S4 Capital shares jump despite wider first-half losses
By Josh White
Date: Wednesday 21 Sep 2022
(Sharecast News) - Media company S4 Capital reported a 39.8% rise in billings in its first-half results on Wednesday, to £765.6m, and a 59.8% improvement in revenue to £446.4m, although losses widened amid rising costs of hiring.
The firm, headed by advertising veteran Sir Martin Sorrell, said its gross profit was 27.8% firmer in the six months ended 30 June to £375.3m, as it outperformed the digital advertising and transformation markets.
Operational EBITDA, meanwhile, slipped 12.4% to £30.1m, which the board said reflected continued investment in hiring for expansion, which ran further ahead of gross profit growth in the first half than expected.
Its operating loss ballooned to £75.4m, from £16.6m a year ago, including £100.8m of primarily combination payments, some linked to continued employment, and the associated expense and amortisation totalling £93.9m versus £41.6 million in the first half of 2021.
Adjusted basic earnings per share, which exclude adjusting items after tax, fell 1.3p to 2.1p, while basic losses per share widened 10.3p year-on-year, to 14.5p.
Net debt totalled £135.5m at the end of the period, or 1.2x net debt-to-operational EBITDA, which S4 said reflected combination payments made during the first half, primarily for TheoremOne.
The board noted that net debt was below the bottom end of its guidance range of £140m to £190m, which it put down to better working capital management.
It said the company's balance sheet remained "strong", with sufficient liquidity and long-dated debt maturities.
Pro-forma operational EBITDA for the last 12 months, to 30 June, totalled £113.6m.
Looking ahead, S4 Capital said its full-year like-for-like gross profit growth target remained unchanged at 25%.
It said it continued to expect a "significantly stronger" second-half performance, with a weighting to the fourth quarter, as its pipeline remained "strong" compared to last year.
For the full-year, its expected operational EBITDA target was also unchanged, at around £120m.
"Our top line growth continues to outperform the digital advertising and transformation markets," said executive chairman Martin Sorrell.
"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."
Sorrel said that in the second half, S4 was focussed on a better balance between top and bottom-line growth to ensure it reached its revised targets for the year.
"Combinations remain a key part of our growth strategy, however, for the time being we are focussed on organic growth and maximising value from our existing businesses, where momentum remains strong.
"Whilst the global economy faces many significant challenges in areas such as climate change, a lengthy war on continental Europe, rising inflation and interest rates, energy shortages, fractious US-China and Western-Russia relationships and with Iran, the prospects for digital advertising and transformation remain relatively bright, whilst traditional media languish, and there is evidence that demand accelerates during periods of economic uncertainty as we saw with Covid-19 in 2020, when we performed strongly."
At 1159 BST, shares in S4 Capital were up 10.38% at 158.4p.
Reporting by Josh White at Sharecast.com.
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