FYI

S4Capital’s first financials reveal loss of £8.1 million and little Asia business

Martin Sorrell’s fledgling company S4Capital has revealed its first year financial results, announcing billings of £54.8 million and a gross profit of £37.2 million but an overall loss of £8.1 million.

Programmatic represented 25% of revenue and among the business wins were “assignments” for Procter & Gamble, Nestle, Avon, Mondelez, Shiseido, Bayer, Electronic Arts and Electrolux.

The Americas accounted for 65% of revenue and 72% of gross profit. Europe, the Middle-East and Africa represented 29% of revenue and 22% of gross profit. And AsiaPacific just 6% of revenue and 6% of gross profit – Sorrell revealed in his letter to shareholders.

The announcement:

Dear Shareowner, My Executive colleagues, Victor Knaap, Wesley ter Haar, Peter Kim, Christopher S. Martin, Peter Rademaker and I are delighted to present our inaugural results for the period ending 31st December 2018 to shareowners.

This short period has seen four initial steps in implementing S4Capital’s digital data, content and programmatic strategy. First, the formation and initial funding of S4Capital. Secondly, the combination of S4Capital with the leading digital content production company MediaMonks.

Thirdly, the injection of the enlarged S4Capital into the quoted “shell” company, Derriston Capital plc. And, finally, on Christmas Eve, the combination of S4Capital plc with MightyHive, the leading programmatic company. Your Company now has in place the digital content and programmatic building blocks on which to grow.

Our focus on geographical expansion, particularly in Asia Pacific, was underlined by the recent appointments of Michel de Rijk as Chief Executive Officer, S4Capital Asia Pacific and Poran Malani as Director of S4Capital’s newly established Indian operation. Michel was Asia Pacific President at WPP’s GroupM from 2016-18, and then Global Chief Growth Officer at WPP’s Performance Media Group.

He also has extensive experience of building and running disruptive advertising and marketing companies in Asia Pacific. Poran has over 30 years of experience with Ogilvy, McCann and Coca-Cola, including nine years as president of WPP’s Ogilvy South India. Turning to the results themselves, we thought it would be most useful to outline both unaudited results (MediaMonks for the last six months of 2018 and MightyHive for the last week of the year) and given the partial period of the year that these cover, pro-forma results for the Company, as if it had been operating for the whole of 2018.

Billings were £59.1 million, revenue £54.8 million and gross profit £37.2 million. Operational EBITDA was £4.7 million and operational EBITDA margin 12.7%. Result for the period was £8.1 million (loss). Basic earnings per share were 3.3p per share (loss). Year-end net debt was £20.6 million, despite taking out a £45.6 million loan to part fund the MediaMonks combination.

Pro-forma billings were £291.2 million. Pro-forma revenue was £135.9 million and pro-forma gross profit was £105.2 million up 58% and 49% respectively on 2017. Pro-forma operational EBITDA was £22.4 million, up 99% on 2017, with operational EBITDA margin at 21.4%, up 5.4 margin points on the previous year. Pro-forma adjusted operating profit excluding adjusting items of £12.5 million, was £21.0 million, up 109% on the previous year.

Pro-forma adjusted pre-tax profits were £20.1 million versus £8.6 million in the previous year, up 133%. Pro-forma adjusted result for the period was £15.9 million, up 260%. Adjusted pro-forma basic earnings per share before exceptional items were 4.6p, up from 1.3p the previous year. In accordance with our previously announced policy, your Board will not declare a 4 dividend, particularly bearing in mind the need to balance funding future growth versus immediate shareowner return.

By geography, on a pro-forma basis, the Americas accounted for 65% of revenue and 72% of gross profit. Europe, the Middle-East and Africa represented 29% of revenue and 22% of gross profit and AsiaPacific 6% of revenue and 6% of gross profit. By function, on a pro-forma basis, digital content accounted for 75% of revenue and 67% of gross profit, with operational EBITDA margin of 22%

Programmatic represented 25% of revenue and 33% of gross profit, with EBITDA margin of 24%. Significant new business wins include assignments from Procter & Gamble, Nestle, Avon, Mondelez, Shiseido, Bayer, Electronic Arts and Electrolux amongst others. Current pipeline is approximately twice the level of last year. Outlook and current trading All-in-all a powerful 2018, with pro-forma revenue and gross profit growth of 58% and 49% and operational EBITDA margin above 20%.

This performance is planned to continue into 2019, with budgets and plans targeting strong revenue, gross profit growth and improving operational EBITDA margin and with January showing revenue and gross profit like-for-like growth of over 30%. It is clear that the Company’s purely digital model based on first party data fuelling digital content and programmatic is resonating with clients

Our tag line “faster, better, cheaper” and unitary, one P&L structure also appeals strongly. The imperatives will be to broaden and deepen relationships with existing and new clients; to broaden and deepen geographical coverage; and to attract additional data, content and media talent and resources through direct recruitment, acquisition and/or merger. The Company’s three-year plan for the period 2019-2021 calls for a doubling of revenue and gross profits over pro-forma 2018, with an improvement in EBITDA margin.

Best wishes,

Sir Martin Sorrell Executive Chairman

Source: S4 Capital press release

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