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Sir Martin Sorrell bullish about S4 growth as it turns modest pandemic profit

Media Monks owner S4 has reported a modest pre-tax profit

For the first time, S4 Capital has reported a modest first-half, pre-tax profit. Despite headwinds from Covid-19, the company posted earnings before tax of £118,000 for January to June, compared to a loss of £8.5m over the same period last year.

The pandemic performance was backed by a series of acquisitions and client wins that have helped the business offset the impact of Covid-19.

Founder Sir Martin Sorrell believes S4 is now in a ”growth sweet spot” after a strong start to the second half, with activity recovering from a low point in April.

The topline numbers

  • Crunching the numbers further, S4 Capital’s net revenue jumped 6.9% on a like-for-like basis to £141.3m for the six months to the end of June.

  • Organic revenue was up 3% in April, 5% in May and 11% in June.

  • Billings rose by 12.7% to £260.4m.

  • Gross profit also headed in the right direction, rising 12.2% to £124m on a like-for-like basis.

  • July like-for-like gross profit up 18.2% and pro forma up 14.6%.

How does S4’s performance compare to the major ad networks?

  • For the quarter, the Media Monks owner posted 6.5% like-for-like organic revenue growth between April and June 2020, putting it comfortably ahead of its major holding group rivals.

  • WPP posted a precipitous revenue slump of 15.1% over the most recent quarter.

  • Other holding companies fared little better, with Interpublic and Publicis Groupe posting losses of 9.9% and 13% respectively over the same period.

  • The largest declines occurred at Havas and Dentsu Aegis Network, which fell by 18.3% and 20%.

Why does it matter?

  • Sorrell’s venture has proved to be fleeter of foot than its more established rivals, with billings and revenues both defying economic gravity.

  • Astute specialisation in tech brands as well as FMCG clients such as Twitch, Bumble, Verizon and Shopify is behind this performance.

  • Another growth driver has been its transition to a new agency model, with two more ”whopper” clients set to be revealed shortly to sit alongside Google and another unnamed tech giant.

  • Refusing to rest on his laurels, Sorrell believes a strong start to the second half of the year with double-digit revenue and strong profit growth means it has a fighting chance of doubling organically between now and 2022.

  • Optimism abounds for 2021 too, with a post-pandemic recovery expected to buoy this organic growth rate further.

  • S4’s aggressive expansion contrasts with a broader slowdown of mergers and acquisitions as caution rules the day.

What did Sorrell say?

  • Echoing the widely held view that Covid-19 has accelerated a pre-existing digital transition, Sorrell said S4 Capital has hit a ”growth sweet spot”.

  • Sorrell added: ”These results confirm that S4 Capital is currently in a growth sweet spot and that its digital-only, faster, better, cheaper, unitary, ’holy trinity’ model, which combines first-party data with digital content, data and digital media, is migrating from brand awareness and trial to conversion at scale.”

  • Looking to the future, Sorrell has vowed to further engrain the business in the tech, healthcare, financial and FMCG sectors, stressing a ”new client conversion target” of reaching 20 clients with over $20m of annual revenues.

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