S4 Capital plc

Good afternoon, everybody. Good morning in New York or in the US. Welcome to our presentation on the third quarter results for 2024. On my left is Scott Spirit. On his left is Jean-Benoît Berti. And on my right is Mary Bastapil. We have five items to go through. The first is a trading update by Mary. Second is a market momentum update. analysis and client analysis and third thing client analysis with scotland i'll come back just briefly for a summary and outlook and then we'll open up for q a so to start off with mary

Thank you for joining us today. Trading conditions in the third quarter remain challenging due to the global macroeconomic backdrop and continuing high interest rates. There was also some underperformance against our addressable markets. These trends impacted marketing spend, especially from some of our larger technology clients. And our technology services practice continued to be affected by a reduction in activity from one of our larger clients. Reported revenue was down 19% at 198 million, with some impact from foreign exchange rates, especially the dollar to pound. On a like-for-like basis, revenue was down 17%. Reported net revenue decreased 15% to £179 million, or 13% like-for-like. We have continued to take action on costs and are making a significant reduction in the number of monks across the company. Given slower-than-expected trading in Q3 and current client activity levels, we anticipate a low double-digit reduction in full-year net revenue on a like-for-like basis. Due to these continuing revenue challenges, and despite our increased focus on cost reduction, we now expect like-for-like operational EBITDA to be slightly below last year. As in previous years, financial performance will be heavily weighted to the final quarter. Net debt at the end of September was £180 million, with leverage at 2.2 times. We continue to expect net debt to be in the range of £150 to £190 million at the year end. Let's look now at the performance of each practice. My comments here are all on a like-for-like basis. Content's net revenue for the quarter was down 9%, reflecting a slight sequential improvement quarter on quarter, but not as much as expected, given a softer prior year comparator. Clients continued to be cautious and there were lower levels of activity with some of our larger technology clients. We remained focused on reducing our cost base in content to improve efficiency and protect margin. Data and digital media net revenue was stable year on year, showing sequential improvement and the practice managed its costs against activity levels. Technology services improved. declined 42%, driven by the expected reduction in activity with one key client, as well as longer sales cycles for new business. From a regional perspective, net revenue was down 15% in the Americas, though there was strong growth in LATAM. EMEA grew 1%, driven by growth in Germany. And our smallest region, APAC, was down 21% due to weaker trading in Australia and Southeast Asia. So in summary, as trading conditions remain challenging, we continue to focus on managing cost and driving efficiency and are taking significant action in the fourth quarter to protect margins. Our expectations for the full year are that like-for-like net revenue will be down by low double digits and we now anticipate that 2024 operational EBITDA will be slightly below the prior year on a like-for-like basis. Thank you and with that I will pass to Scott.

Thanks very much, Mary. And thank you, everyone, for joining us today. If we take a look at our addressable markets, the major digital platforms continue to perform on the revenue side with 14% growth in Q3 and a projected 15% growth for the year. Growth is anticipated to moderate in 2025, but still be in the low double digits. That continues to contrast with our own performance so far, given that our revenues are aligned with tech company marketing spend, and we're still seeing caution from our clients, particularly technology clients. The large platforms have increased their CapEx spending by over 50% to almost $300 billion, largely as they invest heavily in AI. And this has had a negative impact on their marketing spend. However, we do see the negative trends in sales and marketing expenses moderating in Q3 and anticipated to moderate in Q4 this year. This points to potentially a more stable environment in 2025. For tech services and digital transformation, this is a more difficult market, which slowed in 2023 and is flat to negative in 2024. We actually had a strong 23, so the negative market trends have caught up with us in 2024, driven by reduced spend with one large financial services client and longer sales cycles. Most of our client categories were stable in Q3, with technology still by far the main category, representing 44% of our revenue. The main change continues to be the decline in financial services category, largely driven by the aforementioned decline in spend with one of our clients in the tech services practice. The continued softness we're seeing in technology client spend and the specific large financial services client has reduced spend means it's had a negative impact on the average revenue side of our top 10, 20 and 50 clients. Whilst we continue to see headwinds with some of our larger clients, this is primarily driven by reduced spending rather than client losses. On the positive side, our progress in new business, particularly driven by interest in our Monks Flow AI offering, has helped drive an increase in clients at the top of the funnel, which we hope to develop into larger relationships in 2025. Our sales pipeline is healthy, driven by our three new go-to-market propositions, orchestration partner, real-time brands, and glass box media. These are all starting to resonate strongly with clients. With that, I'll hand you back to Martin for the summary.

Thanks, Mary. Thank you, Scott. Just as a brief summary and comments on the outlook. Firstly, Q3 net revenue decreased by about 12% like for like and reflected lower activity primarily in our content practice and an expected reduction, as we previously mentioned, with one of our larger technology services clients. Year to date, our net revenue is down approximately 13%, like for like, and we maintain as a result a disciplined and active approach to managing our cost base, with a focus on driving efficiency where possible across the company, as well as a focus on utilisation and pricing and billability. Net debt at the end of September was £180 million and we have now completed all material M&A payments for any prior year combination. Given the slower than expected trading in Q3 and the current client activity levels, we now expect The like for like net revenue for 2024 will be down low double digits with like for like operational EBITDA slightly below the prior year. Our target range for net debt remains, as we've said before, at year end. for $150 million to $190 million as a range. And as Scott mentioned, our three new go-to-market propositions, that's Orchestration Partner, Real-Time Brands and Glassbox Media, are all starting to resonate strongly with clients. These are built around hyper-personalization at scale, that's in relation to Orchestration Partners, partner it's built around social media and brand strategy in relation to real-time brands and transparent media planning and buying in relation to glass box media Finally, we remain highly confident in our strategy, our business model and talent, together with our scale client relationships and our position there. And they position us well for growth in the longer term. So with that, Sergei, we can turn over for Q&A if there are any.

Thank you so much. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched out to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will pause for just a moment to assemble the queue. It seems that we have no questions at this time. Okay. I'd like to hand the call back over to Sir Martin for closing remarks.

Thank you, Sergey. Thank you, everybody, for joining us. If anybody has any questions, they can contact Mary, Scott, myself, any time. Thank you very much for joining us, albeit briefly. We'll be back next year with the full year results. Thank you.