- Reported Net Revenue: GBP376 million, down 16% (14% like-for-like).
- Operational EBITDA: GBP30 million, down 18% reported (8% like-for-like).
- Operational EBITDA Margin: 8%, in line with the first half of last year.
- Adjusted Operating Profit: GBP25 million.
- Adjusted Earnings Per Share: 1.2p.
- Net Debt: GBP183 million, leverage at 2.2 times.
- Revenue: GBP423 million, down 18% reported (16% like-for-like).
- Operating Expenses: GBP343 million, down 16% reported (14% like-for-like).
- CapEx: GBP4 million, mainly for IT infrastructure.
- Free Cash Inflow: GBP3 million.
- Content Net Revenue: GBP234 million, down 9% like-for-like.
- Data & Digital Media Net Revenue: GBP96 million, down 8% like-for-like.
- Technology Services Net Revenue: GBP46 million, down 37% like-for-like.
- Americas Net Revenue: Down 15%, strong growth in Latin America.
- EMEA Net Revenue: Down 8%.
- Asia Pacific Net Revenue: Down 9%.
- Content Operational EBITDA: GBP16 million, margin grew 450 basis points to 6.9%.
- Data & Digital Media Operational EBITDA: GBP18 million, margin improved by 330 basis points to 18.5%.
- Technology Services Operational EBITDA: GBP6 million.
- Central Costs: GBP10 million, down 27%.
- Term Loan Maturity: August 2028.
- Revolving Credit Facility Maturity: August 2026.
- Full Year Profit Guidance: Operational EBITDA similar to 2023 on a like-for-like basis.
- Full Year Net Debt Guidance: GBP150 million to GBP190 million.
Release Date: September 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- S4 Capital PLC (SCPPF, Financial) maintained its full-year profit guidance, expecting operational EBITDA to be broadly similar to 2023 on a like-for-like basis.
- The company achieved significant margin improvements in content and Data & Digital Media, with operational EBITDA margins increasing by 450 and 330 basis points, respectively.
- S4 Capital PLC (SCPPF) continues to exercise tight cost discipline, reducing headcount by 12% year-on-year and maintaining a healthy balance sheet with sufficient liquidity.
- The company is capitalizing on its prominent AI positioning, which has been key to recent new business wins such as General Motors.
- S4 Capital PLC (SCPPF) has streamlined its capabilities into two practices, marketing services and technology services, to better align with market demands and improve operational efficiency.
Negative Points
- Reported net revenue for the half year was down 16% to GBP376 million, reflecting global macroeconomic uncertainty and high interest rates.
- Operational EBITDA decreased by 18% on a reported basis, with significant declines in Technology Services due to lower transformation activity from key clients.
- The Americas, which account for 78% of the company's revenue mix, saw a 15% decline in net revenue, impacted by lower spend from tech clients.
- The outlook for Technology Services remains challenging, with anticipated lower revenue and EBITDA due to reduced activity with key clients and longer sales cycles for new business.
- S4 Capital PLC (SCPPF) expects overall like-for-like net revenue to be down year-on-year to a greater extent than previously assumed, driven by continued market uncertainty and cautious client spending.
Q & A Highlights
Q: Can you quantify the impact of the specific drag on technology services and when we might see stabilization?
A: The impact on technology services started from the beginning of this year, with a noticeable decline in Q4 last year. The market remains tough, but we expect it to stabilize as we move through the year. (Martin Sorrell, Executive Chairman of the Board; Scott Spirit, Chief Growth Officer)
Q: Given the 12% reduction in headcount, are there further opportunities to reduce headcount due to automation benefits from Monks.Flow?
A: We are simplifying the organization and integrating tools to become more efficient. We expect personnel costs to continue decreasing as we streamline processes. (Jean-Benoit Berty, Chief Operating Officer)
Q: When should we expect the impact from the GM win and new AI mandates to reflect in revenues?
A: The GM relationship started in July and will ramp up through Q3 and Q4, with full impact expected next year. AI is powering existing advertising, making it more effective and efficient. (Martin Sorrell, Executive Chairman of the Board; Scott Spirit, Chief Growth Officer)
Q: How confident are you in achieving margin expansion despite lower revenue guidance?
A: We are actively managing costs and expect further cost reductions in the second half. Personnel costs will be lower in the second half compared to both the first half and the second half of 2023. (Mary Basterfield, Group Chief Financial Officer)
Q: Can you provide more details on the cost savings planned for the second half?
A: We have already reduced headcount by 12% year-on-year and will continue to manage the cost base actively. Personnel costs will be lower in the second half, and we expect further reductions in headcount by year-end. (Mary Basterfield, Group Chief Financial Officer)
Q: What are the price points for AI work compared to traditional work, and how does it affect margins?
A: AI is not sold separately but powers existing services, offering clients more output for their budgets. There are margin opportunities, and we are moving towards more output-based and SaaS-style commercial models. (Scott Spirit, Chief Growth Officer)
Q: How significant are the cost savings from AI, and will it require more AI-focused talent?
A: AI allows for significant efficiency gains, particularly in visualization and copywriting, reducing the need for human labor. However, personalization at scale may require more headcount. (Martin Sorrell, Executive Chairman of the Board)
Q: What is the outlook for technology services given the reduced client spend?
A: The market remains challenging with longer sales cycles and continued caution among tech clients. We expect lower revenue and EBITDA for technology services this year. (Mary Basterfield, Group Chief Financial Officer)
Q: How are you managing the balance between net revenue and staff costs?
A: We are focusing on aligning net revenue with staff costs through organizational simplification and integrated tools. The goal is to improve efficiency and reduce personnel costs as a percentage of net revenue. (Jean-Benoit Berty, Chief Operating Officer)
Q: What are the long-term prospects for digital and technology services?
A: While the market is currently tough, the long-term prospects remain positive as digital transformation continues to be essential. We expect growth to resume once market conditions stabilize. (Scott Spirit, Chief Growth Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
