S4 Capital plc (SFOR) Earnings Call Transcript & Summary

So welcome, everybody, to our 2022 results presentation. We've got everybody spread all over the world. Firstly, I apologize for the timing, this is all down to my schedule. I had a personal commitment here in Israel, which collided with the date for our results. So we decided to announce the results after market hours today, which we've done and have the analyst presentation today as well. And I'm joined with Victor Knaap and Scott Spirit and Mary Basterfield here in London. Wes ter Haar is in Mexico -- Mexico City, I guess. And Chris Martin is in Mexico City as well. So not in Acapulco or [ Salum ], but in Mexico City. And then we've got Brady Brim-DeForest in Maine, in his library in Maine. So with that, we've got a packed schedule. We've got our results, Mary will cover the results. You've got the presentation. It's up on our website. You've got copies of it. On Slide 2, we've got the agenda. We got our results, Mary will run through. Scott will run through market momentum, what we're seeing from clients generally in the market and then an analysis, the client analysis. And then Victor will jump into content and then Chris will go through data or progress in data and digital media and then Brady on Tech Services. And then Wes will do a session on artificial intelligence, which is the topic du jour that everybody is really interested in, and we are, too, taking a lead in it. And then I'll just do a brief summary, and then we'll get into Q&A. We think the presentation will take something like 45 minutes. So firstly, Mary.

Thank you, Martin. So good afternoon, everyone, and thank you for joining us today. I look forward to catching up with many of you during the investor roadshow. I'll start with the financial highlights. Strong top line momentum continued in the second half, and we delivered net revenue of GBP 892 million for the full year, up 26% on a like-for-like basis. This is ahead of our 25% target and well ahead of underlying market growth. Operational EBITDA was GBP 124 million, slightly ahead of guidance. We significantly improved EBITDA in the second half and delivered GBP 94 million compared to GBP 30 million in the first half when personnel costs ran ahead of net revenue growth. This improvement was the result of continued top line growth, supported by tight controls on investment in people. Operational EBITDA margin for the year was 14%. This includes a sharp improvement in the second half to 18%. The discipline we have instilled on costs, which includes careful control of hiring will be maintained into 2023 to support our margin delivery. Adjusted profit before tax was GBP 90 million, and adjusted earnings per share were 11.8p. We finished the year with net debt of GBP 110 million below the guided range due to continued focus on working capital management. Leverage was 0.8x. Turning to the next slide. I'd like to update you on the work we have done on the finance team, processes and controls. Our group finance team is now well established. The senior hires we made in the first half, which include a Group Financial Controller, a group FP&A and Transformation Lead and the Group Treasurer, have largely completed the build-out of their teams. So we now have a team that is operating well and is appropriate for the size and growth ambitions of the company. Our content finance team has stabilized under the leadership of a new CFO who joined in the first quarter of 2022. It now has the necessary expertise and experience to support the practice and its revenue recognition. Our outsourced internal audit function is working well, and we are now hiring head of internal audit as planned. In addition to maintaining strong controls on our investment in people, we continue our focus on billings and receivables to drive improved working capital. Whilst we have made significant improvements and the audit process for 2022 has been much smoother with results delivered in a timely manner. Our work will continue during 2023. Moving to the income statement. Revenue grew 56% on a reported basis to GBP 1.1 billion with like-for-like growth at 24%. Reported net revenue of GBP 892 million grew 59% or 26% like-for-like. This highlights the continued underlying momentum of the business in addition to M&A activity. We continued to convert clients at scale. In 2022, we had 10 whoppers, that is clients who generate over $20 million of revenue per annum. This is up from 6 last year and 8 as reported at the half year. And while we are scaling back our work with 1 of them in 2023, we are making good progress towards our target of 20 whoppers with 14 more clients trending towards whopper status. The increase in reported operating expenses reflects continued investment for growth including whoppers and setting ourselves up with a first-class artificial intelligence offering. Within data and digital media, we have also invested in media agency of record capabilities, automation and measurement for a cookie-less future. Some of this investment in growth was ahead of revenue growth, which impacted our operational EBITDA for the first half and hence, the full year. Operational EBITDA for 2022 was GBP 124 million, up 23% on a reported basis and down 16% like-for-like. I have given you a breakdown of adjusting items in the table on the left-hand side. You can see that we invested GBP 156 million, primarily in M&A as well as a small restructuring charge as we optimize the business teams. A further GBP 79 million relates to amortization of acquired intangibles. This includes an adjustment for 4 Mile Analytics, a combination made in January 2022 which has not performed as expected. So we have acted promptly to write down the goodwill and intangibles. The other 2 combinations we made in 2022, TheoremOne and XX Artists are performing well. Finally, the increase in net finance expense is driven by a full year of the euro term loan put in place in August 2021 as well as higher interest rates. This loan provides us with long-term secure financing to fund the greater scale and ambition of the group. Looking next at our 3 different practice areas: content, data and digital media and technology services. My comments here are all on a like-for-like basis. Our largest practice, content grew strongly, up 24% as we continue to outperform the market. Content's operational EBITDA margin reflects hiring running ahead of net revenue growth in the first half. We have addressed this through tighter controls on our investment in people. And as a result, we saw a noticeable improvement in the second half, taking the full year margin to 13%. Data and Digital Media net revenue grew 17%, also ahead of the market with strong growth from media activation and data. DDM's operational EBITDA margin was 18%, down against a strong prior year. This reflects a challenging second half with net revenue growth lower than the first due in part to macroeconomic conditions. We have taken action to align the cost base with activity levels. Technology Services includes a significant combination TheoremOne from mid-May and delivered very strong growth. Net revenue was up 72%, with a healthy operational EBITDA margin of 39%. Central costs grew as guided reflecting investment in finance, legal and assurance to support future growth. From a regional perspective, the Americas grew 27% and remain our biggest region at 76% of the mix. EMEA was the fastest-growing region, up 31%, driven by whopper clients. And Asia Pacific grew 5% as it was impacted by COVID lockdowns in China. Moving on to the next slide. You can see that we continue to maintain a strong balance sheet. As I mentioned earlier, we refinanced in August 2021 to support the scale of the business. The facility summarized here provide us with significant financial flexibility for further growth and M&A. Moving to cash flow on the next slide. CapEx of GBP 16 million includes the fit-out of our new unitary offices in Buenos Aires, New Delhi and London as well as investment in IT infrastructure. Interest paid represents the term loan, which has been in place for the full year, while higher cash tax reflects our increased scale. We are benefiting from our focus on billings and receivables and as a result, saw a working capital outflow of GBP 5 million compared to GBP 33 million in 2021. This represents a change in working capital of 0.3% of billings versus 2.6% in the prior year. Free cash flow was GBP 70 million. The cash spend on combinations was GBP 163 million, including TheoremOne, XX Artists, 4 Mile and payments relating to prior year activity. This takes net debt to GBP 110 million, which is below the expected range, and we continue to focus on cash management. Turning to guidance for 2023. We are cautiously optimistic despite the challenges of an economic slowdown and expect continued top line momentum ahead of growth rates in our addressable market. So we are targeting net revenue growth of 8% to 12% on pro forma 2022 net revenue of GBP 907 million. For clarity, GBP 907 million is after a modest adjustment for the scaled back whopper and includes the full year benefit of combination TheoremOne and XX Artists. We will maintain our focus on appropriate hiring and discretionary cost controls into 2023, and targeting improved operational EBITDA margin of 15% to 16%. As in prior years, we expect 2023 to be weighted to the second half and the fourth quarter, in particular, due to natural seasonality. We anticipate a net finance cash charge of about GBP 27 million and a tax rate of 25% to 27%. Our guidance for cash contingent consideration is GBP 102 million for the full year, with the majority expected in the first half. We have included information on outstanding contingent consideration and invested capital in the appendix. And we are happy to take any questions on these at your convenience. In summary, we expect continued progress in 2023 as we outperform our addressable market and improve our profitability. And with that, I will hand over to Scott for the client and market update.

Thank you very much, Mary. Good afternoon, everyone. Thank you for joining us. There's no denying that our addressable markets face a tougher outlook in 2023. They're not immune to the macro environment. But that said, they do continue to grow despite the challenges. Our core addressable market is digital media spend and whilst traditional channels such as TV and print continue their long-term declines, digital media is projected to grow 7% to 8% this year. These projections unsurprisingly match the ad revenue growth projections from the sell side for Google, Meta and Amazon, the 3 largest platform who dominate the digital advertising market. Our content and data and digital media practices are primarily exposed to the digital media and advertising market. That's around 90% of our total business. The other 10%, our tech services practice secures revenue from digital transformation budget. In a report published last year, Gartner projected digital transformation services, a $200 billion market, would grow at 11.7% in 2023. But when we look at the guidance from our competitors in the market, such as Accenture, Globant and EPAM, it seems that they're looking at around 7% to 10% organic growth in 2023. Within these broader addressable markets, there continue to be exciting innovations and subsectors experiencing very significant growth. Influencer marketing, for example, is now a mainstream channel, with spend over $21 billion this year, growing at almost 30%. I'm sure the hype around artificial intelligence in recent months has not escaped you. We believe this could have a truly transformational impact on our industry, and Wes will cover this in much more detail later. We're proud of the traction we've achieved so far. And with almost 9,000 colleagues around the world, we've proven our ability to scale client relationships. Our market share amongst AdAge's top 25 agency groups grew almost 90% last year, but it's still less than 1 percentage point. As we continue to disrupt the industry, our opportunity and appetite to continue taking share remains significant. Finally, we've described S4 as a royalty on digital marketing and transformation before. And this quote from Franklin Templeton's 2023 tech sector outlook, sums up why we remain excited about the path ahead of us. They say, ultimately, we think digital transformation is still in its early stages with long-term secular growth tailwinds, which we believe extend well beyond the current economic cycle. Our 20-squared client strategy to achieve 20 scale clients with $20 million or more of revenue continues to evolve. We ended 2022 with 10 whopper clients across 5 categories. One of these clients will not be a whopper in '23, but we have identified 14 additional high-growth client opportunities across 7 categories, which we believe are on track to potentially become scale clients over time. The balance of our client portfolio has remained consistent in 2022, with a little under 50% of our revenues coming from the technology sector. We've had some questions on this, so a few things to clarify. Firstly, our exposure to technology to clients is dominated by the mega tech companies. When I look at our top 100 clients in the tech category, just 2% of that revenue comes from what you call start-ups. So our tech client base is stable, well funded and still very much in quinoa. And it's not vulnerable or exposed to some of the banking issues we've seen at SVB or Signature recently. We do continue to make progress in other categories. 2/3 of our next 14 scaled client opportunities are from other segments. But we also remain committed to retaining our exposure to the technology sector, which we believe will continue to be a long-term winner and driver of economic growth. The reality is all our clients are in a sense technology clients. The work we do for them is usually around digital transformation and whatever their category, clients are embracing technology for their sales, marketing and operational needs. Technology clients appreciate our digital-first service offer and the agility of our structure and culture. They are also more than clients for us. They are partners. For many of our largest tech clients such as Alphabet, Meta, Salesforce and Adobe, we not only partner with them on innovation and products, we provide services around their products to our broader client base. Suffice to say, we remain bullish on technology. The other client KPIs we share with you on a quarterly basis also saw significant progress in 2022. A concerted sales effort and growth planning for our larger clients has seen the proportion of our top 50 clients taking services from us across multiple practice areas rise from 50% last year to 78% this year. For our top 100 clients, it's more than doubled to 56% from 25% last year. We see similar traction in the scale of our client relationships with average reported revenue for our top 10 clients, up almost 70% to over GBP 47 million. We saw similar growth at our top 20 and top 50 client segments. The table on the right further illustrates the success we have seen with our scale client relationships and our whopper strategy. 50% growth in the number of clients in the 2 largest segments and an impressive expansion of the pipeline and potential future scaled clients, too. With that, I'll now hand over to the practice updates where Vic, Chris and Brady will share some of the exciting progress and client work we did in 2022. Over to you, Vic.

Hello, everyone, and thanks for joining the call. It's a pleasure to speak about the content practice. Today, I will limit my presentation to 2 sheets, 1 looking back at 2022 and the other 1 maybe more surprisingly, looking forward to 2023. All right. Let's do this. Our content practice services more than 300 brands globally. Our top 25 clients deliver around 60% of our business. And as Scott just presented, we're well on our way to deliver on our mission of 20 whoppers. And content plays an important role in that mission. We serve 7 of the 10 most innovative companies in the world with our work for Microsoft, Alphabet, Samsung, Amazon, IBM, Sony and others. And as Sir Martin always mentioned, we focus where the growth is. 17 of our top 20 clients have the highest growth rate in media spend in the category. One of the best indicators of success besides financial metrics is the quality of our work. Campaign Magazine just announced yesterday that we have been shortlisted with 3 other agencies as best global digital agency of the year. Some highlights for 2022 are projects for the Getty Museum for the best website of 2022 by the main digital craft awards. Our live streaming work for Google Play, the great work we did with NBA and Meta to celebrate women's history month and our ability to be a leader in the emerging Web3 and metaverse categories. For the first time in 2022, we crashed into the Forrester Wave of marketing, creative and content services. In Forrester's view, we are a very strong and innovative performer in the content production industry, which is reflected in a broad range of industry accolades. To mention a few, IAB Agency of the Year, top 10 creative agency in Cannes, Campaign Global Social Agency of the Year, Adweek's fastest-growing agency list, Webby Production Agency of the Year and best place to work in the creative industry in multiple markets, which brings me to our people. COVID has been tough on the creative industry in general, but we're determined to continue our good work in diversity, equity and inclusion with initiatives like gay pride, NextUp.Monks and our S4 female leadership program to make everyone view at home. People are our capital, and we will do everything in our power to drive the change that is needed in our industry going forward. So when we speak about forward, please, let's go to the next sheet. We're giving it close to home in this section and focus on our offering. We see continued traction due to our 1 P&L model, which enables us to help our clients across multiple countries, regions as well as our practices. It sets us up to solve the most important issue in our industry, the integration between data, creativity, media and technology. A necessary component to drive efficiencies and effectiveness of our work. In many cases, we're embedding and integrating our services deeply into our clients. with some of the best creative and digital talent in our industry. And this talent extends into our hubs like Hilversum, Poland, Mexico, Kuala Lumpur, Madrid, Buenos Aires and many others, which allows us to drive cost efficiencies for our clients and ourselves. The result of this model is that many of our clients are currently being serviced by more than 1 practice. Some good examples are our brand positioning and integrated campaign work, creative social and content production for the likes of BMW and Mini and our VR work with Meta, where user experience, design and new technology all need to come together. In order to help our clients grow and to simplify the complex content work -- world, we streamlined our go-to-market in 5 capabilities: brand, social, studio, platform and experience. The capabilities are helping to navigate our clients through the complexity of the digital world and driving our growth and share of wallet. Also our best-in-class capabilities given excellent campus, how to grow our PR, positioning and for leadership. A few examples are how all brands should incorporate DCO that is dynamic creative optimization in their marketing strategy, how we use data to come to the best marketing mix model. And while we are going heavy into these topics, we continuously expand our efforts in driving diversity in tech by initiatives like Next Level, and nonprofit to stimulate growth and schools to choose an education and career in technology. I hope that explains what kept us busy these last 12 months on the content side of the business. what our strategy is going forward. And with that, I'm going to hand over to Chris, who will tell more about DDM.

Thank you, Victor. And I definitely agree the cross-selling across the pillars have been amazing over the last year and continues to be so. Excited to share some highlights from 2022 and our outlook on 2023 for the data and digital media practices. This is the first full operating year post pandemic, where consumer behavior began to settle into a new normal. And much like all of Media.Monks the data and digital media practices are well positioned to be ahead of those digital trends and capture growth from the inevitable disruption from them. In the last year, our media practice continued to evolve in winning new era agency of record, or AOR, assignments, including fully managed services in-housing, consulting services and hybrid offerings. Last year, we added a significant AOR at Estée Lauder North America to our portfolio. Forever 21, a performance-focused client in North America and globally and then Unity Technologies, which is a very notable global AOR win for us and relationship, where we've leveraged our expertise and capabilities across VR, Web3, Metaverse primarily from our content divisions to bring the latest technologies and trends in a new way to think about media strategy, measurement planning and buying, which are all part of the traditional AOR relationship, which we think we've iterated upon with that relationship with Unity. Our largest partner, Google has had a lot of activity surrounding the rollout of GA4 this year. which requires a lot of support from their global analytics partnership ecosystem, of which we are one of the largest global partners. We have a very significant case study coming out of Asia Pacific with McDonald's Hong Kong, where we deployed GA4 across that market while they were launching a new in-app service model. And we helped them grow that region by 550% with online orders. This particular case study was taken by Google and turned into a product launch case study that has been shared throughout the ecosystem we're very excited about. On the CRM front, our consolidated strength of MightyHive, Maverick and Destined, 3 mergers that have come together with significant sales force and CRM capabilities are now integrated into 1 operating unit and delivery team. That is the customer 360 or C360.Monks. And they are winning large-scale logos, much larger than in previous years and previous iterations of the practice as they continue to grow. And that includes an award from PepsiCo as CRM agency of record for all of North America all while growing our sales force joint go-to-market partnerships, which we obtained in 2022 and are now renewed for 2023, our Global Salesforce Summit partner status. And furthering our success in this category of CRM, we also are very excited to be working with Diageo cross pillar to Victor's points in a global engagement supporting 7 countries and 12 brands within their marketing automation groups, a significant win for the CRM practice. On the commerce Monk side of the house, which has expanded their service offering to include new e-commerce platforms, helping our largest whopper clients, now the gate platforms like Walmart, Instacart and Target. We're adding those in addition to our existing Amazon offerings. That category has won new business this year, including consumer product space, winter group, fellows and Acne as well as winning multiple global logos with 2 major consumer electronics NDA firms. So we're not disclosing their names but they're major global device manufacturers. Reebok and Philips Consumer Products, where our work in the United Kingdom has won us an Amazon Performance Growth Award for 2022. Moving on to 2023 and giving you a quick view into what we're planning this year. We have 4 areas of investment and expansion in 2023, and that is in partners, our capabilities -- our core capabilities, automation and thought leadership. We're furthering our engagement with digital data's strategic technology partners such as Snowflake and Google Cloud as well as adding 2-point solution providers, Habu and InfoSum, which are key in supporting our vision for data foundations for the modern enterprise. It's a core offering that we have in our data practice that helps modernize today's industries and businesses to really focus on building a data bus at their company and unlocking it in marketing, advertising as well as product development. We just added Walmart Connect to our portfolio and our preferred partner status and joint go to markets, which will bolster our retail media and e-commerce offerings. And in addition to other certifications, within Salesforce. We've also been added as a preferred consulting partner to support C-suite technology and transformation decision-making at the -- for our Salesforce implementations. And you may have seen in our joint press release earlier this year that Salesforce has launched their Web3 customer loyalty platform, and we are the preferred go-to-market partner for Salesforce and we are now announcing that we are the strategic launch partner for that product, meaning that we're the first folks to go to when implementing the Salesforce Web3 customer loyalty program. On the automation front, we're continuing the theme of automation and AI, which we'll talk about a bit later by launching a dedicated automation consulting practice [ feeded ] through our years of research and development in machine learning and data consulting and we're taking advantage of the commercialization opportunity now in the very fast-growing AI services space within our clients. Internally, we invested heavily in development of automation initiatives, which increase efficiency and productivity of our largest cost base, which is people. And we're partnering closely with a company called Workato for internal workforce automation opportunities. And this year, we plan to measure over 40 company-wide workflows, automation workflows and recipes as they call, to directly assess productivity and quality improvements as a result of those initiatives. And in capability expansion, we continue to move upmarket and participate in larger and larger scale RFPs for our media AOR and measurement offerings. And they're being tested more and more in different regions and formats and they are being tested for scale. We'll be focusing on scaling up the [indiscernible] success in the Americas and bring that model to EMEA and APAC in 2022. The expansion in global coverage will open up even more growth for us via the existing clients and marketers looking to consolidate partners across many markets with a single partner. And finally, our measurement offering focused on faster feedback and cookie-less measurement leveraging both media mix modeling or MMM, plus MTA multi-touch attribution technologies is expanding into Asia Pacific, North America from a very strong base in EMEA, and that will bolster our DDM consulting practice in both APAC and EMEA as well. And that's all I have for 2023. Thank you for the time today and excite to hand the mic over to Brady to walk you through our technology services through 2022 and 2023.

Thanks so much, Chris, and thanks all for joining the call today. Excited to be here. For the Technology Services pillar, 2022 was all about integration and growth. The year began with just 1 part of the technology pillar in place, our team in Colombia, Zemoga SaS, in May, TheoremOne joined at the end of 2022, the team had scaled to over 1,000 strong across a variety of disciplines, including engineering, product management, design, strategy and business consulting, all housed within the fully distributed structure of the combined organizations. The integration work really began in earnest in June of '22 within under -- within 90 days, we had built an integrated leadership team that combined the leadership functions across Zemoga and TheoremOne into a single organization that has enabled us to leverage the combined capabilities within both organizations to really ramp up growth as we're cross-selling capabilities from within both legacy organizations into our pillar account portfolio and within the broader Media.Monks account portfolio. We've partnered very closely with the growth organization inside Media.Monks, Joe Olsen and his team and we've deployed members of our staff into different parts of the content and DDM ecosystems functionally, but also geographically in order to begin in earnest the process of cross-selling really from the bottom up. And we've seen some initial tangible progress and some meaningful wins as a result of that selling activity, including new clients from the technology services pillar like PayPal and BMW. Beyond that, we've been focused very specifically on leveraging our tailwinds from early 2022 to extend our land and expand strategy and we have closed some notable new clients, including BCG and Delta Dental as well as Philips, which are important new players in our ecosystem from the half -- from the second -- the beginning of the second half of '22, we added 19 new clients into the technology services portfolio. I think it's important to note that the Technology Services portfolio expands at a different rate, given the size, the deals and the complexity of the projects that we typically deliver. So our sales cycle is considerably longer than what we've seen comparatively inside of content and DDM. So we're getting used to bringing those 2 different sales heartbeats together in a line so that we can effectively cross-sell. Another important part of the growth story in '22 new partnerships, including those with Google Cloud, AWS, Dapper Labs, Blues Wireless. They're all part of arming up and beefing up our capabilities when it comes to the material side of our time and materials engagements. From a people experience perspective, there is an incredible amount of competitive tension in the marketplace still even with downsizing and workforce reductions that have taken place within the Silicon Valley ecosystem, the talent market is still very hot. And so we've been very intentional about continuing to invest in retention and continuing to invest in talent acquisition. We added over 200 new team members in '22, all on the billable side of the house for the most part that are helping to drive that very considerable growth that we saw over the last 12 months. Keeping our clients happy, of course, is incredibly important, and we've built out the next generation of our client heartbeat monitoring capabilities that are ensuring that we're keeping a very close pulse on how our teams are effectively delivering to our clients. Many of our programs are quite significantly scaled. Hundreds of team members deployed inside of a particular account and so managing executive relationships and client stakeholders and really investing in their individual success within their organizations is a big part of our recipe for success. Other notable points to share, we are expanding into new industries. One of the more notable wins that I want to share with you today is a new initiative with the Department of Defense in the U.S., which we believe has significant capacity to grow. That work stands on top of the wonderful infrastructure that we have in place, both inside of legacy TheoremOne and Zemoga around our quality management system and around our firewall capabilities to delegate teams specifically assigned to federal and government contracting work. For the second year, we have ISO certified in our Colombia operations and we're expecting in '23 to expand ISO certification to other parts of the pillar. When we look ahead to '23, the emphasis is really capability expansion. Obviously, a big part of what is coming down the pipe in the next 12 to 18 months is going to be disruption driven by artificial intelligence technology within our clients' ecosystems, but also that's going to change the way that consumers engage with brands. So a big focus for us in this year is expanding our AI and machine learning capabilities across both industry verticals and across our functional areas within the pillar itself. We're also investing heavily in scaling our business consulting practice, which is a critical part of how we land and expand inside of our clients' ecosystems. The work that we do inside of that function is really designed to plant the seeds that enable long-term digital transformation. And that -- those strategy engagements are a critical part of building the long-term predictability and forecastability into our own pipeline. Finally, our Proof business, which is our workforce acceleration capability is seeing significant opportunity given the broader disruptions in the technology ecosystem around talent, in particular. Proof is seeing a significant amount of additional [ recs ] that are being opened as clients are shedding and prospective clients are sitting headcount and moving towards a more adaptable orientation for their workforce. So we see significant growth opportunities within our strategic staffing and staff augmentation functions. That's everything for technology services. So I will hand it over to Wes to talk about the really fun stock.

Thanks, Brady, and hey, everyone. I am going to dig into the AI piece that Brady and Chris teed up. And just on the personal note, I don't think I've ever been more excited about a technological change or advancement in our industry. I think it's honestly amazing what it is already, and one can even only sort of hypothesize where that is going to end. What we wanted to do today is talk about 10 minutes or so about our point of view, what we're doing. So there might be some time for questions in our Q&A at the end as well. Just to give you a sense of our way to sort of run at this. We go to the next slide. I think it starts with our role and responsibility in the industry. Our industry loves talking about the future, sort of pointing at it and vaguely hand waving about things that might happen. That's not what we focus on. We focus on now. What's happening in culture, commerce technologies and what can we do to unlock value for our clients right now. And that tends to be part efficiencies and part growth, either continued growth for incremental net new spaces to find that growth. And I would say through that lens of now, the key conversation is AI. If we go to the next slide, I would say, mostly generative AI that has really sort of bubbled up the public consciousness. There's lots of conversation happening outside of our industry mostly because of ChatGPT latest version release very recently. And because of all of the visual opportunities and output that we're now seeing from a variety of tools and technologies. So of course, we have to do a little gotcha question, which is which of these images were created by humans? The answer, of course, is none of them. And I think that's a real aha moment. The intent and polish that you can now get from these tool sets is so much further along than it was 6 months ago. That we really have to understand that this is another iPhone moment for our industry. And that's not saying these ads are perfect or that they are replacing creative work, but they are typical archetypes, right? Archetypes in beauty and automotive and CPG and consumer electronics and QSR and travel, the fact that you can get that level of intent is really a game changer. And we can call it an iPhone moment, it might be as impactful as the commercialization of the Internet for our industry. And knowing what we know, the lesson we have learned time and again is when these foundational shifts happen, you have to lean in, right? You have to be fast and a first mover. You have to be excited about the opportunity. If you look through our history, from all of our teams combined, the e-commerce or mobile, explosion of social, programmatic, we made our biggest gains because of those foundational shifts. So that's really our goal is to transform ourselves to be the most empowered and super powered player in our industry when it comes to AI, I think we're well on our way, but we also want to make sure our clients are the most empowered and super powered players in their industry. And then I think what tends to happen when these hype cycles sort of hit our industry is you'll see a lot of PR and awards trickery. If you're looking at this phase to go win a Grand Prix at Cannes, you're missing the point. This is about foundational change at the very core of the marketing services business. And if we go to next slide, that's our opportunity. an explosion of work for a tech-enabled, data-driven media savvy, creatively attuned partner like ourselves. That will open up massive amounts of opportunities and transformational work. Brady talked a bit about this, so I won't belabor the point, but this technology is powerful. It is not perfect and it is not turnkey. There will be massive amount of work in new pipelines and workflows and ecosystems and APIs and tech stack implementations to make sure marketing ops is at the cutting edge. Lot of training of teams and talent, we're doing that for ourselves. We're committed to doing that for our clients as well. And then beyond transformation, it's about what it unlocks. And I think on a free turn extent, it unlocks the original promise of digital advertising. This idea of hyper-personalization, we can deliver content at such massive scale, we're moving from AB testing to [ A to Z ] testing, getting to highly personalized ads, experiences, customer journeys, really a new level of brand experience and that without digging into all of the innovations in products and services that this will open up, especially if you look at how quickly this space is moving. We can talk about this for a very long time. If you're interested, make sure to download our report, the AI revolution will be generated. Again, you'll see we were fast and one of the first movers in talking about this phase in a meaningful way. Has been getting great feedback from subject matter experts from the industry and also from our clients. If we go to the next slide, I also think really this is the model, and it makes our mobile inevitable to an extent. We go back to what we said and promised as we started S4 about 4.5 years ago. It was really about faster, better, cheaper, more value, and you can put more in bold. The ability to scale up output and use the knowledge from that scaled up output to create more value is key to what's going to happen next. And the other part of our promise is always being the smartest, fastest, most savvy player to unlock the value from the difficult -- different tech stacks and platforms that captures so much of today's attention between customers and brands. If you look at what that means for our different practices, number one, data, our model was never about buying sales, potentially legally or ethically questionable data sets. It was always about the race to data maturity, making sure our clients win that race to make our data useful and actionable. Chris talked about this a bit earlier. That has always been urgent. I think it's been super powered because of what has happened over the last 6 months. If you look at media, again, the model was always around automation, tech implementation, connecting closely to data. It was never about massive amount of executional staff across the globe, and we expect to see really big disruption in this space. Tech, of course, it will scale up the output from our teams. And to Brady's earlier point, create large digital transformations that will keep going and going as these technologies evolve. And then when you look at [ content ], it's always been about being the best translator of what is possible in a technology or on a platform to how that actually connects the consumers in a way that drives growth. So what are we doing? We're helping our clients figure out solutions for personalization at scale, we're even further disrupting in our agency model, something that we've been doing for a few years already. We're looking at ways to combat credit fatigue. I'll talk a bit about that on the next slide and then doubling down on the idea of the original digital advertising, highly personalized, really specific customer journey and experiences that look in and hopefully keep growing a customer base. If we go to the next slide, pipeline and partnerships, we are an early mover in this space. To Chris' earlier point, we launched our AI automation team last year pre the hype cycle. You can look at some of our thought leadership that goes as far back as 5, 6 years when we talk about the creative opportunities that generative AI will unleash. This is a natural shift for us and everybody on our end is very excited by how quickly that shift is now happening. We already have AI-enabled pipeline across all of our practices. We are either in projects or in advanced discussions for projects with 7 out of our 10 biggest clients. We're an automation partner for 1 of the world's top streamers and entertainment companies, and I expect us to have AI projects/work streams with all of our major clients or close to all our major clients as we go throughout the year. Partnerships. Chris talked a bit about this as well. It's key to our model, right? We're the partners to go to help you unlock value from the technology and platforms that are so key to today's culture and community. We need to be the very best of making sure we can make those platforms and technologies perform. We have a partnership in place now with a big advertising driven platform to figure our way to combat credit fatigue using AI. Credit fatigue is one of the major dissipators of value in media spend. If we figure this out, it's a massive unlock for our combined customer base. So what is our strategy? We're going to double down on what we see as an early mover advantage. We see it as a way to increase market share. To Scott's earlier point, we are less than 1%. We're growing quickly. We think this will allow us to grow even more. And of course, we will continue to make our core business more efficient by using the technology tools available. And then as we go to the last slide before I hand over to Sir Martin for the summary, a little tongue in cheek, but we did ask ChatGPT to write an analyst report for us. Through the lens of S4 emerging as a leader in AI integration in the advertising marketing services space, driving continuous innovation and having that be a real competitive edge for us. You will not be surprised that, that turns out really well for us in 2025. All joking aside, we are a disruptor in our industry to us, all disruption is the disruption and AI, in particular, plays to our strengths and really fortifies our model. So we're extremely excited about everything that is happening. And with that, that's my 10 minutes. I will hand back to Sir Martin.

Thanks very much, Wes. Thank you. So just to summarize on the last Slide 34 before we get into Q&A. Full year results were slightly ahead of the guidance we gave you, both at revenue and EBITDA line. Revenue exceeded GBP 1 billion for the first time in our history and operational EBITDA and margin delivery improved sharply in the second half. Net debt was better than the guidance we gave you. Basically, through better working capital management. We made significant progress in improving financial controls in the areas of treasury and risk management and governance, too. Very pleasingly, we've had further client conversion at scale. We had 10 whoppers last year, 6 the year before and 2 the year before that. So we're making significant progress to our 20-squared goal of 20 clients of $20 million of revenue plus. We've identified another 14, as Scott laid out. Second half, certainly, we showed discipline around investment in our human capital and controlling discretionary spend. We made good progress on our ESG strategy in the areas of 0 impact workspaces and sustainable work in diversity, equity and inclusion. We've got continued momentum in our 2 major addressable markets. That's the platform-driven part of our addressable market and technology services. Albeit, we have to say, at reduced levels of growth, given what's been happening in terms of economic volatility. Our focus in '23 is to continue to build on the growth in our whopper clients on conversion on scale to deepen our efforts in integration across our 3 practices in geographical areas and to provide, as Wes has outlined, industry-leading advances in AI for our clients, which we think will have a very significant disruptive effect on the traditional industry. And finally, we're targeting like-for-like revenue growth ahead of our addressable markets for '23 and EBITDA margin target of 15% to 16%. So with that, we've been going now for almost an hour actually. I will hand over to the operator for Q&A.

[Operator Instructions] First question is coming from Omar Sheikh, calling from Morgan Stanley.

I've got 3, if I could, please. Maybe the first 1 for Martin. How much conservatism Martin, are you baking into the guidance for the year? Can you maybe just talk about what sort of headwinds you might be seeing right now and what you're expecting on that front on the top line for 2023? That's the first question. Secondly, maybe for Mary. Can you talk about the headcount plans for the year? What was the year-end headcount in '22? And what are you assuming for 2023 in terms of headcount by the end of the year? And then finally, maybe 1 for Wes on AI. Thank you for the presentation and the thoughts. They are really helpful to hear what you're doing. Could you maybe talk about how S4's capabilities have been differentiated relative to what your peers are doing? And how do you maintain that differentiation? And isn't it the case that -- doesn't AI essentially basically generative AI, doesn't it lower the barriers to entry for smaller competitors. Doesn't it disrupt you particularly in content going forward? Those are my 3 questions.

Okay. Not easy to answer questions. Wes, do you want to kick off on AI and then Mary and I'll come back to the conservatism.

I love that, I mean, the first not easy to answer question. So it's the right question to ask. So I think there's a few parts to that. What differentiates us? Number one, this is not bandwagon jump in. You can look at our history, both what we've produced and how we've talked about the world to show that we've been on this road for a long time. What is differentiated is a lot of the progress in output is maker driven. There isn't a player of our size or rather sort -- seen as a comparative player. That has as much maker talent across the practices, which means a lot of our progress is grassroots. It's not something that we need to decide at the ELT level and hope to be able to execute. It's actually happening day today and it's driving all of the innovation already. The third piece is this is clearly disruptive. This might be industrial revolution type disruptive outside of our industry. My belief is you have to be fast, you have to be a first mover. And if you do that well and support our clients in the right way, there's massive growth of this moment on the other side. And I'm extremely bullish on our ability to move fast. And in some cases, disrupt our own work streams doing so because we have less legacy that we have to disrupt. We're ready for this moment. I hope that helps answer the question.

Okay. Mary?

Omar, so from a headcount perspective, we finished 2022 with about 8,900 people. And as we look forward into 2023, so we will be maintaining the discipline that we employed in the second half of 2022 around our investment in people. And what that means is that every headcount is very carefully considered. We have tight controls on additions coming into the business. And also we continue to optimize our teams. In terms of what that means for 2023, it means that the headcount will be much more balanced against the top line. And when we think about our budgets, we're expecting a modest increase in the year.

Okay. Just one thing to add what Wes said and to Omar's question about new entrants. What this does do, and I think, Wes sort of implied it is it makes it much easier for a 9,000-person organization to compete against 100,000 or 50,000. So it gives us much more flexibility, I think, than we had before. On the 2023 guidance, I mean inherently, it is conservative because we've looked at our budget, which is bottom-up budget. So on the content side, on the DDM side and on the tech services side, this is very much this year bottom up. And we put certain hedges and reserves into those figures in coming to the guidance that we've outlined in the RNS. So I think the first point to make in relation to what we're saying about 2023 is we have been, I think, looked at our budgets and looked at them carefully. And that's very much in the second -- in the context of the second point, which is that the clients took a fair amount of time to close off their budgets for 2023 at the end of 2022. I mean normally, clients would be finishing their operating budgets, not their marketing budgets, which come out of the operating budgets, but their operating betting budgets by say, October, November, and this year, last year and the back end of the last year and this year, they've taken longer to do so. And that's understandable in the context of volatility we've had. I mean we've got a number of things going on in the world at the moment, which make a call for a very volatile environment and clients, I think, are skittish, sales cycles are longer. I don't think we've seen significant cuts. But I think we've seen people delaying decisions hesitating to make decisions because of that uncertainty. So that's reflected, Omar, in what we're coming out with in terms of guidance on the budgets.

We'll now move to Julien Roch calling from Barclays.

Four questions, but 2 are quick. The first one is on Mondelez. Why you think you lost the account and what are you doing not to lose another big account? And how much net sales it contributed in '22. Second question is, so far, your 3-year plan was always doubling net sales over 3 years, but you haven't given us a 3-year plan this time around. So do you think you've shifted down from 25% growth a year to a level? Or do you think you can go back to 25%. And then the quick question is the 8% to 12% outlook is organic to apply on the GBP 907 million pro forma, that captures M&A, but that doesn't capture. So what would be the FX impact if exchange rates stay at current level? And last question, still no M&A as long as share price is below GBP 430.

Yes. Answer to the last one -- last question is, yes. So we basically are focusing, as we said in the presentation and the release on organic growth and integrating what we have, which obviously the complexity of doing that showed itself in various ways, and we have to deal with that and are dealing with that. I mean, Mary, do you want to talk about the exchange rate impact and the GBP 907 million and the 8% to 12%.

Yes, of course. So the -- you quite rightly call out the GBP 907 million that we've called out in the presentation as the pro forma base on which to base the growth for 2023. That assumes the average 2022 exchange rate, which for the dollar was 123. And we've based our budgets and our outlook on that average, so on 123. Now were we to see movement in the dollar. About GBP 0.01 is worth about 5% to 6% net revenue and around GBP 1.5 at an EBITDA level. So that would be the variation in relation to that.

On the doubling point, Julien, that's a difficult one. What we've tried to map out and Scott did in his presentation, what we think is going to happen in our 2 major addressable markets, not just in '23, but looking a little bit ahead to '24 and '25. We have prepared our 3-year plan. It is very aggressive. In terms -- let me leave it at that in terms of its objectives. And I think our people take to heart quite seriously trying to build very strong organic growth rate. So it's, I would say that the 3-year plan is very ambitious. Having said that, if you look at the organic growth rates for the 2 major addressable markets, one, driven by the platforms, which is 90% of our business and the other 10% by technology services. The growth rates, as Scott said, are down to about 7% to 8% on the platform side and 8%, 9%, 10% on the digital transformation or Technology Services side. That's for 2023. If you look further than that, the growth rates are greater. And I think you broadly can say, obviously, it depends -- there's a wide number of prognostications. But broadly, for the platforms say, through to 2025, it's low teens growth, so 10%, 11%, 12% growth compound growth. For the Technology Services, it's high teens. So you're talking about 16%, 17%, 18% growth. So that gives you a sort of the parameters. Now we've always said and we continue to say we want to grow faster, and we think we're capable. It came out in Victor's presentation and Chris' and Brady's and Wes'. We want to grow faster than the market. So I think you can you can think about our major addressable markets growing low teens, high teens as we go through to 2025, digital moving up from at 60%, 65% of budgets to 75%. And the fundamental underlying growth rate will still be quite strong. I was looking at -- a circular came out this morning from Michael Nathanson, which differentiated heavily between analog and digital just for '23 for media spend and maintained H2 rates for digital, I think it was 11%. Scott will correct me if I'm wrong, I think it was 11% in the second half of the year. So anyway, I think, basically, the growth rates remain strong and our ability to hit high organic growth rates remain strong in the context of even what's been happening in '23. On Mondelez, it's very difficult to comment and neither would we wish to on a specific client. But I would just sort of move away from the specifics and just say that when you're involved in projects of that -- of those kind. They involve organizational changes on both sides, on both the client and the agency side, which are sometimes difficult to do. And I think in many cases, you end up with a situation where it's important that both sides can see a way through. And we did say in the release we mutually agreed on ceasing that contract. It's only part of the Mondelez relationship. We continue to have a significant relationship with them elsewhere. And the impact -- I mean you asked about the impact of GBP 17 million, right? Is that right? correct, Mary?

Yes, it's just below 2% of net revenue.

Yes. Yes.

We'll take Steve Liechti, calling from Numis.

Yes. Just while you're on the Mondelez, can I speak for Julien and say I would have asked if I was him. Can you just talk about any other big projects or clients that might have a similar sort of warning signal that Mondelez might have had that might be at risk? So that's the first question. The second question.

No. We declared that one up, no.

Okay. And if I just push you on that slightly, if I look at the big pitches that you won like a big auto manufacturer, that -- I shouldn't put that in the same box as the CPG one.

No.

Okay, good. So then just can you talk about pricing and costs for 2022 and '23. So on pricing specifically, what sort of price rises did you get through? And what sort of salary increases did you put through? And what are you expecting in '23? And I guess, more fundamentally, given the sort of faster, quicker, cheaper mantra. Just philosophically, are you a price setter or a price taker as a business? And then my last question is, can you just talk us or walk us through the sort of consolidation of the business under 1 brand and the 1 operating model. Just sort of tell us where you are in that? What's gone well? What's not gone so well, where we are in that journey.

Okay. Mary, do you want to talk about salaries for?

Sure. So in terms of 2022, we saw salary inflation of around 7%. Our expectations for 2023 are a bit lower than that, so mid-single digits for the year coming.

And on pricing, I think we had some flexibility in pricing. I mean, Wes and Victor and Chris and Brady can chip in on the pricing. We saw some flexibility, obviously, with inflation. And if clients are fixing their budgets as a percentage as many do, particularly packaged goods of revenues, and they're getting price increases of some significance in some cases, last year, it was 30% within -- for 18 months. Your budgets are run off that nominal number, and you've got some pricing flexibility with suppliers. So I think on pricing, and I think we've managed to do that. I would say on pricing, we have further to go on pricing, particularly in relation to contracts, and I'm not talking about long-term contracts, I'm talking about even short term. So I think there's still some work to be done on that. I mean anything you want to add Victor or Wes or Brady pricing.

Again, I'll jump in yes, very quickly, Sir Martin. So on the technology services side of the house, we have historically seen consistent opportunities to level set pricing along with value delivered, and we've continued to see that trend over the course of '22 and leading into '23. There's certainly downward pressure in some areas, but I think most of that is going to be alleviated through kind of shifting the services mix as we continue through the year. So I don't have any significant concerns about pricing pressure at this time.

Okay. On the branding side, I mean, Wes, do you want to talk a little bit about what's being done on the branding and naming and maybe even on our North Star project as well?

Yes, of course. Strategy is still the same. I think our differentiation against the industry, single brand, single P&L we're seeing that play out in real time as our biggest clients are doubling down on us as a scalable strategic partner because of that model. We have a series, we have 60% to 65% of the business integrated fully. We have quite a lot of integrations lined up in Q2, which has been prepped last year. So we'll see even bigger part of the organizational breakthrough as well. But I think it comes down to -- it plays into our positioning, the go-to-market work that our team has done and like [indiscernible] for the amazing work there and the whole team they work with and that. Our position to market is focused on now being able to create the flexibility and subject matter expertise on our side for our clients and take out the silos and barriers that will normally be in place in a more traditional sort of legacy network model that really is that now foremost . We can sort of jump in and create opportunities way faster than you would have in more siloed organization. So the strategy has worked for us really well so far, and we'll see a lot of progress in the next 3 months when it comes to some of the remaining labels being fully integrated.

I think [indiscernible] Wes said sort of 65% of the company. I think we're probably 2/3 to 3/4 of the way in the journey, and we know precisely what more needs to be done in terms of integration in the U.S. And probably in Asia, we need to do more work in that area in terms of integration. Does that cover your point, Steve?

Yes, that's very useful.

[Operator Instructions] We'll now go to Mr. Matthew Walker of Crédit Suisse.

Just a few questions, please. The first 1 is looking at the budget of 8% to 12%. I mean, you outlined a bit of conservatism in there, but just conceptually, when you look back at prior years, your outperformance of the market was really significant. So it was like your organic growth was double what your markets were growing at or in that region? I'm a little bit surprised that you're not growing that in your budget, you're not growing that much above your markets, even though your total addressable market opportunity is really large, and you've got a lot of competitive advantages. So that's the first question is why is the projected growth not more higher than your markets? I mean it's a little bit higher than your markets are growing at, but not much. The second question is when you think about that 8% to 12%, could you maybe think about it by division, so media content tech services for you guys? And then finally, a question for Mary is on the share count. You said 670 average for this year. Can you give us -- I guess, there's going to be no more M&A for the while. But can you give us the average share count you're thinking about in your model for '24 and '25, please?

Yes. Do you want to answer that, Mary?

Yes, of course. So we've called out the average share count for 2023, around 670 for weighted average for this year. In terms of 2024 and 2025, so we've been clear in the appendix on the expected shares to be issued during 2023. And then when you move forward into 2024, effectively you have a time-based weighting, which changes on those shares issued in 2023, but then as we go into 2024, we don't actually have any further cash contingent consideration or expected contingent consideration of shares. So you just need to make an adjustment for the time weighting of those issued in 2023. The important point I would make is that the weighted average share count includes the deferred shares at the point at which they crystallized. So they should already be in your numbers. Does that help, Matthew?

Okay. On the second question you asked, Matthew, on the -- between the divisions. We're not giving the breaks, but we are prepared to say that in terms of growth in '23, the highest growth rate is in tech services in terms of the budgets and the guidance, it's tech services. Second would be DDM, data and digital media. And third would be content. So that gives you an idea of the future for the 3 practices. On the budget, I think it's a question I think you in your own notes, Matthew, that you put out recently -- have commented that -- I think it was in your note, it highlighted the statements by various CFOs and CEOs and others about how they see 2023. And I think -- I still think there's considerable outperformance. If you look at where the holding companies are in terms of their guidance for this year, 3% to 5%. You are talking about a significant outperformance to what other companies are doing in the industry. So I wouldn't say that this is remarkably different in terms of outperformance. I think what we're reflecting is the world is a very volatile place at the moment has been volatile to be fair since January of 2022 when the war started in Ukraine.

I just meant clearly, I just meant it really relative to your markets, which are basically digital markets. whereas the other agencies are much more analog exposed. So I just think in the past, you had higher outperformance of your own markets and what you're projecting now.

We'll see. I would just put it like this, we'll see what the markets come out at, and we'll see how we come out at it. I mean I think we've taken this year an approach to it is very much people bottom up saying where they think it's going to come out because of the uncertainty. And we'll just have to see how it shakes out in the course of the year.

As we have no further questions, Sir Martin, I'd like to turn the call back over to you for any additional or closing remarks. Thank you.

All right. Well, thank you, Thanks, operator. Thanks for doing that. A big thank you to Brady, to Chris, to Wes and to Victor and Scott, Mary, and thank you all for joining us. We had a large number of people on the call. We only have 1 call at this time as we've managed to catch the U.S. contingent on the same call. And I apologize again for the unearthly hour, and that we couldn't do it on a normal basis due to a personal commitment I had. So thank you very much indeed. I look forward to seeing you when we report Q1. Any further questions, let us know. Thank you very much indeed.

Ladies and gentlemen, that will conclude today's presentation. You may now disconnect. Have a good day. Goodbye.