S4 Capital revises 2021 profit growth prediction to 40% in first half results

Media.Monks’s parent company S4 Capital has released its financial results for the first half of the year, following a promising performance from its holding company rivals.

Executive chairman of S4 Sir Martin Sorrell

How has S4 performed in the first half of 2021?

• S4’s net revenues rose significantly in H1, growing 33% in Q1 and 66% in Q2; across both quarters, net revenue was £236.7m, on revenues of £279.3m.

• That’s a 49% like-for-like increase on the same period last year, when revenue growth hit 12% amid the throes of the pandemic.

• S4 has increased its operating EBITDA (earnings before interest, taxes, depreciation and amortization) margin 30% compared with last year, to 14.5%; that’s accounting for investment in new talent and other areas of the business.

• The company saw major growth in key territories, 47% like-for-like growth in the Americas, 60% in Europe and 43% in Asia Pacific; North and South American markets dominate S4’s business, accounting for £168.7m of its gross profits, against a combined £67.7m from the other regions.

• Sir Martin Sorrell, executive chairman of S4, said: “We have had a super strong first half start to 2021, in line with the fast-growing digital platforms. Even in comparison to 2019, we are up strongly, again more like the digital platforms. It is clear that the tragedy of Covid-19 has accelerated the speed of digital transformation and disruption at consumer, media and enterprise levels. Especially in these difficult times, we continue to be committed to ensuring that our people are well and safe, with sustainability and responsibility being a priority.“

• Figures revealed by Media.Monks’s chief operating officer Wesley ter Haar showed that S4’s client base has almost doubled within the last year, with its “attractive and expanding“ roster exceeding 320.

Weathering the ‘Great Resignation’

• Chief growth officer Scott Spirit said S4 now counted 6,000 employees, a number which “shows how far we’ve come and how quickly we’ve come“.

• But MightyHive chief operating officer Christopher Martin, speaking on an investor’s call this morning, said the company had seen staff turnover amid the ’Great Resignation’ within the corporate world. While S4 and its rivals were pulled into an “arms race“ over employee pay, he said new staff joining S4 meant it had seen a “net gain“ from the period; furthermore, he stated that brands losing marketing talent had led them to depend more on S4 as an agency partner, deepening those relationships.

What does S4 expect from the market?

• S4 has revised its guidance to shareholders regarding 2021 profits for a third time this year and now expects a like-for-like growth of 40%. In a statement, S4 said the revision ”clearly signals that the company is confident of doubling its size purely organically”.

• Sorrell said that the company had not seen an impact from the uptick in cases related to the Delta variant of Covid-19.

• “We have seen some postponement of live events ... we’ve seen some live activity postponed, but on the other hand stay-at-home, work-from- home companies benefit from that ... we’ve not been dealt a blow by the Delta variant.“

• Speaking to investors, Sorrell revealed he hopes to bag 20 clients with gross revenues of over $20bn within four years at the most. Between current clients growing and new account wins, he said S4 would gain “seven or eight whoppers in 2022“.

• Victor Knaap, executive director and chief executive officer of Media.Monks, said: “2021 is the most active new business environment we have ever been involved in, and we’re making sure we win more than our fair share of new logos ... some of which we expect to be future whoppers, but also local hero clients that will help us recruit and retain the very best talent in the many markets we are now active in. Our ability to keep expanding within our existing clients is down to a high pitch win rate and our ability to quickly staff and service requests as they come in.“

Tech ambitions on the horizon

• MightyHive’s Martin discussed S4’s ambitions to expand into technology services, a long-term goal of the company. He said they ”looked forward to continued momentum in the second half of the year”, and described investments in its Salesforce offering.

• He also announced the formation of Performance.Monks, a combined service offering drawing from the S4 network – with the intention of competing with established independent and specialist agencies in the performance marketing space. He said: ”We’ve joined our SEM, social and commerce capabilities into a performance practice, an engine dedicated to accelerating the growth of challenger brands.”

• According to Sorrell, the offering will help fill a gap in S4’s current model. ”We don’t tend to deal with chief information officers or chief technology officers ... there is a need to provide that end-to-end offer.”