Earnings call transcript: S4 Capital reports Q1 2025 revenue decline, stock drops 5.39%

S4 Capital PLC, a digital advertising and marketing services company, reported a 12% decline in net revenue for the first quarter of 2025, reaching £164 million. The company’s stock fell by 5.39% following the announcement, reflecting investor concerns over the revenue drop and ongoing macroeconomic challenges. According to InvestingPro data, the stock is now trading near its 52-week low, with analysis suggesting potential undervaluation. The company maintains impressive gross profit margins of 89%, despite recent challenges. Despite the decline, S4 Capital maintains its full-year guidance, anticipating net revenue and operational EBITDA similar to 2024 levels. InvestingPro analysis reveals multiple positive indicators for the company, including strong liquidity with a current ratio of 1.25 and analysts projecting a return to profitability in 2025. Discover 9 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

Key Takeaways

• S4 Capital’s Q1 2025 net revenue decreased by 12% year-over-year.
• The company’s stock price dropped by 5.39% post-announcement.
• Full-year guidance remains unchanged, with expectations for stability in net revenue and operational EBITDA.
• Focus on AI-driven marketing solutions and restructuring efforts.
• Macroeconomic challenges and reduced marketing expenditures by tech clients impact performance.

Company Performance

S4 Capital’s performance in the first quarter of 2025 reflects significant challenges, with a 12% decline in net revenue compared to the same period last year. The company, currently valued at $201.73 million, attributes this to a difficult macroeconomic environment and reduced marketing expenditures by technology clients. For detailed insights into S4 Capital’s valuation and future prospects, access the comprehensive Pro Research Report available exclusively on InvestingPro, covering what really matters for informed investment decisions. Despite these hurdles, S4 Capital continues to invest in AI-driven marketing solutions and has restructured its operations to focus on marketing and technology services.

Financial Highlights

• Net revenue: £164 million, down 12% year-over-year.
• Net debt: £145 million, representing 1.7 times EBITDA.
• Personnel cost target: Long-term goal to reduce to 65% of net revenue.

Outlook & Guidance

S4 Capital is maintaining its full-year guidance, expecting net revenue and operational EBITDA to be similar to 2024 levels. The company anticipates improvements in performance during the third and fourth quarters, with a focus on efficiency and AI-driven cost reduction. Additionally, S4 Capital aims to achieve a medium-term leverage objective of 1.5 times EBITDA.

Executive Commentary

CEO Martin emphasized the company’s commitment to efficiency and quality improvements, stating, "Efficiency is going to be paramount." He also expressed optimism about future performance, noting that "the fog will clear in the next 60-90 days."

Risks and Challenges

• Macroeconomic pressures: The challenging economic environment may continue to impact client spending.
• Tech client expenditures: Reduced marketing budgets from technology clients could affect revenue.
• Tariff uncertainties: Potential tariffs pose a risk to international operations and profitability.
• Content market decline: Traditional content markets are shrinking by 10-15%, affecting revenue streams.
• Personnel cost management: Achieving the target of reducing personnel costs to 65% of net revenue requires careful management.

Q&A

During the earnings call, analysts inquired about the potential impact of AI on revenue models and the uncertainties surrounding tariffs. Executives also discussed segmentation within the content market and highlighted new business wins as potential revenue drivers.

Full transcript - S4 Capital PLC (SFOR) Q1 2025:

Martin, CEO/Chairman, Monks: So good morning all. Q one twenty twenty five. I’m joined by a cast of thousands here in London. On my left is Radhika, who’s just joined us as CFO, subbing for for Mary on my right, who is masterminding the handover period with Radica. And on her right is Scott Spirit, and on my left is Jean Benoit Bertie.

So we’re we’re here this morning to go through q one. Trading update from Mary is the first section. Second second section, market momentum. Third, client, analysis, and then business momentum all done by Scott. And then I’ll come back briefly for a summary and outlook, and then we’ll take any q and a.

So this is the first of two webcasts today. The the later one will be at 01:00 London time, mainly with the West with the West, and East Coast in America. So thank you for that.

Mary, Outgoing CFO, Monks: Mary. Thank you, Martin. Good morning, and thank you for joining us today. The macroeconomic environment remained challenging in the first quarter. Net revenue of GBP 164,000,000 decreased 12% on a reported basis or 11% like for like, with continued caution from clients and a reduction in activity from one key technology services client already disclosed.

Operational EBITDA for the quarter was in line with our expectations. It benefits from cost reductions made as we continue to align our resources with activity levels. We maintain our full year guidance on a constant currency basis with target net revenue and operational EBITDA broadly similar to 2024. We continue to take a disciplined approach to cost management, including headcount and discretionary costs, with a focus on utilization, billing and pricing. We expect performance to improve in the second half with a greater weighting than the prior year, aided by the phasing of new business, revenue and our traditional seasonality.

Net debt at the March was GBP 145,000,000 or 1.7 times operational EBITDA. This compares to GBP $2.00 6,000,000 at the March 2024. Our full year net debt guidance remains GBP 100,000,000 to GBP 140,000,000. Moving to the next slide. Let’s take a look at first quarter net revenue by our new practice structure and region.

My comments here are all on a like for like basis. Marketing Services net revenue was down 8% at GBP 148,000,000, with ongoing client caution and large technology clients prioritizing AI expenditure over marketing. Activity with GM, Amazon and a key TMT client continues to ramp up. The practice remains focused on efficiency, utilization and billability to improve margins. In Technology Services, net revenue decreased 37% due to the already announced reduction from one key client and longer sales cycles for new business.

From a regional perspective, net revenue in The Americas declined 11%, driven by Technology Services. EMEA was down 16%, reflecting lower activity in The UK, The Netherlands and Germany. And APAC reduced 11% with slower demand in Australia. I’m pleased to welcome Radhika. We’ve been working closely together in the last week, and I will continue to support her through the handover.

And finally, I’d like to say how much I’ve enjoyed working with Martin and the team and have learned a lot in the last three years. And as I move on, I wish the company all the best for the future. Thank you very much. I’ll now hand over to Scott for the market and client update.

Scott, Executive, Monks: Thank you, Mary. Good morning, everybody, and thank you very much for joining the call. If we take a look at the current market dynamics, then clearly, we are in volatile times, and this is driving caution and uncertainty from clients. In terms of market momentum, the challenges we’ve seen with tech companies reducing their marketing expenditures persist. They continue to prioritize CapEx investments, particularly AI spend, over OpEx and marketing spends.

In Q1 twenty twenty five, Google’s sales and marketing expenditure was down over 5%, and Amazon’s CapEx was up over 75% year on year. They’ll spend over $100,000,000,000 this year. If you look at the four hyperscalers, Google, Meta, Amazon and Microsoft, they will spend a combined over $330,000,000,000 this year, up almost 40% on 2024. Now whilst tariffs don’t directly impact our business, there are second order effects given the significant impacts they may have on some of our clients. It’s a fluid situation and too early to give accurate projections, but it certainly adds to the uncertainty of our clients are facing and clearly creates a challenging environment.

We have already seen analysts pull back their forecasts for marketing and technology spends in 2025. That said, we have maintained our guidance based on the business momentum that we see. From a revenue perspective, whilst we’ve continued to see pressure from certain technology companies and are still lapping the impact of the First American business in Tech Services, we have had a strong start to the year with new business, including a recent win, which should double the size of one of our existing Whoppers in the TMT sector. We as we discussed in March, we’re also anticipating the ramp up of our GM and Amazon business in H2 twenty twenty five. We continue to attract excellent talent, which will help us drive our growth agenda forward, including a new Chief Growth Officer for our Tech Services business, who started in Q1 and has already expanded the pipeline.

And of course, as per last week’s announcement, Radhika joins as CFO and Nerveq Singh joins us as a Non Executive Director. From a margin perspective, our COO, JB, discussed in detail the three pillars he’s focused on in March, starting with increasing discipline around the predictability of our revenue, allowing for more effective recruitment and resourcing and then a series of initiatives around productivity and profitability to drive margin improvement. As a result, we maintain our guidance of net revenue and operational EBITDA to be broadly similar to 2024 on a constant currency basis. We have a very compelling client list with some of the world’s leading and most innovative companies. In 2024, ’9 of them were what we call whoppers, that’s revenues of more than USD 20,000,000, which is a differentiator for a company of our scale.

Most of our direct competitors have a much more fragmented client list with smaller relationships. As you can see, we continue to be skewed towards the tech industry, but wins such as GM, which should scale up to a top three client in 2025, are changing that profile. These are strong relationships that help us attract and retain talent to work on them. The continued softness we’re seeing in technology client spend and the First American decline in our tech services practice have had a negative effect on the average revenue size of our top ten, twenty and fifty clients. But this is primarily driven by reductions in spend rather than lost business.

I now have a few slides on the momentum we are seeing in three areas of our business, which give us confidence despite the challenging macro environment. Firstly, we have great traction around the go to market propositions that I discussed at our last earnings presentation. Those are Real Time Brands, Orchestration, Glassbox Media and Digital Transformation. Today, I’m going to zoom in on Real Time Brands. The idea behind this proposition is that we exist to bridge the gap between brand strategies and media effectiveness in a real time world.

As consumers, we’re already at peak media consumption capacity. Our brains and the media platforms we have used have evolved to help us navigate the cognitive overload we experience daily. How and when we engage provides feedback and allows the platforms to optimize our experience. We see more of what we engage with and less of what we don’t. Our real time brand approach adapts this for the process of enduring brand building across platforms.

We examine what drives the decision to engage with a brand. It is a combination of familiar attributes that cue recognition and identity, and the contextual variables that reflect relevance and novelty. Our job then is to work with the client to identify combinations of strategic, creative and media dimensions that deliver the optimal brand experiences for their consumers. We create better connections in the moment and drive brand familiarity over time. And in a continuous loop, we gain insights from these connections and apply them to the brand experience over time and across the ecosystem.

We concept and produce multidimensional creative. These are big ideas that connect every day and everywhere to be effective. They’re multicultural, the brand values are reflected through culture informed experiences. They’re multi moment, the expressions are designed for moments of captive attention. They’re multi outcome, the content is aware of its role and optimized for results.

And multi touch point, ensuring relevance by designing for native channel behaviors. All of this adds up to real time brands, creating recognizable and relevant connections for more channels, places and moments, maximizing the value of each opportunity to connect with their audiences and growing smarter and more effective with every interaction. This has led to our latest major win, which will contribute to our second half performance, and once it ramps up in a full year, double the size of one of our existing TMT Whopper clients. Two other clients, which are also driving our second half performance are Amazon, where we have significantly expanded our relationship and GM, which we won last year and which continues to scale and ramp up. They’re also both great examples of clients working with Monks to leverage artificial intelligence for meaningful results.

With Amazon, we’ve built an agentic AI workflow with them, which has significantly reduced campaign development time and cost per assets, meaning they can make their budgets work much harder. With GM, we’re building a completely new approach to marketing and content development for them, leveraging Monks Flow and technology from partners such as Adobe, NVIDIA and Runway. The initial results are exciting, and watch this space for future developments. The third area I want to highlight is our burgeoning presence in The Middle East, where we have almost 100 monks across our offices in Dubai, our regional HQ in Riyadh and our regional production hub in Cairo recently opened in June 2025. A strong local, regional and international team led by Omar.

In the past three years, we’ve built a strong sustainable business with an enviable client list and a particular strength in servicing local clients. Examples include PIF, where we have a strong strategic partnership, working for PIF themselves and many of their portfolio businesses. For PIF, we’ve built their social presence into a strategic asset across multiple platforms, developing an always on narrative, amplifying events, deepening engagement and elevating their brand. For Neom, from developing the first page of their website to building their data infrastructure, we continue to develop their social presence on their master brand channels to deepen engagement with global and local audiences, including investors, talent and future residents. And for Qidaya, we have developed a state of the art experience center for investors and visitors, bringing the city to life with immersive designs and technology.

In addition, we’ve built their corporate website and set up their social media ecosystem over the past two years. We’re excited to be kicking off seven Entertainment Ventures strategy scope this month, along with more exciting new work to be disclosed very soon. We’re confident The Middle East will be a growth engine for us in the second half, but also going forward. And with that, I’ll hand over to Martin for the summary.

Martin, CEO/Chairman, Monks: Thanks, Mary. Thanks, Scott. So just to summarize where we are at the end of Q1. Net revenue at 164,000,000 was down about 12% reported and about 11% like for like, reflecting ongoing caution from clients and the expected decline in activity from one key technology services client. Our net debt at GBP 145,000,000 represents leverage of about 1.7x EBITDA versus GBP $2.00 6,000,000 this time last year in 2024 and reflects an ongoing focus on working capital and cost control.

Under the unified Monks brand, we are now reporting as two streamlined practices, marketing services and technology services, although we keep an eye on what’s happening in content and data and digital media as well. The macro environment continues to be challenging, increasingly as a result of U. S. Imposed tariffs and the significant volatility as a result and uncertainty in global economic policy, which remains. We may now remain may maintain our targets for the year on a constant currency basis with 2025 net revenue and operational EBITDA expected to be similar to 2024, with an expected improvement in the second half with greater waiting than last year, but as usual, and phasing of new business activity, particularly around General Motors, around Amazon and the key TM client that Scott referred to.

The 2025 net debt target range is GBP 100,000,000 to 140,000,000 versus GBP 150,000,000 to 119,000,000 last year, with a medium term leverage objective of 1.5x EBITDA. We maintain our focus on margin improvement through greater efficiency, greater utilization, billability, improved billability and pricing. And we continue to capitalize on our prominent AI positioning and are seeing multiple initial AI related assignments in new business. And we’re starting to leverage AI technology in ways that Scott has referred to and as he referred to in the RNS. We remain confident in our strategy, in our business model and in our talent, which together with scale client relationships, we believe positions well or very well in the long term.

So with that as background, we’re open for questions.

: Thank

Call Moderator: And up first, we have Laura Matteo from Morgan Stanley. Please go ahead. Your line is open.

Laura Matteo, Analyst, Morgan Stanley: Good morning. Thank you for taking my questions. Two questions, please. You’ve mentioned new business that they will contribute to H2 growth. Are you able to give us a sense of how much you expect new business wins to contribute to growth for the year?

And then secondly, can you help us understand the trajectory of growth for the year? Is it sensible to assume that you will return to positive growth from Q2 onwards for the rest of the year? And how much visibility do you have into the year? So for example, what proportion of revenue is already locked in? Thank you.

Martin, CEO/Chairman, Monks: Thanks very much for the questions. I’ll just say that what we’re seeing is a pattern of growth in the like for like growth in Q3 and Q4. So that’s the pattern that we see. We’ve highlighted the General Motors win which started in July of last year. The biggest brand of the four that we’re working on started at the April, so will start to impact Q2, but the major impact of that will be in Q3 and Q4.

The Amazon expansion will be again will kick in main mainly in Q3 and Q4. And the TMT win which referred to growth in time will kick in again in q three and q four. So the pattern is very much skewed to the second half of the year. As Mary highlighted and Scott highlighted in their remarks, the pattern is as usual, but perhaps more weighted to Q3 and Q4 than we’ve seen in previous years. Do you want to add anything to that, Mary?

Does that answer what you need there?

Laura Matteo, Analyst, Morgan Stanley: Yes, sure. And do you is it sensible to expect that Q2 like for like growth will be positive? Or is it is it too soon

Martin, CEO/Chairman, Monks: Expect positive growth in Q3 and Q4. Yeah. You have to say I have to say just to key that into the remarks and the statement on tariffs. I mean, if you ask me what is life like, it’s a bit foggy at the minute in terms of Yeah. Well, not in the minute, I guess.

The US imposed tariffs have really been delayed, what was it, for ninety days. We’re probably about thirty days through that. There’s meant to be a major announcement at 10:00 American time, which looks as though it’s a US UK trade agreement that may lift some of the fog. We have the Chinese negotiations starting in Switzerland over the weekend with The US. Whether that will bear any fruit, we’ll have to see.

But I think it’s going to take certainly sixteen ninety, one hundred and twenty days, so you could say Q2 and Q3, I’m talking generally, for The US imposed tariffs to sort out and to see what the baseline is. I said it’s foggy. It’s very difficult for clients. I would say we haven’t seen cuts. We’ve seen, I think, two cases where there were sort of stops on projects, not significant, quite small, and in one case reinstatement pretty quick quickly after.

So, very little impact, noticeable impact, but I would say there’s a general level of uncertainty amongst clients which is totally understandable. It’s very difficult to run a manufacturing business that makes real things as opposed to provide services in this sort of environment and you’ve seen companies give multiple guidance. In case in United Airlines, I think they gave two levels of guidance. In some cases like Ford, they’ve dropped guidance totally. So it’s a very very uncertain I don’t think we’ve seen a situation like this.

The disruption cause is considerable, but it’ll take time for it to be sorted out. I would guess that to be the next sixty, ninety, a hundred and twenty days. After that, as we say in the statement, I think the fog will clear, at least we’ll know where we are and the baselines are in terms of tariffs. And I think clients in a slower growth, higher inflation because tariffs are inflationary at least one time, We don’t know what the permanent effects will be and where interest rates, although they may come down, will probably be higher than they have been historically. In that world, efficiency, there’ll be a premium on where you do business, the markets where there’s growth and we think that’s North And South America, The Middle East and Asia Pacific with a big question mark over Europe with the exception maybe of Germany because of the the defense and fiscal expansion there.

But the other part of it will be improved efficiency and that’s where we think AI will kick in considerably. We’ve referred in the statement to the changes in technology, specifically the technologies that we’re using around new commercial production and the reduction in time and the reduction in cost significantly increases the return on investment on marketing programs. And we think that this post this period of tariff disruption, there’ll be a premium on efficiency and cost management and the return on investment will improve considerably by using these new techniques. We’re already starting to see it and clients becoming, I would say, quite excited about how these techniques can be implemented to improve efficiency and reduce, create costs and production costs and improve the opportunities for media deployment. So I think that’s the the pattern, but it is and I’ll underline it is pretty foggy at the minute.

Laura Matteo, Analyst, Morgan Stanley: Thank you.

Call Moderator: Thank you. And our next question now comes from Julian Roche from Barclays. Please go ahead. Your line is open.

Julian Roche, Analyst, Barclays: Yes, good morning. I’ll start with first some number questions, and then I’ll ask a question on AI. So on your net sales guidance is broadly similar, but that’s at constant currency. So indication of the impact of FX for the full year if rates stay the same. And then you gave guidance for a lot of items, but you didn’t give us indication for depreciation, interest and tax rate.

So that’s four numbers. And then on AI, Martin, you just partially answered, but what is the actual impact on your business today? Are clients paying less to the same or same for more? Because you just mentioned that AI will be implemented to increase efficiencies from the client standpoint, which could be interpreted as less revenue for you. And an impact on margin, it looks like there’s no impact for the time being because you’re guiding on net sales and EBITDA to be broadly the same, which would imply no efficiency from AI on your part.

So if we could get some like, flesh around AI and the impact of the business kind of today or this year?

Martin, CEO/Chairman, Monks: If you

: want to

Martin, CEO/Chairman, Monks: deal with the numbers of depreciation, please.

Mary, Outgoing CFO, Monks: Hi, Julian. So we would say FX impact. So from a full year perspective, the impact of the movement of about $01 on the dollar would be roughly £4,000,000 on net revenue and around 1,200,000.0 on EBITDA. In terms of depreciation, interest and tax rates, they all remain consistent with the guidance given at the full year, so no change for those.

Martin, CEO/Chairman, Monks: That cover what you wanted there, Julian, the response to that?

Julian Roche, Analyst, Barclays: Yeah. No. All good on numbers

Martin, CEO/Chairman, Monks: Yeah. Sure. So I mean, just following up on what what I said. I mean, we’re starting to see the development of new commercial models. And we’ve we’ve referred before to the fact that agencies have tended historically to be paid on the basis of time.

And as you point out, as we point out in the statement, there’ll be a reduction in time. And therefore, you have to to now start to develop models that are based on outputs. And that’s what we’re doing. So some of the relationships that we’ve referred to in the statement, we’re now working obviously on retainers and on compensation for FTEs employed. But in addition, we’re working on the basis of assets or outputs delivered.

So for example, in the case of hyper personalization at scale, where the scale of what we’re doing is multiplied. It was big before, but it’s even bigger now in terms of number of assets deployed and number of assets used. Whilst the price per asset might fall, which is you’re pointing out, the number of assets grows, at a an exponential rate, and therefore total revenues will rise. For us as a disruptor, these are more opportunities. So we’re starting to penetrate relationships where there are opportunities to develop revenue streams that we haven’t we haven’t been exposed to before with clients and parts of their business that we haven’t been exposed to before.

I mean, JB, do you wanna talk a little bit about what we’re doing on pricing, billability and utilization, which I think is at the heart of Julian’s question as well?

Jean Benoit, COO, Monks: Yes. So very much so. So we continue to work on maximizing our resource pool to make sure that we address our cost base from a personal cost, but also from an indirect cost. We continue to align our resource profile to our revenue mix. And we are very proactive in making sure that our personnel costs continue to improve as a percentage of net revenue.

In terms of billing and pricing, we’re obviously working quite proactively in making sure that we price accordingly based on the work we do. With AI coming into play, as Martin said, we are evolving our pricing and commercial models to reflect the type of work we do and the type of impact we make with our clients. And that will continue to evolve. We also are looking at our client profitability profile and understand which client, which project deliver the right level of profitability versus the one that are not delivering the right threshold and addressing that as well. So we are addressing a number of topics around productivity and profitability.

Martin, CEO/Chairman, Monks: I think just to underline, I think you’re right in the inference that the agency model is going to have to change given the technological changes, which we’ve highlighted particularly in relation to commercial production. I mean, some some of the results that we’re seeing are quite extraordinary in terms of reduction in time and reduction in cost. And the quality is extremely high, and the quality is is improving, as we say in the statement, in real time, but, you know, you could even say it at light speed. So we are seeing significant improvements in quality. Mean, if we we showed you the Puma work that we’re doing, we’ve got other work which is confidential at the minute where the quality dimension has been improved considerably in literally in two to three months.

And we expect with the development, the models that we refer to in the statement, for example, runway, and and at Adobe and elsewhere, the improvements that we’re seeing extremely rapid, and we think the technology will improve even more effectively. This is going to radically change the way that clients do their marketing. And I think they we we refer continuously to the General Motors model. That model of a sort of upper funnel strategic and mid and lower funnel foundational, we think is probably the way things are going to go given the developments in technology. Does that get to the heart of what you were asking about?

Julian Roche, Analyst, Barclays: Yes, somewhat. But if we take maybe a concrete example this year of a client where, as you said, is on the basis of time you would pay less, you’re trying to evolve on output. Do you have an actual example of an existing client where as a consequence of that, revenue has either gone down or is flat or is up and margins is something concrete. And then on the basis of what you just said, where the price of assets will fall, but the number of assets going will go up, do feel that with the same client, not winning new business and taking share from holding, but just on a kind of like for like basis, do you think AI will result in lower revenues, same revenue, higher revenue?

Martin, CEO/Chairman, Monks: Well, best example that we have, I think, for ourselves, indeed, in the industry, would be General Motors. I mean, there you’ve got, you know, you’ve got four strategic agencies, actually happen to be independents or small small holding company, and you’ve got a foundational agency. I I don’t know what the historic cost was there, but my my guess would be that the historic cost was considerably higher than the current cost, and the model is being adapted or is being adapted at scale extremely effectively. In that case we had no relationship prior to the implementation of the new model. We have an extension of the relationship which is building not just in The US but internationally as well.

So I think that’s the best example. It comes back a little bit to what we’re seeing generally. My view is that type of model will be more expense extensively deployed by other clients as we work through, let’s call it, the tariff cycle or the tariff situation. Once the fog has cleared on that, then I think people will start to deploy models. The two industries where we’ve seen most impact so far would be autos and financial services.

And in both cases, in the case of autos, it’s EVs and AVs that are coming, you know, BYD pre tariff could produce an AV God’s eye car at $10,000, and that’s huge competition for the established manufacturers. In the case of fintech, new bank, let’s say, in in Brazil and South America, where a lot of banks or a number of banks make considerable profitability, certainly more than they do in Europe. What the fintechs, much more adaptable, lower price, in both cases, established auto companies and fin financial services companies are reducing their create costs in order to be able to deploy the same amount of media, the same amount of money in media or more. So I think what what you see, and that’s a big opportunity for us as a disruptor on the creative side to expand our our share and model. And I think, you know, it’s a challenge, obviously, to the established companies.

I mean, it’s a bit like we see going on in the media between free to air and digital. So it’s really redeploying the model or developing a new model in that situation. But I I think efficiency, to your to your question, efficiency is gonna become paramount, you know, post post implementation of tariffs, even more so than it was before.

Julian Roche, Analyst, Barclays: Okay. I I I mean, I guess that I get that Jim is the best example, but it’s more we more you winning business from from the whole No.

: No. No. No.

Martin, CEO/Chairman, Monks: I don’t think that’s right, Jim. It’s a it’s it’s what’s going on there is is it’s a strategic view that a new model is needed. It’s not about us winning business. It’s about it’s about somebody making a decision, CEO, CMO making a decision that in order to cope with a new marketing new market environment that they have to change their model. And I think I’ve referred to two industries in particularly, autos and financial services, but I think we see that increasingly becoming the challenge.

And in in the world that as I said in a slow growth world, think that that approach is gonna become a an approach that demands a premium of of effort and deployment.

Julian Roche, Analyst, Barclays: Last attempt. So for of your existing clients, is there an existing client where you’ve moved from a old model to a new model? And what’s the impact on revenue for an existing client, not for an account win?

Martin, CEO/Chairman, Monks: Well, I I I think, you know, there are there are many examples where people are experimenting. I was gonna use the word tinkering, but experimenting I mean, the usual the usual approach on AI deployment currently has been workshops, audits, pick off. And without naming names, mean, I can think of a pharmaceutical client at the moment where we had a a small relationship and it’s expanding on the back of AI deployment. I wouldn’t describe that as tinkering, but it’s a little bit more active. Tech clients are certainly deploying AI technology in in their activities.

On the tech side, they’re deploying more money to CapEx. The interesting thing is, maybe with the exception of Microsoft, which I think has reduced its CapEx, the others such as Google, Amazon is spending a hundred billion a year on CapEx for AI. Google is up at about 75,000,000,000. I think Meta is now 75,000,000,000. So so the the mag mag or MAGA seven or MAGA five or whatever you wanna call it are continuing to deploy huge amounts of money on capital expenditure despite deep seek, despite people suggesting that you don’t have to build these data warehouses and make these data investments of that scale.

So that continues, and we’re seeing people move money into CapEx from OpEx, including marketing, and use AI, I would say, at the margin. But, you know, in terms of fundamental change, there are a few examples as yet. I think that will come, as I say, the the fog around tariffs clears. Do you want to add anything, Scott, to that or not?

Scott, Executive, Monks: Yeah, get the gist of your question, Jean. I think the challenge is we firstly, none of our clients stand still, right? So there’s always increases, decreases in scope. There’s new business, etcetera. They have new objectives each year.

So it’s quite hard to look at something completely apple to apple. I think the other challenge, as Martin just said, is that there’s a lot of talk around AI, but at this stage, there aren’t that many clients that have really fully embraced it and completely changed their model. So it’s quite hard. We have plenty of clients that are starting to use it, and they’re seeing great results on efficiencies in terms of speed to market and the amount of assets that can be created. So far, most of those clients are just using that to do more.

So there’s limited impact that you can see from a revenue perspective and it’s from a margin perspective, there’s limited impact as well. That said, I get your point. I think if you fast forward three to five years when all clients have fully adapted and adopted AI, then I can understand there would be pressure on the overall kind of revenue pie in the industry because there will certainly be some clients that look at it from a purely cost perspective. There’ll be others that look at it from a we can do more perspective and there’ll be also some that look at it, we should be investing more in this. But I think overall, there could certainly be pressure on the top line.

From a margin perspective, I think less so. I think if anything, there are margin improvement opportunities. Obviously, we can’t take all the efficiencies because clients will want to share those, but there probably are margin improvement opportunities. And also the work that JB is doing, which is not the client kind of facing adoption of AI, but more the internal adoption of AI for our own systems and processes should be able to create margin improvement over time as well.

: Okay. Thank you very much.

Call Moderator: Thank you. And up next, we have a question from Steve Lichtie from Deutsche Numis. Please go ahead. Your line is open.

Steve Lichtie, Analyst, Deutsche Numis: Yes, good morning. If I just ask them one by one, just to keep it simple. So first question services in the first quarter, line of sight to minus 7.5%, that feels kind of step down compared to the fourth quarter of last year. Can you give us any kind of color there? What was the moving parts there?

Was content particularly bad, DDM worse than expected? Just any color there, please, first of all.

Martin, CEO/Chairman, Monks: Yes. I think DDM was stronger. I mean if you’re looking at the way that we used to divide the business, DDM was stronger than content in the first quarter, was more more stable. That pattern will change as we go through Q3 and Q4. I think content will get relatively stronger.

So so the the balance there was was more in relation to DDM being stronger than content.

Steve Lichtie, Analyst, Deutsche Numis: But in no particular sort of step change or whatever?

Martin, CEO/Chairman, Monks: No. No. Just Just the general environment.

Steve Lichtie, Analyst, Deutsche Numis: Yes. Okay. And I hear what you’re saying on tech clients and all the CapEx they’re putting in. I guess the message that we heard from other agencies was tech clients have stabilized spending and I think WPP in the first quarter said that tech clients were up 4.5% and probably just up plus 1%. So it feels like you’re giving a slightly different message there.

Any views?

Martin, CEO/Chairman, Monks: No. I I I that’s the message we’re giving. Your your interpretation of it is correct. So we did we did not see tech clients. I mean, I I think on published data on Google published their data in q one.

Scott, Executive, Monks: The the sales and marketing expenditures, they’re still negative in q one.

Martin, CEO/Chairman, Monks: They’re off about 5%, was it?

Scott, Executive, Monks: Yeah. Google was off 5%, which obviously are

Martin, CEO/Chairman, Monks: That’s that’s what they declare in their p and l because there’s a number of it’s not just pure agency costs in there. It’s obviously media costs, and I would say experiential and other other stuff as well. But if you take as a general, I think they’re the only what about Meta in q one? Around flat. Meta was flat in q one.

So so which probably of the tech companies are the one that was most aggressive in cutting spend over the last cup couple of years. So we’ve not seen it it to some extent, Steve, it would depend on how you’re defining tech. I mean, if you include maybe telecommunication

Scott, Executive, Monks: I think some of our competitors say t tech, but it’s actually TMT.

Martin, CEO/Chairman, Monks: Yeah. So I think you have to be a little bit careful.

Steve Lichtie, Analyst, Deutsche Numis: No. That’s it. That’s it. Yeah. Okay.

Martin, CEO/Chairman, Monks: Yeah. Obviously, in our case transaction. In our case, Amazon, although it’s probably the biggest spender on CapEx, we’re making progress there. So that would be against that trend.

Steve Lichtie, Analyst, Deutsche Numis: Cool. And then I guess taking that actually, just in terms of the new big wins that you’re referring to. So if we take collectively GM, let’s call it a whopper and your definition of a whopper is $20,000,000 let’s say, so that’s one whopper. You had a TMT client, an existing client, that you’re saying is going to double revenue, so that’s equivalent to another whopper, which is another $20,000,000 And then is it fair to assume that the Amazon increase spend that you’re talking about is equivalent to an uproar? So let’s call it pro form a $60,000,000 of incremental revenue this year.

I know GN started a bit in the second half of last year, but let’s just say a pro form a. Is that the way to think about it? GBP 50,000,000 was incremental new business just for those three lumps.

Martin, CEO/Chairman, Monks: I think Amazon, you’re probably overestimating, but the other two would be consistent. Yes. Go on.

Steve Lichtie, Analyst, Deutsche Numis: No. That’s fine. So that’s about, you know, just just depending what

Martin, CEO/Chairman, Monks: No. No. That that that would be fair. That would be fair.

Scott, Executive, Monks: On an annualized basis. No.

Martin, CEO/Chairman, Monks: No. Yeah.

Steve Lichtie, Analyst, Deutsche Numis: Yeah. Annualized. Yeah.

Martin, CEO/Chairman, Monks: That would be fair. Okay. That would be fair.

Steve Lichtie, Analyst, Deutsche Numis: Okay. And then just on Tech Services, so the Tech Services segment itself. I know you’ve got the big client that’s falling out there. But if you exclude the big client falling out, is the underlying tech services business still going down? Or has that stabilized now on an underlying basis?

How should I think about how we work it through once the big client drops out?

Martin, CEO/Chairman, Monks: It’s not gone up. I think we are seeing some signs of stabilization there. And, again, I think that we didn’t highlight in the that in the statement. But, you know, if we see the pipeline on tech services starting to improve in q three and q four, and that’s we’re starting you know, we’ve made some changes in terms of sales organization and people. We brought in some some talent from BPO organizations.

We we referred to Wipro, I think, a previous call, and we’re starting to see some improvements in the pipeline there. So again, that’s another in terms of in our forecasting where Q3 and Q4 become more important.

Steve Lichtie, Analyst, Deutsche Numis: Great. Thank you very much.

Call Moderator: Thank you. We now move on to a question from Adi Ariya from Arini. Please go ahead. Your line is open.

: Hi. Thanks for taking my question. Can you hear me okay?

Martin, CEO/Chairman, Monks: Yes, fine. Great.

: Thank you. My first question is, would you just be able to guide for the like for like change in The U. S, excluding tech services? Because obviously that would have been a drag on that 10.5%. So ex tech services, what does that look like?

And then also why was EMEA so weak? I think it hasn’t been that weak historically. This wouldn’t have had that kind of First American impact.

Martin, CEO/Chairman, Monks: Yeah. I I think EMEA had a strong quarter first quarter last year, and the the the pipeline improves as we get through actually into q two and beyond. So I think that on on the The US, we don’t give a figure for The US tech services, but the inference to your question is correct, is that that tech services would have been a, quote, some quote, drag on on The US. So The US performance ex tech services, which is about 10% of the business globally, it’s more obviously in the context of The US, would have been a drag on it.

: Got it. I mean, just just to check directionally, will can I say it’s between naught to 5% decline ex tech services? Is that the rough range or more flat?

Martin, CEO/Chairman, Monks: I I don’t know offhand, but you you can you can do what you like.

: Okay. And then I think just to understand that, I think what a number of your peers actually have also, from my understanding, have shown this trend where content, at least at the start of this year, has been lagging kind of media. Would you say that it’s interesting you mentioned content, so I’m assuming maybe a lot of that marketing service decline is content driven with as you said media being flat. It’s interesting you say content will pick up because my understanding was that maybe the industry is just struck in terms of output and asset base remuneration, I thought the industry is just shifting more towards kind of media and content.

Martin, CEO/Chairman, Monks: No. I don’t right. I think the when you refer to content, I think you’ve got to refer to sort of old content and new content. I think the content that you’re referring to that agencies or agency holdcoes referred to is creative content around free to air or traditional media, particularly television. So, you know, globally, that’s a $300,000,000,000 industry that’s declining.

If you don’t have live sport by 10 to 15% a year, if you do have live sport, nought to 5% a year. And then the new content is around the digital industry, which is the other 700,000,000,000, which is growing even now. I mean, you you know, we get the the the commentary overnight about what’s happening with search and Google and Apple, but putting that stuff to one side for a minute. If you look at q one for the tech cos, ad revenues are up about 10%. So the digital piece at 700,000,000,000 continues to grow at 10%.

So you got I think you have probably analytically, it’s probably best to think about it as two industries. And, unfortunately, in in conversations like these and elsewhere, it gets lumped in as one industry. There are two industries at work here. One is a traditional industry that’s in decline, and one is a digital industry which is growing. The content around the traditional industry is under huge pressure to which I think you’re referring.

What we’re referring to is content around a new industry that continues to grow, but going back to Julian’s question where the model is changing and where the economics are changing because the technology enables you to do things at scale at lower cost. And in the world in which we’re now operating, which I think is slower growth and higher inflation and higher interest costs, efficiency is going to be paramount. So getting the most out of your create budgets. I mean, one client, for example, who spends one of our clients spends 4,000,000,000 a year has create costs of over 400,000,000. And they don’t think their create costs should be and they do traditional and digital.

They don’t think their create costs should be more should be 10% of their media costs. They should be significantly lower, maybe seven and a half percent or even 5%. The new technologies will enable them to do that, create content at scale efficiently and effectively. The block up until now has been the quality. You know, you’ve seen the Will Smith spaghetti test that we do, which shows the improvement in quality of producing creative.

So I think that’s what’s happening. And, again, going back to Julia’s question or questions, the the question for us is, can we develop the model, the revenue model that copes with that? We don’t have a traditional agency, you know, rather like a newspaper company, which has been felling trees and delivering newsprint. We don’t have that. Right?

We’re we’re a new a newer disruptive model, so we don’t have the drag of that. So we we’ve we’re free of that that that sort of anchor, and therefore, we’re bit more flexible. The question for us is can we develop the model in an effective way? But I think what you’re referring to is old what I would call old creative I’m referring to new creative.

: Got it and then just an example obviously sounds like that that new creative you say the tech guys report it’s like your TikTok reels your YouTube ads that that kind of stuff right

Martin, CEO/Chairman, Monks: So social well, it’s broader than that, but broadly, yes.

: Okay. And just a couple more. Just on personnel costs, obviously, I think you did show an improvement last year in that run rate to this year. If I just take the kind of 76.2% as a potential revenue last year, could you just guide roughly what you’re targeting in 2025 on that personnel cost?

Martin, CEO/Chairman, Monks: Well, we’re targeting lower for 2025, but the guideline is 65. Fully fully loaded bonus pools, the staff cost to revenue ratio or the staff cost to net revenue ratio should be about 65%. So so to you, we we there’s about a 10 improvement that we’re aiming for long long to medium term, but that’s not the that’s not the objective for this year. Our budgets are not drawn at 65%. But

: Yeah.

Martin, CEO/Chairman, Monks: To what you’re pointing to, you know, if you’re saying to me what do we think internally it should be, it should be 65.

: I mean, that that’s a meaningful reduction in headcount, obviously, because, I mean, I think

Martin, CEO/Chairman, Monks: Well, that depends. It it depend I mean, that’s not quite true. It depends on what happens with the revenue. So so Yeah.

Julian Roche, Analyst, Barclays: Yeah. True. True.

Martin, CEO/Chairman, Monks: So Yeah. When when we refer to pricing issues or the sort of stuff that Jean Benoit is looking at on billability and utilization and pricing, that’s effectively what we’re referring to. We’re we’re talking about better deployment of our 7,000 people in 33 countries.

: Got it. And last one from me, it’s really helpful. The GM contract win, it’s helpful to know that’s going to ramp up as discussed in H2. Just one thing that stood out to me is with the you announced the contract and obviously that’s a big positive, it’s going to ramp up. But then have you not seen cautiousness from them, especially given it’s a client in the auto sector, there’s tariffs and they themselves will now be more incrementally more cautious on their OpEx spend, on their marketing spend.

When you see kind of headlines like that evolve, do you not then look more cautiously at this new contract win and think, oh, will they actually spend more on advertising?

Martin, CEO/Chairman, Monks: Well, I think you’re right in directionally. But you know, without referring to a specific client for a minute, if you think about the auto industry, you know, who which of the companies that are more effect first of all, GM is primarily a US truck and car company. I mean, it has does have international operations, but, you know, essentially, it’s very US focused. Not I think Ford Motor Company is even more so. The people that are most affected by the tariffs are not the domestic US manufacturers.

In fact, you could argue it’s the opposite relatively in their cases. The people who are most affected by the tariffs are those companies that export into The US or export in from Mexico, Ford and Ford and GM do do some. So Yeah. Directionally, you’re right, but relatively, it’s not necessarily the case. So when I referred to one or two examples where tariff where we’ve seen tariffs specifically affect things, it would be the sort of thing you’re talking about where tariffs have immediately had an impact.

But generally, I would say we’ve not seen cuts in spending because of the tariffs as yet. What I think we’ve seen is, I refer to it being foggy, people delaying making decisions. Because if you put yourself in their position you know, I sat in a room in America recently where when we’re in the room, tariffs on Canada went from 25 to 50% and back to 25% in a day. So it’s a very uncertain environment. And, you know, we’ll hear later today what’s happening in the case of The US and The UK from what we’ve heard.

You saw you saw the deal between The UK and India. So we are starting to see tariff agreements change the nature. So that has to sort out first. What I would say is we’ve seen very few cancellations. I can think of only two cases, and they’re small.

And in one case, that was reversed pretty quickly. So it’s only really one one where we’ve seen across our whole business where people specifically have said its relation to tariffs. That doesn’t mean, by the way, that people haven’t made decisions without us knowing, you know, in in other in other areas. But but, basically, it would be wrong to assume that the underlying assumption of your question may be may be wrong if you think about the companies, where they’re located, how they operate, what they depend on.

: Really helpful. And I note that your billings actually increased on a lower revenue basis.

Martin, CEO/Chairman, Monks: I think

: that was also just a bit interesting. So the clients of yours that are spending has spent a bit more.

Martin, CEO/Chairman, Monks: Well, to some extent, that’s a reflection of small and medium sized businesses. So our media operations tend to be focused not on large enterprise, but more on the mid mid market and smaller part of the market, but that’s that explains that too.

Steve Lichtie, Analyst, Deutsche Numis: Got it.

Martin, CEO/Chairman, Monks: Okay. I think that’s I’m told there are no more questions. Thank you for the questions. We have another call at 01:00 London time, mainly for The US. So thank you for joining us.

We’ll see you, after q two. Thank you very much.

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