aided by the phasing of revenue from new
business. We will continue to focus on our cost base and will take further
action to support profitability and expect net revenue and operational EBITDA
to be broadly similar to 2024, on a constant currency basis, with a further
reduction in net debt by year end to the range of £100-140 million.
We continue to focus on our larger, scaled relationships with leading
enterprise clients and our drive for margin improvement
through greater efficiency, utilisation, billability and pricing. We remain
confident in our strategy, business model and talent,
which together with scaled client relationships position us well for growth in
the longer term. We continue to capitalise on our
prominent AI positioning and are seeing multiple initial AI-related
assignments and new business opportunities."
Notes (in this document):
1. Operational EBITDA is operating profit or loss adjusted for
acquisition related expenses, non-recurring items (primarily acquisition
payments tied to continued employment, amortisation and impairment of business
combination intangible assets and restructuring and other one-off expenses)
and recurring items (share-based payments) and includes right-of-use assets
depreciation. It is a non-GAAP measure management uses to assess the
underlying business performance. Operational EBITDA margin is operational
EBITDA as a percentage of net revenue.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2024 being
restated to show the unaudited numbers for the previous year of the existing
and acquired businesses consolidated for the same months as in 2025, applying
currency rates as used in 2025.
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. Billings is gross billings to clients including pass through costs.
6. Net debt excludes lease liabilities.
7. This is a target and not a profit forecast.
Q1 Trading Update
The macroeconomic environment in the first quarter remained challenging with
significant volatility and uncertainty in global economic policy. Clients have
remained cautious and we also saw a reduction in activity in one key
Technology Services client, as expected. Billings were £463.3 million up 8.6%
like-for-like and 7.7% reported, reflecting stronger digital media planning
and buying activity. Like-for-like revenue was down 14.3%, down 15.3% reported
to £178.1 million. Like-for-like net revenue declined 11.4%, or 12.2% on a
reported basis to £163.7 million.
Q1 operational EBITDA was in line with our expectations, reflecting the
benefit of cost actions taken in reaction to lower activity levels. The
number of Monks in the Company was around 7,000 at the end of the first
quarter, down 8% compared to circa 7,600 at the end of the Q1 2024 and 2%
lower than our year end figure of about 7,150, reflecting the continued focus
on pricing and billability. We maintain a disciplined approach to managing our
cost base and continue our drive for margin improvement through greater
efficiency, utilisation, billability and pricing.
Performance by Practice
Marketing Services like-for-like net revenue for the first quarter was down
7.5% and 8.6% reported to £148.3 million, reflecting ongoing caution and
lower activity with some of our larger technology clients, who continued to
prioritise spend on building AI capacity. Marketing Services continues to
focus on efficiency, utilisation, billability and pricing.
Technology Services' first quarter like-for-like net revenue was down 36.9%
and 36.4% reported to £15.4 million primarily reflecting lower activity with
one key client and as well as longer sales cycles for new business.
Performance by Geography
The Americas like-for-like net revenue, which accounts for 80% of the
Company's total, was down 10.5%, but with strong growth in Latin America.
EMEA, accounting for 15%, was down 15.9%, with lower activity in the UK,
Germany and the Netherlands. Asia Pacific, accounting for the remaining 5%,
was down 11.0%, affected by Australia and Singapore.
New business and AI
We are seeing our AI initiatives improve visualisation and copywriting
productivity, deliver considerably more effective and economic
hyper-personalisation (better targeted content at greater scale), delivering
more automated and integrated media planning and buying, improving general
client and agency efficiency and democratising knowledge. Monks.Flow is our AI
product solution that automates marketing workflows and we are continuing to
add applications and expand its capabilities. Our end-to-end suite of
Monks.Flow products orchestrates and helps enable our clients to more easily
implement AI solutions, particularly in visualisation and copywriting, in
hyper-personalisation at scale, in real time focus groups and linking media
planning and buying. We are now producing high quality commercials using AI
technologies such Runway, Flux, Omniverse (Nvidia), Substance (Adobe) and
Unreal that literally take hours and days to produce at significantly lower
cost rather than traditional production techniques, which take weeks and
months at significantly greater cost. The quality continues to improve in
real time and clients that are exposed to the results of these AI technologies
are very excited about their implementation and the commercial impact on their
marketing budgets and return on investment.
We are seeing significant opportunities for new business, particularly driven
by our AI tools and capability. New business wins in the first quarter include
new or broadened relationships with Asana, Amplifon, Samsung, Square, NCS and
Opella. We also continue to expand many of our existing relationships, in
particular GM and Amazon, which will ramp up significantly in the second half
of the year. In April we won a large "Real Time Brands" assignment with an
existing TMT "whopper", which will also contribute to our second half
performance and over time more than double in size. We continue to win
multiple exploratory assignments, as clients experiment and explore AI
applications and develop AI use cases. AI capability is becoming more central
to the agency's way of working and new business efforts. In this regard the
Company's early adoption of AI and proactive approach to staff training on AI
is beginning to pay off.
Our new Go-To-Market propositions, Orchestration Partner, Real Time Brands,
Glass Box Media and Digital Transformation are all starting to resonate
strongly with clients. These are built around hyper-personalisation at scale,
social media, brand strategy, transparent media buying and planning and the
leveraging of technology.
Dividend
On the 23 March 2025 the Board proposed a final dividend of 1p per share,
amounting to £6.1 million, subject to shareowner approval. This will be paid
on 10 July 2025 to all shareowners on the register as at 6 June 2025.
Balance Sheet
Net debt(6) ended the first quarter at £144.8 million, or 1.7x net debt/12
month pro-forma operational EBITDA. This compares to £206.0 million at the
end of the first quarter last year. The trailing 12 months pro-forma EBITDA
was £85.5 million. We expect net debt to reduce as we progress through the
second half of 2025 and maintain our target of £100 to £140 million for year
end. The balance sheet has sufficient liquidity and long-dated debt maturities
to facilitate growth and our key covenant, being net debt not to exceed 4.5x
the 12 month pro-forma EBITDA. Our RCF of £100 million remains undrawn.
Board
The Company was pleased to announce the appointment of Radhika Radhakrishnan
as Chief Financial Officer on 1 May 2025, succeeding Mary Basterfield. Radhika
was Global Chief Finance Officer of Wavemaker, one of WPPs media brands at
Group M, and at Bartle Bogle Hegarty (BBH), one of Publicis' creative
agencies. Prior to her time at BBH, she was Chief Finance Officer at 20th
Century Fox UK and Chief Financial Officer of Hachette Filipacchi UK, now
Hearst Magazines. Radhika qualified as a Chartered Accountant with Ernst
& Young London and is a Non-Executive Director of the University of
Cambridge Press and Assessment Board.
The Board unanimously thanks Mary for her hard work and commitment over the
last three years and for improving cost management, liquidity and the
financial processes of the company and wishes her every success in her future
career.
The Company was also pleased to announce the appointment of Nirvik Singh as an
independent Non-executive Director of S4 Capital plc on 1 May 2025. Nirvik
previously served as Global Chief Operating Officer and President
International of Grey Group, a WPP subsidiary, overseeing operations across
Europe, Latin America, the Middle East, Africa and Asia-Pacific. He has also
led multiple acquisitions in China, India, South Korea, the UAE, the UK and
South Africa, covering sectors such as e-commerce, data analytics and
marketing technology. Beginning his career at Lipton India, a Unilever
company, Nirvik transitioned into advertising, becoming CEO of Grey Group
India at 33 and later leading its expansion into South Asia. In 2010 he
relocated to Singapore, when he was appointed Chairman and CEO of Grey
Asia-Pacific, before assuming his global role in 2019. He is currently
Chairman of Hype Luxury, a luxury mobility aggregator, Non-executive Director
of Shoppers Stop, a $800m market capitalisation retail company, Non-executive
Director and member of the Nomination and Remuneration, and Risk Committees of
Gulf Oil India and an Advisor to Charge Europa, a Polish EV charging company.
Both Radhika and Nirvik will stand for election to the Board at the Annual
General Meeting to be held on 4 June 2025.
ESG
We remain committed to the pillars of our ESG strategy: people fulfilment, our
responsibility to the world and one brand. We continue to focus on improving
our external reporting, our reporting tools and governance to help us move
towards increased transparency and effective reporting and to comply with
future global regulatory requirements.
Summary and outlook
We maintain our targets for the year.
For the Company as a whole, despite the wider market uncertainty and
significant volatility in global economic policy, particularly as a result of
the US-imposed tariffs, we continue to target net revenue and operational
EBITDA(7) to be broadly similar to 2024 on a constant currency basis. We will
continue to focus on our cost base and will take further action to support
profitability, if necessary. As expected the comparatives for the first half
continue to be difficult, in part due to the residual effect of the reduction
in revenue from one key client in Technology Services. We expect an improved
performance in the second half of the year and a greater second half weighting
than in the prior year, enhanced by the phasing of new business revenue,
including wins already secured.
Our targeted range for the year end net debt remains £100 million to £140
million. We target medium term financial leverage at the lower end of our
previous range of around 1.5 times operational EBITDA. Over the longer term we
continue to expect our growth to outperform our markets and operational EBITDA
margins to return to historic levels of around 20%(7).
The strategy of S4Capital remains the same. The Company's unitary, purely
digital transformation model, based on first-party data fuelling 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.
We continue to streamline and integrate our businesses, we have rebranded to
Monks and are focusing all our current capabilities into two Practices:
Marketing Services and Technology Services. Our tagline 'faster, better,
cheaper and more' or 'speed, quality, value and more' and a unitary structure
both appeal strongly, even more so in challenging economic times.
Webcast and conference call
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_Q125
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
08:00 EDT/13:00 BST webcast (watch only) and conference call (for Q&A):
Webcast: https://brrmedia.news/SFOR_Q125_US
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Enquiries to:
S(4)Capital plc +44 (0)20 3793 0003
Sir Martin Sorrell (Executive Chairman)
Scott Spirit (Chief Growth Officer)
Sodali & Co (PR Advisor) +44 (0)7970 246 725
Elly Williamson/ Pete Lambie
About S(4)Capital
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 two synchronised Practices: Marketing services and
Technology services, along with an emphasis on 'faster, better, cheaper, more'
execution in an always-on consumer-led environment, with a unitary structure.
The Company now has approximately 7,000 people in 33 countries with
approximately 80% of net revenue across the Americas, 15% across Europe, the
Middle East and Africa and 5% across Asia-Pacific. The longer-term objective
is a geographic split of 60%:20%:20%. Marketing Services accounted for
approximately 90% of net revenue, and Technology Services 10%. The longer term
objective is a practice split of 75%: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.
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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