S4 Capital posts significant operating loss, but sees $638.8m profit in FY2022 results

S4 Capital reported its FY earnings to 30 June 2022, revealing an operating loss of 354.2% while revenue for the period was £446.4 million (A$758.7 million), up 59.8% reported and 30.7% like-for-like.

For the period, S4 reported an operating loss of £75.4 million (A$128.2 million), significantly higher than the £16.6 million (A$28.2 million) seen in the period 30 June 2021.

Gross profit/net revenue was £375.3 million (A$638.8 million), up 58.6% reported, and 27.8% like-for-like as the company continued to outperform the digital advertising and transformation markets. Two-year and three-year stacks (half-year organic growth for the last two and three years) for the first half are 77% and 89%.

Sir Martin Sorrell, executive chairman said: “Our top-line growth continues to outperform the digital advertising and transformation markets. This momentum is underlined by the increasing recognition of the success of our new age/new era model in industry surveys such as the Forrester Waves (the guide for buyers considering their purchasing options in a technology marketplace) and increasing conversion of client relationships at scale as we land more ‘whoppers'”.

“In the first half of 2022, we continued to invest in increased human capital ahead of further top line advances and in management infrastructure, which impacted our Operational EBITDA. In the second half, we are focused on a better balance between top and bottom-line growth to ensure we reach our revised targets for the year. Combinations remain a key part of our growth strategy, however, for the time being, we are focused on organic growth and maximising value from our existing businesses, where momentum remains strong.”

The media giant said digital is by far the “fastest-growing segment of the advertising market,” with the company estimating that in 2021 digital accounted for over 60% or $420-450 billion of total global advertising spend of $700-750 billion (excluding over $500 billion of trade promotion marketing, the primary target of the Amazon advertising platform) and projects that by 2022 total global advertising spend will “expand to $770-850 billion and digital’s share will grow to approximately 65% and by 2024 to approximately 70%, accelerated by the impact of COVID-19.”

Net debt ended the period at £135.5 million (A$230.7 million), or 1.2x net debt/operational EBITDA, reflecting combination payments made during the first half, principally for TheoremOne. Net debt was below the bottom end of the guidance range of £140 to £190 million (A$238 million to $323 million) reflecting better working capital management. The balance sheet remains strong with sufficient liquidity and long-dated debt maturities. Pro-forma Operational Earnings Before Interest, taxes, depreciation and amortisation for the latest twelve months to 30 June 2022 was £113.6 million (A$193.2 million).

Operational EBITDA was reported as £30.1 million (A$51.1 million), down 12.4% reported and 41.2% like-for-like reflecting continued investment in hiring for expansion, which ran further ahead of gross profit/net revenue growth in the first half than expected

Last year Sir Sorrellmerged the two S4 agencies MediaMonks and MightyHiveto create unitary brand Media.Monks.

S4 Capital’s current market capitalisation is £799.24 million (A$1.359 billion) as of 21st September 2022, with SFOR stocks trading at £142.45 (A$242.30) down −1.05 (0.73%) since markets closed.