S4 Capital plc

So good morning, everybody. I'm joined by Radhika and Scott and Wes, and this is our S4's 2025 call. So we'll kick off. with a summary of the results from Radhika. Then Scott will talk a little bit about market momentum. Wes will talk about, I guess, the topic du jour, if not forever, which is AI. And then I'll come back and do a brief summary on the results. And then we'll go into Q&A. So Radhika, do you want to kick off, please?

Yes. Good morning. I will start with the financial headlines for 2025. Despite global macroeconomic pressures and ongoing client caution, strong cost and working capital management improved the operational EBITDA margin and reduced year-end net debt below the targeted range. Net revenue was £673 million, down 10.8% reported and 8.4% like-for-like. Operational EBITDA was 81.2 million, with a margin of 12.1%, up 70 basis points year-on-year. Adjusted operating profit was 74 million, and adjusted EPS was 5 pence versus 5.2 pence in 2024. Free cash flow rose to 86.5 million, up 48.7 million year-on-year, driven by improved Treasury management and title working capital discipline. Year-end net debt fell to 86.9 million, 1.1 times operational EBITDA, below the 100 to 140 million target range and well below the 142.9 million at the end of 2024. Subject to share owner approval, the board proposes to pay a final dividend of 1.1 pence per share, an increase of 10% compared to the prior year. Moving to the P&L. Revenue for the year came in at 754.8 million, which is down 11% on a reported basis and 8.7% like for like. Net revenue for the year was 673 million, down 10.8% reported, and 8.4% like for like. This reflects what has been a fragmented and volatile macroeconomic environment and the resulting caution we've seen from clients. In response to these conditions, we took a disciplined approach to cost management. Personnel and operating expenses were reduced by 11.5% on a reported basis. In the second half of the year, we launched a cost restructuring programme, primarily focused on non-billable roles and further back-office efficiencies. The aim was to align our personnel cost to net revenue ratio more closely with the industry averages. We exited 2025 at 74.3% versus 76.3% in 2024. By the year end, our total number of months was approximately 6,350, which is 11.5% lower than December 2024. Since June 2025 alone, headcount was reduced by 7.8% driven by the restructuring actions. Looking across our two practices, marketing services and technology services, my commentary here is all on a like-for-like basis. Marketing services, our largest practice, delivered net revenue of 614 million, a 5.6% decline, reflecting an improved fourth quarter versus prior expectations. Technology services generated 59 million in net revenue, down 29.9%, driven by extended sales cycles and the anticipated reduction in revenue from a major client in the first half. From a regional standpoint, the Americas declined 5.6% and represented 80% of our total net revenue. EMEA declined 19.6% and Asia-Pacific declined 13.8%, contributing 15% and 5% of the mix, respectively. Turning to operational EBITDA by practice, on a like-for-like basis, marketing services delivered 92.6 million, an increase of 1.5%. EBITDA margins strengthened to 15.1%, up 110 basis points, reflecting decisive headcount actions and continued cost discipline. Technology services generated 8.9 million, down 19.8% year-on-year, despite the revenue pressure margin improved by 190 basis points to 15.1, underlining the effectiveness of our cost control measures. Central costs increased 10.3% in 2025, mainly due to this centralization of procurement and IT functions, the annualized impact of 2024 hires, and the change in treasury management. Investments that position us to drive further efficiencies across the company. Moving to the next slide. We maintain a strong balance sheet throughout the year with solid liquidity and long-dated maturities. Our M&A obligations are also now largely complete. Stronger treasury management and tighter working capital discipline reduced year-end net debt to £86.9 million. Leverage closed at 1.1 times operational EBITDA, both below our target range of 1.5 to 2 times and the 1.6 times we reported at the end of 2024. Our Euro 375 million term loan, which matures in August 2028, continues to provide substantial covenant headroom against the 4.5 times performer operational EBITDA threshold. Post year end, Subject to final settlement, the company also repurchased €25.7 million of the €375 million term loan at a discount, further strengthening our capital position. Moving to the cash flow. We delivered a strong cash outcome for the year, underpinned by disciplined execution across the business. Working capital contributed an inflow of 55.5 million, a substantial improvement from 14.6 million in 2024. Capital expenditure was held to 4.9 million, 35% below last year's 7.5 million, as our cost mitigation actions continue to take effect. Financing costs reduced meaningfully. with the average effective interest rate improving to approximately 6% from 7.5% in 2024. Tax paid was lower, supported by the utilisation of tax losses and our 2024 performance. The cash outflows related to restructuring and transformation totaled 20.4 million, comprising 15.7 million of restructuring costs and 4.2 million tied to our finance transformation programme. As a result, the group generated 86.5 million of free cash flow in 2025, more than doubling the 37.8 million delivered in the prior year. Momentum strengthened significantly in the second half, where we generated 70.5 million of free cash flow, supported by sustained cost discipline and continued focus on working capital. Net debt at 31 December 2024 was £142.9 million, or £164.2 million at closing exchange rates. The company generated £86.5 million of free cash flow during the year, from which £6.1 million was paid as a final dividend in the second half of 2025. M&A outflows totalled £0.4 million. These movements contributed to a reducing close net debt position of 86.9 million, representing the 1.1 times operational EBITDA. As net debt continues to improve, we have established clear capital allocation priorities, focused on delivering shareholder value through, number one, dividends, number two, targeted debt repurchases, and finally, three, share buybacks. Moving on to guidance for 2026. 2026 Lite for Lite net revenue is expected to be in line with current analyst consensus slightly below 2025. Operational EBITDA margin is targeted to increase by at least 100 basis points. We expect the proportion of operational EBITDA in the first half of 2026 to increase compared to the first half of 2025, due to the annualised impact of the 2025 cost actions. We anticipate year-end net debt in the range of 60 to 90 million, continuing our disciplined approach to balance sheet strength and target median term leverage of under one times Operation Libetar. Our forecast net finance expense is 20 to 22 million, supported by tighter cash management and increased interest income. the effective tax rate is expected to be 28% to 30%. With that, I will hand over to Scott for the market update. Thank you.

Thanks, Radhika. Good morning, everybody. Thank you for joining the presentation today. I'm going to cover some of the dynamics we're seeing in the wider market and then share some specifics on our client relationships before handing over to Wes for an update on our artificial intelligence progress. As you can see, digital marketing spend continues to increase at significant rates, whilst overall advertising spend is growing at around 5%, meaning that analog spend continues to decline. The revenues at the top platforms continue to grow in the high teens, significantly outpacing the market growth. One thing to bear in mind here is that over 80% of their revenues come from small and medium-sized businesses, and they continue to expand their market share there, so their growth is not necessarily being driven by enterprise client spend. The technology services market continues to have lower growth compared to recent historical double-digit performance. 2025 had just over 5% growth, and whilst enterprises continue to invest in areas such as cloud and AI, the outlook for 2026 is subdued. The next slide charts the comparison between agency net revenue growth at the main public holding companies and advertising spend and GDP growth. Digital spend now represents 70% of the total spend, and as I mentioned on the previous slide, is growing at high single-digit rates, meaning analog is in decline. Agency growth dipped to almost 0% in 2025, and has decoupled from advertising spend and GDP growth. And one explanation for this is the continued pressure from clients to maintain their media spend, but to put pressure on what they call non-working spend, i.e. agency spend. This is particularly the case with technology clients. In the next slide, we look at the relationship between capex spend and sales and marketing spend at the major tech companies. Here we've covered Amazon, Meta, and Alphabet. As you know, historically, almost half our revenue has come from this sector. Prior to 2022, marketing spend at the top platforms regularly grew at 20% plus rates and is now essentially being flat since then. On the other hand, capex spend, particularly on AI infrastructure, has ballooned in the same period, growing over 133%. And this trend is expected to continue, with the hyperscalers already announcing plans to increase their capex spend over 70% in 2026. The tech companies are unsurprisingly leading the charge on adopting AI in their marketing workflows and leveraging it to achieve more for the same or less. Our commercial focus remains on our clients and returning the company to growth. Overall, our scaled client relationships remain strong and resilient. We've seen some spend declines, but we've also seen growth and additional scope at half of our whoppers. Those are clients of over $20 million revenue or more, of which we now have eight. We continue to have strong exposure and partnerships with the technology sector. Despite marketing spend in this sector being under pressure, it's important for us to maintain these relationships as they inform our product and AI strategy and leadership position. 2025 saw some important wins and expanded remits, many of which from existing clients such as Amazon, T-Mobile and others. We're also seeing early progress from our focus on evolving the business model away from time and materials towards a talent and machine model based on asset-based or subscription-based approaches. In terms of growth, we continue to simplify and evolve our go-to-market messaging, and we're seeing this resonate, particularly in the areas of orchestration, real-time brands, and AI. We've also invested in sales operations, using AI to drive collaboration on pitches. This has resulted in a stronger new business performance and a stronger pipeline. Our AI solution, Monk's Flow, continues to develop and win awards for its leadership position, and more of that from Wes later. It is at the heart of all our major pitches and opportunities. Whilst we continue to focus on the tech sector, we're also making progress with vertical specific offers in areas such as auto and FMCG. We have a very compelling client list with some of the world's leading and most innovative companies. Eight of them are what we call whoppers, that's revenues of 20 million plus, which continues to be 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 be skewed towards the tech industry, albeit a slightly smaller exposure than last year, driven by declining spends in that category and the ramp-up of General Motors, which has seen our auto sector exposure increase. These are strong relationships that help us attract and retain talent to work on them. Declining spends, particularly in the technology sector, have had a negative effect on the average revenue size of our top 10, 20, and 50 clients. This is primarily driven by reductions in spend rather than lost business. And with that, I'll hand over to Wes for an update on our artificial intelligence approach.