Sorrell’s S4 Posts Its First Year Results (But Could The Crafty Knight Be Eyeing WPP?)

Sir Martin Sorrell’s new venture, post his abrupt WPP departure, S4, has posted its first full-year report, revealing a threefold gain in revenues to £215.1 million ($A431 million) with organic growth of 41 per cent. (You can read the full results at the bottom of this article.)

However, on the back of acquisitions, the company actually posted a £10 million ($A20 million) loss for the year to December 31.

Through its acquisitions the company grew to 2500 people across 30 countries, nearly double compared to the same period the previous year

There are now – highly speculative – reports on UK media sites suggesting that Sorrell could even make a play for all or parts of his old employer, WPP.

Sorrell remains a significant shareholder in the world’s biggest media company and still likes to brag that it was worth £16 billion dollars when he departed in April 2018 and is now said to be worth £10 billion less a mere two years later.

Sir Martin has long called for WPP to be broken up and sold off, suggesting that its highly profitable media arm, Group M, is about the only part of the business worth investing in.

Sorrell is currently WPP’s largest single shareholder with about a 1.4 per cent stake valued at £171 million ($A344 million).

Last October, Sorrell said in a TV interview he only kept his remaining WPP shares because he believed they’d be worth more when the behemoth media company gets broken-up and sold.

He said that WPP had “to change violently” to be more viable, although he was vague on exactly how that should occur.

“Now, there is some debt there, so the enterprise value is higher,” Sorrell said, “but the answer to your question is the break-up values of these companies, or the market values, are approaching levels which we haven’t seen for some time.”

Sorrell described WPP as a “legacy” business and he was keen to distance his S4 from it by deliberately playing in the merging digital and production space.

When it came to S4’s results, the Americas accounted for the biggest piece of the company’s business (as measured by gross profit) at 71 per cent.

Europe, the Middle East and Africa accounted for 22 per cent, while APAC represented seven per cent, although Sorrell has ambitious expansion plans for the region.

S4 reported the ongoing COVID-19 crisis has had “limited” impact on company operations.

“January seemed unaffected. Our Chinese operations…were closed most of February, but have now reopened,” the company said in a statement.  As with many companies, a number of S4 staffers in Europe and the US are now working remotely.

See the full results below:

Financial Highlights

·       Billings* £455.8 million and pro-forma** billings £513.2 million

·       Revenue £215.1 million up 292% from £54.8 million, like-for-like *** up 41%, pro-forma up 37%

·       Gross profit £171.3 million up 361% from £37.2 million, like-for-like up 44%, pro-forma up 39%

·       Operational EBITDA**** £33.4 million up 612%, like-for-like up 51%, pro-forma up 47%

·       Operational EBITDA margin 19.5%, up 6.9 margin points on 2018, like-for-like 18.6%, pro-forma 20.1%

·       Operating loss £3.8 million, which includes adjusting items of £35.0 million (acquisition expenses and amortisation and share-based compensation), versus an operating loss of £8.5 million in 2018 and pro-forma operating profit of £2.5 million

·       Result before income tax £9.2 million (loss), which includes adjusting items, versus a loss of £9.1 million in 2018 and pro-forma result before income tax of £2.8 million (loss)

·       Result for the period £10.0 million (loss) which includes adjusting items after taxation versus £8.1 million (loss) in 2018 and pro-forma result for the period of £5.7 million (loss)

·       Adjusted basic net result per share 5.2p versus 1.0p in 2018 and 6.0p pro-forma

·       Basic and diluted net result per share 2.7p (loss) which includes adjusting items after tax versus 3.3p (loss) in 2018 and pro-forma adjusted basic net result per share 1.3p (loss)

·       Year-end net cash***** £23.7 million, including the £42.4 million loan drawn to partly fund the combination with MediaMonks

·       Good start to 2020 with January gross profit up over 30%, not seeing any material impact from Coronavirus, and will update the market appropriately

Operational Highlights in 2019 and Outlook

·       In April, MightyHive merged with ProgMedia, a leading Brazil-based data and programmatic consultancy in Latin America and MediaMonks acquired the assets of robotic food and drink studio Caramel Pictures in Amsterdam

·       In June, MediaMonks announced the combination with Adobe and digital transformation specialist BizTech. This transaction partially closed in December

·       In August, MediaMonks combined with IMA, an Amsterdam and New York-based influencer marketing agency

·       In October, MediaMonks combined with Firewood, the largest Silicon Valley-based independent digital agency and MightyHive with ConversionWorks and Datalicious, UK and South Korea- based data and analytics consultancies, partially funded by a £100 million equity raise

·       In November, MediaMonks announced the combination with WhiteBalance, an Indian-based digital creative and production agency. This transaction is expected to close in April of 2020

·       Post year end, in January 2020, MediaMonks announced its merger with Latin America-based digital agency, Circus Marketing. This transaction is expected to close in the first quarter of 2020

·       The Group now has approximately 2,500 people in 30 countries, almost double where we were this time last year

·       Significant new business assignments from Google, SoFi, Amazon, Netflix, Facebook, P&G, Nestlé, The Coca Cola Company, AB Inbev, Vodafone, Merck, Shiseido, Akzo Nobel and Ace Hardware

·       Current pipeline running at stronger level than last year

·       Appointment of three leading female, technology experienced US, Japanese and Chinese Non-Executive Directors and industry knowledgeable Executive Director to the Board