TIDMSFOR
RNS Number : 8626S
S4 Capital PLC
09 November 2023
RNS Number:
S(4) Capital PLC
9 November 2023
S(4) Capital plc
Third Quarter Trading Update
("S(4) Capital", "the Company" or "the Group")
Third quarter reported net revenue(2) down 15.4%,
like-for-like(3) down 10.0% reflecting lower activity in Content
and Data&Digital media
Two and three year third quarter like-for-like net revenue
stacks 19.3% and 61.6%
Year to date reported net revenue growth of 5.1%, down 0.3%
like-for-like
Two and three year nine month like-for-like net revenue stacks
28.1% and 74.7%
Continued client conversion at scale, with year to date
like-for-like revenue growth from top 20 clients of 2.9% and top 50
clients of 4.6%
Full year like-for-like net revenue expected below prior year,
with an operational EBITDA(1) margin now around 10-11%(8)
Free cash flow in 2024 will be available for buybacks and
dividends with no further merger payments scheduled
Key financials
GBP millions Three months Three months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 Sep 2023 30 Sep 2022
===================== ============= ============= ========== ================== ==============
Billings(5) 450.3 484.2 (7.0%) (1.4%) (1.4%)
Revenue
Content 160.9 208.2 (22.7%) (18.2%) (18.2%)
Data&Digital media 49.6 58.0 (14.5%) (8.7%) (8.7%)
Technology services 35.4 33.9 4.4% 12.4% 12.4%
--------------------- ------------- ------------- ---------- ------------------ --------------
Total 245.9 300.1 (18.1%) (13.0%) (13.0%)
Net revenue
Content 127.2 159.7 (20.4%) (15.6%) (15.6%)
Data&Digital media 48.9 57.0 (14.2%) (8.4%) (8.4%)
Technology services 35.4 33.2 6.6% 14.9% 14.9%
--------------------- ------------- ------------- ---------- ------------------ --------------
Total 211.5 249.9 (15.4%) (10.0%) (10.0%)
Net revenue by
Geography(7)
Americas 167.6 19 6.1 (14.5%) (8.3%) (8.3%)
EMEA 30.4 3 7.5 (18.9%) (18.5%) (18.5%)
Asia-Pacific 13.5 16. 3 (17.2%) (9.4%) (9.4%)
--------------------- ------------- ------------- ---------- ------------------ --------------
Total 211.5 249.9 (15.4%) (10.0%) (10.0%)
GBP millions Nine months Nine months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 Sep 202 30 Sep 2022
3
===================== ============ ============= ========== ================== ==============
Billings(5) 1,375.6 1,264.1 8.8% 6.2% 6.2%
Revenue
Content 495.7 527.2 (6.0%) (9.3%) (9.3%)
Data&Digital media 157.7 160.3 (1.6%) (1.5%) (1.5%)
Technology services 109.6 59.0 85.8% 36.0% 36.0%
--------------------- ------------ ------------- ---------- ------------------ --------------
Total 763.0 746.5 2.2% (3.1%) (3.1%)
Net revenue
Content 392.0 409.9 (4.4%) (7.2%) (7.2%)
Data&Digital media 155.5 157.7 (1.4%) (1.3%) (1.3%)
Technology services 109.5 57.6 90.1% 38.6% 38.6%
--------------------- ------------ ------------- ---------- ------------------ --------------
Total 657.0 625.2 5.1% (0.3%) (0.3%)
Net revenue by
Geography(7)
Americas 521.3 480.6 8.5% 1.4% 1.4%
EMEA 96.5 100.8 (4.3%) (5.7%) (5.7%)
Asia-Pacific 39.2 43.8 (10.5%) (7.8%) (7.8%)
--------------------- ------------ ------------- ---------- ------------------ --------------
Total 657.0 625.2 5.1% (0.3%) (0.3%)
Sir Martin Sorrell, Executive Chairman of S (4) Capital Plc
said:
"Trading in the third quarter was difficult, reflecting the
global macroeconomic conditions with continued client caution to
commit and extended sales cycles, particularly for larger projects
and to some extent clients in the Technology sector. Despite the
slowdown in Q3, we continue to see year to date growth from our top
clients with like-for-like revenue growth at our top 20 clients up
2.9% and at the top 50 up 4.6%. We expect, as usual, Q4
profitability to be the strongest quarter of the year - stimulated
by the usual seasonal levels of client activity and the Artificial
Intelligence initiatives and use cases we are developing with our
clients, along with the actions taken on cost management. We remain
confident our strategy, business model and talent, together with
scaled client relationships position us well for above average
growth in the longer term, with an emphasis on deploying free cash
flow to dividends and share buybacks, especially as in 2024 will
have no further merger payments."
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. 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. Billings is gross billings to client including pass through costs.
6. Net debt comprises cash minus gross bank loans (excluding transaction costs).
7. The prior period geographical split of net revenue has been
re-presented to be consistent with the internal reporting provided
to the Group's Board of Directors in the current period.
8. This is a target and not a profit forecast.
Q3 Trading Update
The challenging trading conditions we saw in the first half have
intensified in Q3. Billings were GBP450.3 million down 7.0%
reported and 1.4% like-for-like. Revenue was down 18.1% reported to
GBP245.9 million, down 13.0% like-for-like. Net revenue declined
15.4% on a reported basis, or 10.0% like-for-like. Reported revenue
and net revenue were impacted by FX, in particular the USD to GBP.
Two year and three year third quarter like-for-like net revenue
stacks were 19.3% and 61.6%.
Q3 earnings before interest, tax, depreciation and amortisation
(EBITDA), both on a reported basis and like-for-like principally re
ect lower activity levels in Content and Data&Digital media. We
have continued to take action on the cost base, particularly in
Content and have seen a significant reduction in headcount across
the Company.
The number of people in the rm was 8,187 at the end of the third
quarter down 4% compared to 8,551 at the end of the first half, and
9% lower than our June 2022 figure of 9,041, reflecting the
progress that has been made on aligning our cost base to the demand
we are seeing from our clients. Further actions are being taken in
Q4, with significant focus on managing our cost base and driving
efficiency across the Company.
Performance by Practice
Reported Content practice revenue was down 22.7% in the third
quarter to GBP160.9 million, with like-for-like down 18.2% whilst
there was some growth across the scaled and managed clients overall
demand was lower particularly in the newer regional and local
clients and the technology sector. Third quarter net revenue was
down 20.4% to GBP127.2 million reported and 15.6% like-for-like.
Two year and three year like-for-like net revenue stacks are at
12.5% and 53.7% for the quarter.
Year-to-date the Content practice reported revenue was down 6.0%
to GBP495.7 million and 9.3% like-for-like. Content reported net
revenue was down 4.4% to GBP392.0 million and 7.2% like-for-like.
Year to date like-for-like net revenue two year and three year
stacks are at 19.5% and 66.5%.
We have made changes to the leadership structure of the Content
practice, which includes a new co-CEO Bruno Lambertini, and new
leadership in several key markets including APAC to accelerate
growth from local and regional clients.
Data&Digital media practice third quarter reported revenue
was down 14.5% to GBP49.6 million and 8.7% like-for-like reflecting
lower activity particularly in the activation and performance
business lines. Third quarter reported net revenue was down 14.2%
to GBP48.9 million and down 8.4% like-for-like. Two and three year
third quarter like-for-like net revenue stacks are 6.8% and
51.3%.
Year-to-date Data&Digital media practice reported revenue
was down 1.6% to GBP157.7 million and 1.5% like-for-like. Net
revenue was down 1.4% to GBP155.5 million and 1.3% like-for-like.
Year to date two and three year Data&Digital media
like-for-like net revenue stacks are at 18.8% and 64.6%.
Technology services practice third quarter reported revenue was
up 4.4% to GBP35.4 million with lower growth than the first half
reflecting timing on major client projects weighted to the first
six months. Revenue was up 12.4% like-for-like. Third quarter
reported net revenue was up 6.6% to GBP35.4 million, up 14.9%
like-for-like. Two year third quarter like-for-like net revenue
stacks are industry leading at 88.7%.
Year-to-date Technology services reported revenue was up 85.8%
to GBP109.6 million, like-for-like up 36.0%. Reported net revenue
was up 90.1% to GBP109.5 million, with like-for-like up 38.6%. Year
to date two year like-for-like net revenue stacks are industry
leading at 118.6%.
On October 31(st) Technology services practice combined with
Formula Consultants, a leading enterprise software supplier.
Formula Consultants provides mission-critical solutions that keep
core mainframe infrastructure running for major enterprises and
large public sector clients around the World, including United
Airlines, Arconic, Lloyds, Carnival Cruise Line, the IRS, and over
twenty more. This combination enables the Company to cross-sell our
consulting, digital transformation, and product engineering
capabilities into a portfolio of blue-chip brands. Formula
Consultants generated revenues of around $2.5m in their last
financial year, and the combination values the company at up to
$2.5m in an all cash deal based on performance to the end of 2024.
Whilst large scale M&A is not in our current plans we will
continue to look for opportunities like Formula Consultants to
boost our capability set and opportunities for growth.
Performance by Geography
The Americas, our largest market is seeing the impact of the
slowdown in activity and the impact of FX with third quarter
reported net revenue down 14.5% to GBP167.6 million and 8.3%
like-for-like. Year-to-date, the Americas reported net revenue was
up 8.5% to GBP521.3 million and 1.4% like-for- like.
Europe, the Middle East and Africa also saw a reduction in
demand, with reported net revenue down 18.9% to GBP30.4 million and
like-for-like 18.5%. Year-to-date reported net revenue was down
4.3% to GBP96.5 million and like-for-like 5.7%.
Asia Paci c, our smallest region also saw lower activity and FX
impact, with reported net revenue down 17.2% to GBP13.5 million in
the third quarter and 9.4% like-for-like. Year-to-date reported net
revenue declined 10.5% to GBP39.2 million and like-for-like was
down 7.8%.
Balance Sheet
Net debt ended the third quarter at GBP185 million, or 1.7x net
debt/12 month proforma operational EBITDA. The trailing 12 months
proforma EBITDA was GBP107.2 million. 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 proforma EBITDA.
Client Development and Momentum
Our stated 'whopper' or portfolio client strategy of building
broad scaled relationships with leading enterprise clients
continues to be the focus. Year to date revenues from our top 20
clients grew 2.9% on a like-for-like basis and the average size of
our top 20 clients increased approximately 10% from GBP20.3 million
to GBP22.9 million. Our top 50 client cohort delivered year to date
revenue growth of 4.6% on a like-for-like basis and their average
size increased also by approximately 10% from GBP9.8 million to
GBP11.1 million. We will likely have eight "whoppers" this year,
with a further two almost reaching $20 million of revenue in
2023.
People and ESG
Our talented people have responded positively to the challenging
trading conditions and our drive for efficiency. We have continued
to make progress in the three areas of our ESG strategy: zero
impact workspaces, sustainable work, and diversity, equity and
inclusion (DE&I).
Current Trading
Given slower than expected trading in Q3 and current client
activity levels, we expect that like-for-like net revenue for 2023
will be below the prior year, with an operational EBITDA margin now
of around 10-11%(8) .
As in recent years, we continue to expect the full year profits
to be heavily Q4 weighted, reflecting our seasonality and
anticipated client activity, along with the impact of cost actions
already taken.
Our net debt is expected to rise in Q4 reflecting further
payments for prior year combinations, after which virtually all the
existing contingent consideration due will have been satisfied. We
expect to end the year around the top of our previously guided
range of GBP180-220 million. We aim for financial leverage of
around 1.5 times operational EBITDA over the medium term. Over the
longer term we continue to expect our growth to outperform our
addressable markets and operational EBITDA margins to return to
historic levels of 20%+.
Webcast and conference call
A video webcast and conference call covering the trading update
will be held today at 09.00 GMT, followed by another webcast and
call at 08.00 EST / 13.00 GMT.
09:00 GMT webcast (watch only):
Webcast: https://brrmedia.news/SFOR_Q323
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Confirmation code: Quote 'S (4) Capital Results' when prompted
by operator
08:00 E S T / 13:00 GMT webcast (watch only):
Webcast: https://brrmedia.news/SFOR_Q323US
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Confirmation code: Quote 'S (4) Capital Results US' when
prompted by 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/ Pete Lambie
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, 2 00 people in 32 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%. Content currently accounts for approximately 6 0 % of
net revenue, Data&Digital Media 2 5 % and Technology Services 1
5 %. 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
website, is incorporated into, or forms part of, this announcement
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END
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