Sorrell says S4 is winning as clients get ‘more sophisticated’ with agency models

Sir Martin Sorrell, S4 Capital executive chairman

Sir Martin Sorrell has said his holding group is growing faster than expected as more “sophisticated” agency models mean blue-chip clients are making way for the S4 Capital offering.

S4 reported a revenue growth of 54% in the third quarter of 2019 compared to the same period last year, with gross profit up 50% to reach £42.1m. Year to date, revenue is up over 46% to £144.6m and gross profit up over 46% to £112.3m.

It now employees 2,000 people across 26 countries – a substantial uptick from the 1,300 people in 18 countries that it reported in May. This is in part thanks to a flurry of M&A activity including the mergers with Progmedia, IMA, Firewood, Convergence Works and Datalicious Korea.

On an earnings call, S4 called out new business wins including Procter & Gamble, Nestle, Coca-Cola and Bayer, with Sorrell saying the businesses is benefitting from blue-chip clients opting to embrace solutions from outside of the six major holding companies.

He claims S4 Capital has been invited to support in five major global RFPs, though declined to name the clients.

“There’s an increase in the global sophistication of these pitches – they are not throwing mud to see what sticks as with mediapalooza parts one and two,” he said on a call with analysts, referring to the spate of agency reviews by major advertisers that took place in 2015 and then again in 2018.

The S4 view is that these major pitches from the past three years resulted in the major holding companies effectively shuffling the works between then, but “nothing really changed” and didn’t deliver the integration of digital, media and creative the clients needed.

“[Now] there’s much more sophistication and clients are wanting to take back control," Sorrell said. "The CMOs want to control the relationship with consumers and as a result, they’re looking at more sophisticated models and some of the integration of agencies themselves.

"They’re wiling to look at how the experts can be integrated and what specialist knowledge is needed.”

S4 said clients such as Mondelez, P&G, Heineken and Google have been using its content agencies more, while that specialist division has won new clients including the Southeat Asian business for Fanta.

Revenue for the content practice was up nearly 48% to £41.1m, while gross profit grew 40% to £26.6m. Year-to-date content revenue increased 37% to £104.1m, with gross profit up 33% to £71.8m.

Meanwhile on its programmatic offering, it said AB InBev, Asics, and Vodafone have all opted to integrate S4 into their current setups, while brands such as Sony and Nationwide are investing more into their ongoing relationship with the company.

Programmatic revenues were up by more than 71% in the quarter to £15.5m, while gross profit grew 71% to £15.5m. Year-to-date programmatic revenue was up by more than 75% to £40.5m.

“Next year we need to find a balance [between programmatic and content],” Sorrell continued.

The growth of the content business has come as a result of major M&A deals that have been “harder to find” than its programmatic business, particularly Mediahive, which it says is “complicated” and therefore less able to embrace outside models.

However, Sorrell said it is currently “looking” at an M&A deal to integrate an analytics agency into the mix.

“The peanut has morphed into a pumpkin in time for Halloween 2019 and we have also achieved US$ unicorn status,” surmised Sorrell.

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