S4 Capital plc

Good afternoon from London, or good morning in New York, wherever you are. I'm joined in London by Radhika, CFO, Scott Spirit on my right, Chief Growth Officer, and John Benoit, Chief Operating Officer on the extreme left. We have Bruno Lambertini, who runs our marketing services business from Miami. I think he's still in Miami. Thanks for getting up relatively early this morning and for being with us on this call. And Wes Tahar is in Amsterdam. So we're going to cover the results. Radhika is going to cover the results for the first half of 2025. And Scott's going to talk a little bit about what we see going on in the market and with clients. Wes is going to cover artificial intelligence and its impact on our business currently and in the future. And then I'll just do a brief summary and outlook before we take any questions, if there are any. So, Radhika, over to you.

Thank you, Martin. Good morning, good afternoon, and thank you for joining us today. I will start with the financial headlines for 2025. Performance in the first half was impacted by volatile global macroeconomic conditions, tariff uncertainties, and larger tech clients, which represent almost half of our revenue, continuing to prioritize capital expenditure on expanding AI capacity. Net revenue was 328.2 million, down 10% on a like-for-like basis and 12.7% on a reported basis. Operational EBITDA was 20.8 million, delivering a 6.3% margin in the period. Adjusted operating profit was 16.4 million and adjusted earnings per share was 0.2 pence compared to 1.2 pence in the prior period. We closed the period with a net debt of £145.9 million compared to £182.9 million at 30 June 2024, an improvement of £37 million. The month-end average net debt for the period improved by £52 million, about 27%, from £196 million to £144 million. The company generated 16 million of free cash flow in the first half of 2025, reflecting strong focus on working capital management. Leverage was two times performer 12-month operational EBITDA versus 2.2 times this time last year. Moving now to the income statement. Revenue of £360.4 million down 11.9% like-for-like and 14.7% reported. Net revenue decline reflects the general client cautiousness given the wider challenging macroeconomic conditions. We continue to have a disciplined approach to cost management. Personnel and operating expenses were reduced by 11.2% and the number of monks at the end of the period was around 6,900, 4% lower than December 20 at 24. A cost reduction plan is being actioned in the second half of 2025 to align our personnel cost to revenue ratio down from 76% towards the industry averages of 65%. Operationally, EBITDA was 20.8 million with a 6.3% margin, down 190 basis points like-for-like and 170 basis points on a reported basis. Finally, net finance expenses, which mainly relates to the long-term loan, increased primarily due to adverse foreign exchange movements, partially offset by the reduction in the interest rate. Looking at our two practices now, marketing services and technology services. We reorganized into two practices at the beginning of the year, 1st of January, with marketing services reflecting the legacy content and DDM practices. My comments here are all on a like-for-like basis. Net revenue in marketing services was 299 million, down 6.4%, reflecting the timing of new business wins and ongoing client cautiousness. Technology services was 29.2 million, down 35%, reflecting longer sales cycle and reflecting the revenue reduction by a major client, although this will cycle out in the second half of this year. From a regional perspective, the Americas, which includes technology services, was down 9% and accounts for 79% of our revenue mix. EMEA declined 13% and Asia Pacific declined 15%, accounting for 16% and 5% of the mix, respectively. Moving on to operational EBITDA by practice, on the next slide, again, my comments are on a like-for-like basis. Marketing services operational EBITDA was 28.5 million, down 14% with a 9.5% margin. The revenue shortfall was partially offset by the reduction in the number of months and other cost efficiencies. Technology services operational EBITDA was 2.6 million, down 57% with an 8.9% margin. This was primarily impacted by longer sales cycles for new business. And as I previously mentioned, the revenue loss from a key client, which will cycle out in the second half of this year. Moving to the next slide, we continued to maintain a strong balance sheet with sufficient liquidity and long-dated maturities. We ended the period with net debt of 145.9 million and improvement of 37 million from 182.9 million as at the end of first half 2024. Leverage is two times against 12-month pro forma operational EBITDA, an improvement from 2.2 as at 30 June 2024. There is headroom against the key covenant of 4.5 times pro forma operational EBITDA. The €375 million term loan matures in August 2028 and the €100 million RCF remains undrawn, €80 million of which facility extended to February 2028 on the same terms. I'll now move to the cash flow side. There was a working capital inflow of 19.2 million in the first half of 2025, compared to 4.2 million in the prior half year, reflecting the strong focus on working capital management. Capital expenditure of 2.1 million is primarily related to IT equipment. Interest paid includes the lower cost of our term loan, while lower tax paid reflects our performance in 2024. Restructuring and other one-off expenses include 6.3 million of restructuring payments and finance transformation projects of 2.6 million. Free cash flow rose to 16 million compared with 3.1 million in the first half of 2024. We can now move to the net debt bridge slide. Net debt, as I mentioned before, was 142.9 million as of 31st of December, which translated to 160.4 million at the closing exchange rates. The group generated 16 million of free cash flow in the period, contributing to the closing net debt position of 145.9 million, which is two times leverage against 12-month pro forma operational EBITDA. Turning now to the guidance for the remainder of 2025. Full-year like-for-like net revenue is now expected to be down by mid-single digits. However, we continue to target like-for-like operational EBITDA to be broadly similar to 2024. We expect a stronger second-half performance with a greater weighting than in the prior year, enhanced by the impact of new business revenue, including wins already secured and further incremental cost reductions which are currently being actioned. We forecast a net finance cash charge of around 29 million and an effective tax rate of 30 to 32 percent. Our expectations for net debt for the year end is in the range of 100 to 140 million as we continue to focus strongly on cash flow management. As net debt is reduced and falls below 100 million, our capital allocation policy will return cash to share owners through a mixture of dividends and share buybacks. With that, I will hand over to Scott for the market update.

Thanks, Vedika, and thank you for joining us, everyone. In the past two years, we've had some challenges which have impacted both our growth and our margins. In 2023, the tech companies unexpectedly pulled back aggressively with significant redundancies in cost cutting, addressing their overexpansion post-COVID. Meta referred to this as their year of efficiency, and others followed suit. Sales and marketing expenditures were reduced across the board, having historically posted strong double-digit growth. This approach to cost discipline continued in 2024, driven by their strategy to invest significantly in CapEx, primarily hardware and software related to artificial intelligence. In 2024, the hyperscalers Google, Meta, Amazon and Microsoft increased CapEx investment 56% to almost $250 billion. And this meant further pressure on operating and marketing budgets in 2024, with Amazon Flat and Google and Meta both down. This affected our competitors too, but given we have almost 50% of our revenues in technology, it had an outsized impact on our ability to grow. The relationship with Mondelez ended in 23, and in 2024, First American, a tech services client, saw very significant pressure on their business, given higher interest rates, and as a result, decided to ramp down the work streams they had with us. High interest rates and 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, the scale of which posed some challenges for us from an integration perspective and a need to focus internally. And finally, with declining revenues, despite cuts and cost controls, our staff cost ratios remained in the high 70s versus an industry average of 65%. And the challenges we've had with our revenue trajectory have made it difficult to align costs with revenues. The first half of 2025 has continued to be challenging, but we've been addressing these issues to rebuild our foundations for growth and have seen progress which makes us more optimistic moving forward. Firstly, the pace of tech client spend cuts has slowed. Whilst the investments in CapEx continue to grow at a significant pace, The operating expense cuts I mentioned earlier have stabilized, with the declines in sales and marketing expenditures moderating towards the end of 2024 and stabilizing so far in 2025, particularly at Google, our largest client, as they start to invest in differentiation for their AI products in a highly competitive market and illustrate some ROI on their CapEx investments. Second, we continue to innovate our product. We originally launched our AI platform, Monks Flow, at CES in January 2024. And over the course of the past two years, we've continued to innovate, win awards, bring onboard partners such as NVIDIA, Adobe, and Runway, and implement at scale with existing clients such as Google, BMW, SC Johnson, and Amazon. We've also developed and started to convert a specific AI-focused sales pipeline, and there'll be more of this later from Wes. Thirdly, with client wins. The Whopper client losses are mostly out of our comparables, and we've had a stronger pipeline and new business performance recently. Starting with General Motors a year ago, we've had regular cadence of significant wins, including T-Mobile, Amazon, PIF, and more recently, a leading US-based FMCG, which we will announce soon. Whilst the overall number of monks has declined, we have continued to hire and increase talent across country regional management, capabilities growth and client leadership. Talent who are now driving those new business wins. We've also made hires with an operational focus on the optimization of pricing, utilization, billability and improving our margins and getting staff cost ratios in line. Finally, on centralization and cost control. From an integration perspective, the mergers are all now 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. We've simplified the business around marketing and technology services. We have a clearly articulated organizational structure based around geographical leadership and capability expertise. We have and continue to implement cost controls with the goal of getting our staff cost ratios in line with those industry averages. So overall, with positive new business trends and some stabilization in tech company spend, continued progress in our AI product offering, and a strong focus on cost, we anticipate an improved performance in H2. We reiterate our EBITDA guidelines for 2025 and are set up well for 2026. From a client perspective, we have a really compelling client list with some of the world's leading and most innovative companies. In 2024, nine of them are what we call whoppers. That's with revenues of $20 million plus, which is a differentiator for a company of our scale. Most of our direct competitors have a much more fragmented client list with smaller relationships. As you can see, we continue to have a significant presence in the technology industry. You can also see the GM win has positively impacted our auto share, and other recent wins have been in telco, financial services, and FMCG. These are strong relationships that help us attract and retain talent to work on them. The continued softness we're seeing in technology client spend, the first American decline in our tech services practice, have had a negative effect on the average revenue size of our top 10, 20, and 50 clients. But this is primarily driven by reductions in spend rather than lost business. With that, I'll hand you over to Wes, who will update you on our artificial intelligence initiatives.