S4 Capital plc

Good morning, everybody. Thanks for joining us. I'm in China, in Beijing, and Mary, Scott, and Jean Benoit are in London. And we have Henry Cowling, who is in San Francisco on the West Coast at an unearthly hour. So thanks for getting up early or late or staying up late, Henry. So with that, let's just move to the first slide, if we can, please. We're going to run through the results. Mary will run through the results. And then Scott will run through business conditions and business performance. And then Henry will run through our focus on AI. And then we'll come back for a brief summary of the results after Jean Benoit has taken you through what we're doing in terms, particularly in pricing and and utilisation and billability. So with that, Mary, do you want to get into the results, please?

Thank you, Martin. Good morning and thank you for joining us today. I'll start with the financial headlines. Our performance in 2024 was impacted by challenging macroeconomic conditions, continued high interest rates and some underperformance compared to our markets. Net revenue was 755 million, down 11% on a like-for-like basis. Operational EBITDA was in line with expectations at 88 million. we made significant cost reductions to deliver an operational EBITDA margin of 11.6%, up 120 basis points like for like. EBITDA improved as these cost reductions took effect and we delivered 58 million in the second half compared to 30 in the first. Adjusted operating profit was 78 million and adjusted earnings per share were 5.2 pence. We finished the year with net debt of £143 million, below our target range, reflecting our focus on working capital management and tight cost control. Leverage was 1.6 times. The Board is proposing a first dividend of one pence per share. Moving now to the income statement. In challenging market conditions, revenue decreased 16% on a reported basis to 848 million and like-for-like was down 14%. Reported net revenue of 755 million was down 14% or 11% like-for-like. This reflects lower spending from technology clients, as well as a reduction from one of our larger relationships in our technology services practice. We reduced operating expenses by 14%, and the number of monks was about 7,150 at year end, down 7% on December 2023. Operational EBITDA of 88 million was down 6% on a reported basis, or broadly flat like-for-like, and operational EBITDA margin of 11.6% improved 90 basis points reported, or 120 like-for-like. We recorded an impairment charge of 280 million after tax, reflecting trading conditions in the second half of 2024, and a revised medium-term outlook after completion of our budget and three-year planning process. I've given you a breakdown of the adjusting items in the table on the left-hand side. The impairment charge, which mainly relates to goodwill, is included within amortisation and impairment. Acquisition, restructuring and other expenses were £29 million. This includes £19 million for restructuring, which has driven significant cost reductions, £5 million of lease impairments from our property rationalisation and £4 million for the implementation of our global finance system. Finally, net finance expense, which mainly relates to our term loan, decreased due to a benefit from foreign exchange compared to a charge in the prior year. Looking next at our three different practice areas, content, data and digital media, and technology services. My comments here are all on a like-for-like basis. Net revenue in our largest practice, content, was down 7%, with ongoing caution and lower activity from some of our larger technology clients, who are prioritizing investment in AI over operating expenses such as marketing. We continue to focus on reinvigorating growth, and Scott will talk more about this later. Data and digital media net revenue was down 4%, with growth in the performance business, but lower net revenues from data and CRM. Overall, the practice grew in the final quarter. Net revenue in technology services was down 35%. This was due to lower revenue from one key client, as expected, as well as longer sales cycles for new business, reflecting the macroeconomic climate. We have hired an experienced sales leader to drive growth in this practice. From a regional perspective, the Americas, which includes technology services, was down 12% and accounts for 78% of the mix. EMEA decreased 5% and Asia Pacific declined 13%. Moving to EBITDA by practice on the next slide. Again, my comments are on a like-for-like basis. In content, operational EBITDA grew 31% to 49 million despite lower net revenues due to our action on costs. Operational EBITDA margin improved 290 basis points to 10.2%. We continue to focus on utilization and billability to further improve efficiency and margin. Data and digital media recorded a significant improvement in profitability, despite a slight decline in net revenue, as it managed costs in line with activity. Operational EBITDA was up 43% at £46 million and margin increased from 16.2% to 23.9%. Technology services was impacted by anticipated lower revenues. Operational EBITDA of £12 million was down from £43 million in the prior year at a margin of 13.3%. Central costs were down 16% year on year, reflecting tight cost control. Moving to the next slide, you can see that we continue to maintain a strong balance sheet with sufficient liquidity and long-dated maturities to facilitate growth. Our 100 million revolving credit facility, which remains undrawn, matures in August 2026. And we have recently completed an extension for 80 million of this to February 2028 on the same terms. Our 375 million euro term loan matures in August 2028. We currently have comfortable headroom against the key covenant. Moving to cashflow on the next slide. CapEx of 8 million is mainly investment in IT infrastructure. Interest paid includes the cost of our term loan, while lower tax paid reflects our performance in 2023. Restructuring and other one-off expenses include 16 million of restructuring payments, mainly related to people, and around 4 million of spend on our global finance system. There was a working capital inflow of 15 million, supported by our focus on improving working capital. Free cash flow was 38 million, up from 14 million in 2023. The cash spend on combinations was 10 million. This takes net debt to 143 million below our target range with leverage at 1.6 times. Turning to guidance for 2025. Given the combination of market uncertainty and technology clients prioritising AI-related capital expenditure, we expect net revenue and operational EBITDA to be broadly similar to 2024. Comparators for the first quarter are expected to remain difficult, in part due to the residual effect of the reduction in revenue from one client in technology services. However, we anticipate an improved performance in the second half, supported by phasing of revenue from new business. Given the uncertain market outlook, we continue to focus on managing our cost base, utilisation and billability, and will take further action to support profitability. We anticipate a net finance cash charge of about 27 million and a tax rate of 30 to 32%. Our expectations for net debt at year end are in the range of 100 to 140 million. We continue to focus on cash management and our medium term target for leverage moves to 1.5 times at the bottom of our previous range. As usual, we have included information on weighted average share count and adjusting items in the appendix, and we are happy to take any questions on these at your convenience. So in summary, we expect clients to remain cautious in 2025. We are targeting a broadly similar level of performance as 2024. And we continue our disciplined approach to cost management and operational efficiency. Medium-term prospects remain good. And with that, I will hand over to Scott for the strategy and client update.

Thank you, Mary. Good morning, everyone, and thank you very much for joining the call. I'm going to focus on S4's strategy and history, including some of the recent challenges we have seen and the measures we're taking to put the company back on a sustainable growth path. JB is going to take you through our focus on margin improvement. We'll also cover some of the strengths and differentiators we feel put us in a strong competitive position today and take you through some cases to illustrate the work we're doing for our clients. Wes is with clients today, so Henry will then take you through the section he's prepared on our latest developments in artificial intelligence. Going back, we founded S4 in 2018 with the ambition to become a disruptive force in the marketing communications industry. We launched with four core strategic pillars. Firstly, we'd focus on digital marketing services, as this is a growth area. And at that point, 50% of spend was in digital. Today, that's over 70%. We would take a data-driven approach, offering clients integrated services in content, data, digital media, and technology services. We would go to market as faster, more agile and responsive, better, a better understanding of the tech platforms, and cheaper, more effective and efficient for our clients. And more recently, we've added more to that, acknowledging how we work with clients to leverage the benefits of AI to achieve more for them. Finally, we'd have a unified brand to eliminate silos and provide integrated services to clients. The company grew via acquisition, with MediaMonks and MightyHive being the initial cornerstone deals, giving us a firm foundation in our service offering, a burgeoning global presence and a strong client base, particularly in the technology sector. We expanded via M&A with a series of mergers to broaden the service offering, client portfolio, geographical coverage and talent base. We also experienced rapid organic growth with new business wins such as BMW and Mondelez and the expansion of our existing relationships. Digital marketing and the technology sector boomed in the post-COVID recovery, fueling our progress and top-line growth, which continued to be strong in 20, 21, and 22. By the end of 2021, starting with nothing in 2018, we'd announced 27 acquisitions and had grown to nearly 6,000 employees. We then move into 2022, which was a watershed moment for the company. Whilst client and revenue growth continued, which we were pleased with, we encountered two challenges. First, we needed to catch up on implementing internal processes, systems, policies and controls. And second, our staff numbers and costs had grown disproportionately faster than revenue and negatively impacted our margin that year. Early in 2022, we experienced an audit issue around deferred revenue, which delayed the publication of our FY21 numbers, impacting our share price and denting investor confidence. Now, whilst the audit issue was disappointing and ultimately not material, we had anticipated the need to tighten up internal controls and processes the year before. And Mary joined us group CFO at the start of 2022. We rapidly addressed the issues, building out a group finance team appropriate for the size and ambitions of the group, adding expertise and PLC experience, and putting in place robust processes and documentation for revenue recognition under IRF S15. Colin Day also joined as chair of the Audit and Risk Committee in August 2022, bringing a wealth of experience. In the last three years, we've had no other issues of this kind, and all results have been released on time and unqualified. Our auditors, PWC, have recognised the continued evolution of our finance function alongside legal and governance improvements. Now, in 2025, thanks to the work of Mary and her colleagues, we have group functions appropriate for a FTSE 250 company and a solid track record on reporting. We have strong internal controls and a well-established internal audit function. We have a well-functioning integrated finance team, which is focused on further improving forecasting and business support, automation, including the implementation of a global ERP, and cash management and working capital. In recent years, we've had some challenges which have impacted our growth and margins. We entered 2023 anticipating further growth and had hired aggressively in 2022, impacting our margin to service existing clients and prepare for another strong year. Unexpectedly, the tech companies pulled back aggressively in 2023, with significant redundancies in cost-cutting addressing their over-expansion post-COVID. Mark Zuckerberg referred to this as Meta's year of efficiency, and others followed suit. Sales and marketing expenditures were reduced across the board, having historically posted strong double-digit growth. For example, Meta's spend was down 21% in 2023, and their margin increased from 25% in 2022 to 35% in 2023, with their share price surging almost 200%. This approach to cost discipline continued in 2024, driven by their strategy to significantly invest in CapEx, primarily hardware and software related to AI. In 2024, the hyperscalers Google, Meta, Amazon and Microsoft increased CapEx investment 56% to almost $250 billion. This meant further pressure on operating and marketing budgets in 2024, with Google and Meta both down and Amazon flat. This affected our competitors too, but given we have almost 50% of our revenues in technology, it's had an outsized impact on our ability to grow. The content relationship with Mondelez ended in 2023, and in 2024, First American, a client in our tech services division, has seen very significant pressure on their business, given higher interest rates, and as a result decided to ramp down and in-house the work streams they had with us. High interest rates and general economic uncertainty led to client caution, which impacted our project-based business, especially our ability to win new remits locally. We paused our M&A strategy in 2022 after 30 plus transactions in five years, and the scale of which had posed some challenges for us from an integration perspective and a need to focus internally. With declining revenues, despite cuts and cost controls, our staff cost ratios are in the high 70s versus an industry average of around 65%. The challenges we've had with our revenue trajectory have made it difficult to align costs with revenue. Whilst 2024 continued to be a challenging year from a growth perspective, we spent the year addressing these issues to rebuild our foundations for growth. Firstly, the pace of tech client spend cuts has slowed. The cuts I mentioned earlier have stabilized with the declines in sales and marketing expenditures moderating towards the end of 2024. And whilst they do not provide forward guidance on sales and marketing expenditure, analysts project it will return to moderate growth in 2025 as they start to invest in differentiation for their AI products in a highly competitive market and illustrate some ROI on their CapEx investments. That said, the hyperscalers continue to invest very heavily in CapEx this year. Secondly, we continue to innovate our product. Launching our AI platform, Monks Flow, at CES in January 2024, over the course of the year, we brought on board partners, won awards, and implemented it with existing clients such as Google, BMW, SC Johnson, and Amazon. And we developed a specific AI-focused sales pipeline. We've had many updates on our AI approach, and Henry will do another one later. Thirdly, on client wins, the Whopper client losses are mostly out of our comparables, and we have had a stronger pipeline and new business performance recently, especially with the win of GM, which will scale into a top three client over the course of 2025, and a significant expansion of our Amazon remit and existing client. Fourthly, from an integration perspective, the mergers are now all fully integrated and we go to market as a single brand, Monks. We have centralized key functions such as finance, legal, HR, and IT, and the company operates on the same platforms such as Slack, Salesforce, Workday, and Google Workspace. Our migration to a single ERP is well underway and will be completed in early 2026. And we've simplified the business around marketing and technology services. We have a clearly articulated organizational structure based around geographical leadership and capability expertise. Finally, people. In 24, we made several senior hires across country, regional management, capabilities, growth, and client leadership, all of whom are now driving new business wins. Also, JB joined us in 2024 as S4 Chief Operating Officer to focus on the optimization of pricing, utilization, billability, and improving our margins, getting staff cost ratios in line. And I'll now hand over to him for an update on progress. Thank you, Scott. Good morning.