Sorrell's S4 says there's 'a fighting chance' to achieve 3-year plan despite COVID-19

S4 Capital has reported a like-for-like revenue increase of 17% to about US$88 million for the first quarter of 2020 (Q1 2020) and a like-for-like 19% increase in gross profit to approximately US$75.63 million. Among the new business wins include assignments from PayPal, Quibi, Twitch, Domino’s, Fuji Television, Dole Food Company and AkzoNobel. 

The growth comes despite the impact of COVID-19, but of course, below the pre pandemic expectations. However, S4 said it is still at a level which gives “a fighting chance” to achieve the group’s three-year plan of doubling its size organically on a like-for-like basis.

Executive chairman Martin Sorrell (pictured) added that the pandemic will only accelerate the digital trends it has seen before at three levels – consumers, media owners and enterprise managers. He added that COVID-19 is effectively and sadly “a burning platform” that has encouraged and driven digital transformation, adding that agility will be a key, if not the key corporate attribute.

“Clients will also be increasingly willing to explore all models – out-house, co-located or embedded, in-house – with the latter becoming increasingly effective, particularly as clients seek to take back control, in a world where the walls of the walled gardens are growing higher and the battle with the tech platforms to control data and influence the direct to consumer relationship is key,” he said. Sorrell added that the tragedy of COVID-19 will only emphasise the important of, and accelerate the execution of, this process and the already strong digital platform, hardware and software companies will only get stronger.

Currently, MediaMonks, S4’s digital content practice, represented 79% of total gross profit. It reported a 19% like-for-like gross profit increase to about US$57.2 million and a 17% increase in like-for-like revenue to about US$69.8 million. Its programmatic and data and analytics practice, MightyHive, represented 21% of its total gross profit and saw a 17% increase in like for like gross profit to about US$18.1 million. MightyHive’s like for like revenue increased 18% to about US$13.8 million.  

According to Sorrell, S4’s clients have continued to increase their investment in digital content, programmatic and data and analytics, but at varying rates depending on the individual categories. Its tech clients, which account for approximately half of its revenue, have by and large continued to invest, particularly in purpose campaigns, Sorrell said, although there has been some genuine postponement of spending from the first or second quarters into the second half.

“The other half, dominated by FMCG or CPG companies, pharma and retail is more mixed, with some cutting or reducing spend and, of course, investment in purpose campaigns too,” Sorrell added. He also said that the travel and hospitality verticals have virtually all stalled. Mostly all, however, are switching investment from traditional or analogue media to digital, as consumers increasingly shop, educate and communicate online, with online being cheaper, more flexible and more effective, Sorrell explained.

Separately, to weather the COVID-19 storm, S4 has reduced non-essential expenses, cut travel and reduced hiring. Its Coronavirus Crisis Group, comprising eight executives who meet daily to review its employees, clients and finances, have reduced their compensation by half for six months.

“We have also adjusted our headcount numbers marginally to reflect changing functional and geographic patterns in client demand. Lastly, we have already started to examine our office lease patterns in various cities and terminate and consolidate office premises where possible and faster than we originally planned,” Sorrell added.

Related articles:
S4 reports pro-forma growth in APAC, says impact of COVID-19 limited
S4Capital doubles down on diversity with 2 board appointments