Good morning, everybody. I'm joined in London with Mary, and Scott is in Singapore, and we're just gonna review very briefly the Q1 results. Mary will take you through them, and then Scott will just do a brief follow-up, and then we'll go to Q&A. Mary, over to you.
Thank you, Martin. Good morning, and thank you for joining us today for our Q1 trading update. We've delivered strong top-line growth in the first quarter, with revenue up 70% on a reported basis and 41% on a like-for-like basis at £207 million . Gross profit net revenue was up 35% on a like-for-like basis to £171 million . We maintain our full year guidance of 25% growth in gross profit net revenue. In the full year, we continue to target a steady improvement in EBITDA margin, and from this year onwards, in line with our three-year plan. Operational EBITDA for the year will be significantly weighted to the second half. Now, the group is naturally weighted to the second half, with the average second half delivering around two-thirds of the full year EBITDA.
This will be even more the case in 2022 due to investment in our growth, including our Whoppers and our new pitch Whopper, as well as investment in our management infrastructure. In addition, we will be taking selective cost actions with an increased focus on operational efficiency given the current economic uncertainty. Since the end of Q1, we have added 2 new Whoppers, one through pitch and one through combination. Both will be fully effective in 2023 and will take our total to 8. The new pitch Whopper will be operative from the second half of this year, with resources ramping in the first half. Net debt at the end of March was £48 million , and it is currently ranging between £ 140 million and £ 190 million on a monthly basis, reflecting significant combination payments, including TheoremOne and the growth of the business.
We continue to maintain significant liquidity. Moving to the next slide, and my comments here are all on a like-for-like basis. We delivered strong gross profit net revenue growth across all practices and regions. Content grew 33%, including strong growth from our WAPAs and particularly BMW. Data & Digital Media was up 35%, with continued strong performance from the activation and performance business. Technology Services was up 58%, with Zemoga now operating under the integrated brand as the Tech Monks. From a regional perspective, EMEA grew fastest, with gross profit net revenue up 55%, and it accounted for 20% of the mix of gross profit net revenue. The Americas, our largest region, grew 29%, and in APAC, we saw gross profit net revenue for the quarter up 41%, with the region accounting for 8% of the business.
In the appendix, recognizing questions which have been asked following the full year results, we have included information on outstanding contingent consideration and invested capital, and we are happy to take any questions on these at your convenience. With that, I will pass to Scott for an update on our mergers.
Thanks, Mary. Welcome everybody to our Q1 results. As Mary said, I'm just gonna quickly cover two deals. One, 4Mile Analytics , which was a transaction that took place in Q1, and a more recent one, TheoremOne, which took place after the end of the quarter. 4Mile Analytics is a company that's joined our Data & Digital Media practice. It's a data and analytics and engineering company focused on data governance, software engineering, user experience and project and product management. They actually have a real specialization in certain platforms, technology platforms that clients use to analyze and visualize their data. Their experience particularly lies in Looker, which is a product or a company that Google bought a few years back.
Snowflake, Fivetran, and Google Cloud are also areas that they focus on . 50+ data engineers, primarily based in California, and did around $6.5 million of revenue or gross profit. It's the same for them last year. An excellent addition and, you know, I think an interesting company that brings great clients to us, great capabilities, and also, you know, obviously accessing budgets outside of the traditional sort of digital media spend area. The second one I wanna cover is TheoremOne. You're all familiar with the Zemoga deal that we did towards the end of last year. We now break out technology services separately as a separate line item in terms of our gross profit.
I think it's important to understand firstly what we mean by Technology Services. For us, that's custom software development, which is essentially building digital products and services for our clients, and also the systems integration around marketing technology. These are engineer-heavy or engineer-led firms. Thus, if you take Zemoga, for example, around 400 people, primarily in Colombia, and all of them engineers. Our thesis for expanding what we do in Technology Services is really that we view increasingly technology and marketing are intersecting, and that our clients need partners who they can trust to work with them seamlessly across both areas. Just as they internally are increasingly seeing collaboration between CMO, CIO, CTO across their own digital transformation efforts. The merger with Zemoga was a real expansion for us last year.
Actually, in the six months since we've done that deal, we've seen really meaningful synergies already. They've converted several of our existing clients, and likewise, we've introduced our creative and data and digital media capabilities to several of their clients. I think that holistic offer of technology services, creative, and data and digital media is really proving a differentiator for us. TheoremOne, a deal that we completed relatively recently, very complementary capabilities with Zemoga, from a business model and a client base perspective. We're really excited to see how they can work together and drive forward our technology services practice. TheoremOne, similar size in terms of people, but larger in revenue than Zemoga. Great client base.
Actually, slightly different business model in that a lot of their people are US-based, and it's a sort of more consultative approach. But that should mean that they marry very well with Zemoga's nearshore model and design and build model. Last year, they did revenue GP of around $58 million. And as Mary mentioned, I think Martin as well, they do bring one Whopper to us in the financial services area. Several of their other large technology clients are also large technology clients of S4. Again, very complementary there. That's it from me. I think head back to Martin and open up for Q&A.
Yeah. Thanks, Mary. Thanks, Scott. Celia, can we have any questions, please?
Thank you. If you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take our first question from Julien Roch from Barclays. Please go ahead.
Yes, good morning, everybody. My first question on the macro, when the market is worrying about a slowdown, if not a recession. From your statement, it doesn't seem that you're seeing everything in terms of client cutting. Can you give us what your clients are saying at the moment on macro worries? That's the first question. The second question is if we were to go-
Let's deal with the one.
Okay.
Shall we?
Yeah, sure.
On macro, I think the one thing that we would say is clients are quite focused on measurement. Media mix modeling came up on our weekly call last Thursday. At one of the meetings with the big tech platforms, it was clear that media mix modeling was becoming more and more important. That is deciding how much of a budget goes online, not what the scale of the budget is so much as how much goes online and how much offline. You know, given the forecast that analysts generally are making for online activities, we are still seeing significant growth.
The forecasters that we focus on are saying digital will go from about 60% to 70%, it may be even more, of global media, for example, by 2024, 2025. What I think we've seen clients go down the funnel, so to speak, meaning they become more activation and performance oriented. I think that is the key change that's happened, not that people are attacking the budgets, as yet. I mean, although, to be fair, clients don't like to give us the bad news. They much prefer to avoid giving us bad news until the very last moment. Having said that, there's no sign of sort of slowdowns or cuts.
When you look at the GDP growth forecast for this year, which the IMF still have north of 3.3%. They were at 4%-5%. When you look at that, and listening to a call last night which said Q4 GDP might be as low as 1% up on the last year in the U.S. and elsewhere, you know, it does signal a tightening economic conditions. I think we're fairly well-placed given what we do. Given our position in the funnel, our pipeline is strong, as we indicated the same was stronger than this time last year, and the level of activity is frenetic, we said. You know, on our weekly call, we did see evidence of that. Scott, do you wanna add any more to that from what you see?
Yeah, I think I'll just double down on that. We're really not seeing any negative effects from client spend right now. Obviously, there are the macro concerns, and a lot of those were already existent in Q1. I think, you know, it's not that they happened afterwards, our results reflect that. I think it's true, as you said, that analysts are bringing down some of their digital media spend projections. You know, if you look back, we've consistently outgrown the digital media spend growth year-over-year. If you take 2019, for example, the spend grew at 19% and we did 44%. If you take last year, spend rebounded to 30%, we did 44%.
I think we feel relatively comfortable we can always outgrow that market. You should also remember that's really only one of our addressable markets. There are plenty of others out there, such as the growth of cloud platforms, which is growing at 34%-35%. Growth of marketing technology software, which is growing at 32%-33%. Digital transformation in general, which is, you know, trillions of dollars growing at 20%. We tap into all those markets and more, and I think that gives us, you know, a lot of confidence. Also, as Martin said, our client list, you know, it continues to be dominated by technology companies, primarily big tech, so it's the likes of Alphabet, Meta, Amazon, PayPal, TikTok, Adobe, Salesforce, et cetera.
All of which continue to do strong double-digit growth versus other sectors and companies. I think finally the point is around our market share. We're very proud and happy with what we've achieved in our short history. I think if you look at the Ad Age top 25 agency groups, which includes, you know, the big holding companies, Accenture Interactive, EPAM, Globant, et cetera, we came 25th, so we made the list, but we had a 0.4% market share. I think from that perspective, there's plenty of share available for us as well.
If we were to go into a global recession next year and holding agencies were doing the usual, going from +3-5% to -5%-10%, what would S4 go down to from the 25+% you're growing?
Well, you've got a parallel to 2020. I mean, we've moved on obviously since then. We're significantly larger than we were. I mean, not relatively, but absolutely to 2020. In 2020 when COVID hit in March and April, we did 19.4% on the top line, so almost 20%. The holding companies, I think, are down on average about -10%. So there has been a significant basis point difference. You know, at the moment, the holding companies, I think Q1 did around 10%, and we're at sort of 34%. The last year, you know, we were significantly ahead. I think the average for the holding companies last year was around, what was it? 10% last year.
Yeah, we're sort of doing about 3 or 4 times that. I think there is reason to believe that, you know, given our market position, and I think mainly because of our focus on digital, which again, just to underline that, you know, we've. The figures that we included in the release are figures that came out in the United States. They refer to the US market principally. They came out in the United States, I think it was late last week. I think it was on Friday of last week. We adjusted the figures for growth, and that continues to see growth. I mean, just to reiterate that just in the global media market, digital share will go from around 60% this year to 70% by 2024-2025.
Even in those, the takedown of those forecasts, talking about digital increasing in the United States by 10%-15%, and prior before that it was 15%-20%. So they've taken it down quite significantly, but share increases. I think, you know, there's reason to believe that, and it goes beyond the advertising market. Scott, do you wanna just go into the other addressable markets where we're heavily represented and from a capabilities point of view by tech services?
Yeah, I think in tech services, it's really around things that I mentioned previously around marketing technology spend, digital transformation spend, cloud platform spend, all of which not only are growing at significantly higher than digital media spend, but if you look back historically, those kind of markets are more stable and more consistent in a recession, so they don't tend. You know, I think the media spend tends to react quickly and hard both on the down and the upside, whereas those kind of spends are a little less cyclical and a little more steady.
Okay. Thank you. The last question, I know Mary said that in the appendix of the presentation there's more, but we haven't seen the appendix and the presentation's not yet on the website. On page 555 of your annual report, you give the extra shares related to M&A for 2023. Could we get the extra shares related to M&A for 2022? Also the A shares incentive is 15% of the value creation if the invested capital compounds at 6%. What's the starting point of the value creation? Is it a set date or a set date less one month average?
If we could get the starting point. The extra shares in 2022 and the starting point for the A shares incentive, please.
The start, the starting point for the A shares incentive is when we started at the very beginning. That's the trigger for that. The invested capital in the appendix, it says £1 billion is approximately the invested capital. Do you want to talk about the shares that have been issued, Mary?
Yeah, of course. When you see the appendix, Julien, you'll see that we've included both the deferred share issuance, which is based on initial considerations where the share issuance has been delayed. For those, we have 9 million in 2022, 5 million in 2023, and 19 million in 2024. We also have expected contingent consideration shares, which we've calculated assuming the current share price as of Friday. 2022, 22 million and 29 million in 2023. If you have any questions when you're seeing the numbers, that's all written on the slide. Just do give me a shout, and I'll be very happy to take you through them.
Okay. Thank you very much.
We will now take our next question from Tom Singlehurst from Citi. Please go ahead.
Thanks very much for taking the call. It's Tom here from Citi. Yeah, the first question, I'll do them one at a time. I mean, obviously heavy exposure to technology sort of focused clients. I'm just wondering whether you've got any sort of strong views whether that, you know, now is gonna prove slightly more problematic if we're seeing the, you know, pressure at the top of the funnel on funding, and then obviously some of these tech companies sort of pushing to sort of safeguard cash flow and profitability, and talking about using advertising maybe as a balancing item. Can you just give us a sense of how worried we should be about that in the context of such significant exposure to the sector?
Yeah, well, I mean, clearly you think the worm has turned. I mean, I must say I'd rather be focused on the tech clients and continue to be. I mean, all these things are relative, Tom. You know, if I look at the growth, and I'm not talking about newer businesses. I mean, there are two buckets really, the tech companies that make money and the tech companies that don't. I think the implication behind your question would be correct in relation to the latter, the ones that don't make money or cash flow, but not about the former. We continue to see significant traction.
You know, if for example, you take streaming, where there is pressure on various competitors within the streaming environment, that leads to not cutting spend because maintaining a competitive position in an increasingly competitive streaming marketplace is critically important, but may result in reduced internal activity. In other words, more outsourcing. I mean, we are seeing, I would say, on the media side of the equation, more in-housing being contemplated because in a 24/7 always-on environment, clients want to take back control of their functions. You know, in the areas that you're talking about, I mean, we
Again, on our call last week and in previous weeks, there are a number of tech companies of substantial scale that are consolidating their marketing activities or cutting their internal marketing expense and are therefore looking to outside providers even more significant than they used to before. I think the blunt answer to your question is no, that we would prefer to continue to have at least 50% of our business tech driven. I mean, to some extent, everything's tech driven, but I'm saying sort of pure tech companies. In the note, I think in the presentation, we say that of our 19 potential large accounts or whoppertunities, as we call them, about 8 are tech.
I think having a strong tech base, you know, a lot of this, or a lot of the commentary behind your question is sort of, sort of flashy contemporary commentary. I think really a focus on tech continues to be. I mean, the one other area I think which is really important, and we've seen that in the growth, as you well know, of the holding companies has been healthcare. You know, where we do have representation, but we'd want to have more representation in healthcare. Having said that, I think the tech emphasis is strong because we're particularly strong with those highly profitable or strongly profitable tech clients, and I'd like that to continue to be the case. I mean, Scott, do you wanna comment any more on that?
No, I think just to stress again that it's all about relativity, right? Yes, technology is definitely under more pressure right now than it was a year or two years ago, but which sector do you think is gonna grow the most? I would say technology. If we're a growth company and want to be working with growth companies, then we wanna maintain that exposure to technology companies for sure.
Yeah. I would also say, Tom, that I mean, this is in a sort of a difficult point for in some respects, but the war in Ukraine, you know, with its emphasis on cyber, both defensively and offensively, it has underlined the importance of a strong tech infrastructure for defense purposes and even offensive purposes. I think the importance of tech has just been underlined. You could say just like the importance of healthcare has been underlined by COVID and the rapid deployment of new vaccines, the war has underlined the importance of a strong tech ecosystem, and I think that bodes well for the tech sector in the long term.
As proportions of GDP increase and committed to defense, that just doesn't mean military personnel or missiles or tanks. It means tech as well. The other driver is digital transformation, which Scott has covered.
Got it. Thank you. Very nice to be described as flashy, contemporary, Martin. I'm excited about that. The second question.
At last.
At last, exactly. The second question. It's a broad question, but given your experience, I mean, there's a lot of discussion about real growth coming under pressure, but of course, nominal growth is going up, you know, obviously current inflation. I just wonder whether you would describe your business as naturally nominal or real. I mean, which is more important overall?
I think, you know, to be honest, it might, things might temporarily, you know, be driven by nominal, but everything reverts to real in the end. I mean everything. I mean, I'm talking to one of our clients a couple of weeks ago, you know, saying that he heavily increased prices by as much as 30% during the last few years. I mean, that cannot continue. Clients, our clients are gonna have to find ways of increasing volume rather than, you know, getting growth through volume rather than price. You know, I think our business is, you know, we sometimes worry that we're too tactical and that we should be, quote-unquote, more strategic. Our relationships tend to be, as we said before, the
If you describe it, the middle of the funnel or the lower end of the funnel. In times like these, to your question, I think we would probably argue that we've become more valuable, whereas, you know, you see it in the Snap numbers last week or not, the Snap reaction. The Snap reactions of Snap last week. You see it there that Snap really is a brand awareness tool and is not as heavily tactical as perhaps it would want to be or should be. You know, I wouldn't concentrate on the nominal or the real. I'd concentrate on where we've sort of figured in the system, and I think we figured in the system in more and more, in particularly as sales and marketing unites even more within companies.
You know, I think that's where we are. Scott, any other observations on that?
No, you're the expert on that.
I don't know if I'm the expert. I wish I was. Go on.
Perfect. One very quick final one. Can you talk about the evolution of multiples for deals? I mean, given the sell-off in public markets, are we seeing multiples come down in private markets as well?
Yeah. Scott? Scott?
Yeah, I think, I mean, reality is, Tom, it always takes more time, so, I don't think the significant sort of changes in the public markets haven't yet fed through to the private markets, but we're certainly starting to see that happen, and see expectations a little bit more reasonable, I think, and also activity drop off as well. Yeah, I think it's pretty much inevitable that it will continue.
I mean, talking to one head of a major PE company last week, he said, you know, they just raised, I think it was $22 billion in a new fund, and they felt, you know, there were gonna be significant opportunities. I think, you know, there was a lot of capital raised last year. The performance last year was so strong, at least, you know, when they marked to market at the end of the year. What I think interesting, again, what we heard last week, was that funding in the United States, for example, some institutions are cutting back on their PE allocation because the rise in valuation was so strong last year. I've seen one fund up 45% last year. That the allocation to PE was too high.
Interestingly, and it relates to the comments that were made about our geographical expansion. The Middle East is so flush now that the incredible increase in wealth in the Middle East as a result of the oil price increasing, doubling or tripling really effectively, that funding trips are being switched to the Middle East. People were saying that anybody who's anybody in PE wasn't in Davos last week, they were in the Middle East raising money. I would say that there are two forces here. One what Scott mentioned, which is VC and PE will come under pressure from a valuation point of view. If they haven't already, they will do in Q2 or Q3. Most people think the impact will be in Q3 that we talk to.
The real impact, but it will be quite strong. On the other hand, if the PE funds can raise more, there's another PE firm I can remember that just raised $25 billion in a new fund. There is considerable dry powder. I think there might be some diminution in value. IPO valuations for the tech companies, option values for employees in the new tech companies will be less. Which plays to our advantage, because in the labor markets, it will make things a little bit easier for us and take the pressure off, and I think we indicated in the statement we're already seeing that to some extent. It'll be interesting to see how it shakes out.
I think valuations will come down, but I don't think they're gonna come down that much because I think there's still a weight of money from one part of the planet or the other that will support, you know, a strong market. The PE funds that have raised significant amounts of money last year or even into this year, it would be more difficult, but into this year will be there.
That's very clear. Thank you.
We will now take our next question from Steve Liechti from Numis. Please go ahead.
Yeah. Good morning, guys. First question. Given your comments on tech, can you just remind us or give us any feel for your skew towards the big profitable players in tech, as opposed to the sort of lesser so and more early-stage guys? That's the first question.
I mean it's very much to the big end. I mean, you know, in our we give you our whoppers. Of the 8 whoppers, I mean, you have the top three clients are all big and highly profitable. You then go to a packaged goods and car. You then go to a tech which is strongly profitable too. You then go to an FMCG, and then you go to financial services. So, you know, of the top eight, four are highly profitable tech. We don't talk much about our top 10, but if I take the next two that will most likely become $20 million-plus clients, they will either be tech. They would both be. One might be retail, one might be tech or two might be tech.
We would tend to have at least 5 of our top 10 maybe 6 that are in the top 10 that are what I would call a highly profitable tech. At the fringe, you know, we benefit from the growth of newer tech companies. The core of our business and where we continue to reinforce it is with the big tech profitable bucket that I referred to before.
Great. Thank you. Next question. Just on like for like in net sales, obviously we've got the first quarter figures today. As we stand today, can you give us any sort of visibility on second quarter, maybe April? Just on the basis that I know the comps are so volatile and stuff like that. Any help you can give us there, please?
No. You'll find out about that when we report in September.
Last one, just on debt, maybe for Mary. End of first quarter debt, £48 million, you're now running at £140 million-£190 million . Can you give us any sort of slightly more detailed bridge to get from the £48 million to £140 million-£190 million ? I know you mentioned combination payments and stuff.
Just what are the key lumps within that? I'm thinking of TheoremOne and whatever. Thanks.
Sure. Mary?
Of course. If we take the net debt at the end of Q1, it's obviously at £48 million. Since then, obviously we've had the initial cash outlay on TheoremOne. In addition, we've included within that range about £40 million of cash contingent consideration, which makes up the bulk of the bridge.
Sorry, is that 40 that you just mentioned, is that incremental to the number that you mentioned at, within the 48? I think you mentioned 16 from memory on the release. I might be getting confused.
Yeah, the 40 is incremental to the 48.
Okay. That's what I thought.
48 is the closing position for Q1. The 40 is £40 million of the 55 full year cash contingent consideration. We also have the initial cash consideration for TheoremOne, which makes up the bridge.
Great. Thank you.
We will now take our next question from Matthew Walker from Credit Suisse. Please go ahead.
Oh, hi, everyone. Thanks for taking the question. The first one was on margin. You said, I think, normally it's like two-thirds weighted to second half, and it'll be more this year. Could you give us a feel for how much that might be? Is it more like sort of 75% second half weighted, 25% first half weighted? That's the first question, if you wanna tackle that.
Yeah. Mary, do you want to-
Yes.
Go with that.
Yeah. Obviously, you know, as we've demonstrated in the numbers today, we are growing very strongly. We've been investing in our growth, both in our whoppers and our new pitch whopper, but also in our infrastructure. What this is driving is more of a shift in the weighting of the EBITDA delivery for the year to the second half. Obviously we haven't finished the first half yet, so it's hard to give you precise numbers. We've tried to guide on more significant weighting of EBITDA margin to the second half. My expectation would be it will be more than 75% weighted to the second half. We do obviously though maintain our guidance, steady improvement in EBITDA margin for the year and 25% net revenue, gross profit growth.
Okay. The other question was on the shares that you gave us the number of shares. If I add all of those up that you gave us, that comes to about 84 million shares. I just wanna see if that's right. Then does that mean that by 2024, you know, barring any other acquisitions, the share count will basically be the 555 million at year-end 2021 plus the 84, so it comes to about 639 for 2024. Given your invested capital number that you talked about in the share plan, the additional dilution, is that about 29 million shares as things stand at the moment?
Okay. If I take the comment or the question on the share consideration that's already committed, yeah, I think your math is correct there. We've quoted all the numbers on the slide, so when you see it, Matthew, you'll be able to take a look. You'll be able to drive that sum to get to what you're saying is £ 639. On the invested capital to date, I would say, dependent on the share price, you're in the right ballpark in terms of your estimation there.
Okay, thank you. Then the final question is a bit more sort of macro related, which is you mentioned Snap and obviously that caused a big sell off. Your perception of the Snap thing, is that genuinely related to macro? I guess the fact that the analysts are bringing down their digital advertising numbers for the whole of the U.S. market would suggest that it is quite macro related rather than something very Snap specific. I'm just sort of interested in your views on that.
Well, I think we tried to indicate that it was Snap specific. Scott, do you wanna have a go at that?
Yeah, I mean, I think it's probably too early to say, right? Because the Snap comments were made at a conference. It wasn't a formal guidance on any of their earnings or anything like that, or formal reporting. Until you see what Alphabet and Meta and Amazon and others do, which are obviously much bigger and contribute much more to digital spend, I think it's probably a little early to draw conclusions. Obviously, the reaction's been very aggressive, and I think, as you say, any analyst that has brought down their projections for digital media spend are banking on that being a macro reaction.
You know, I think as we said, we're not seeing any reductions in spend from our client base, and I think that's, you know, we see what we see from our client base, but that's consistent with what I think some of our competitors have said as well. That would indicate that it's probably less of the macro thing, but until we see everybody's Q2, Q3 results, we're really not gonna know, I don't think.
Yeah, if you
You made another quite.
Go ahead, go ahead. Go ahead, Martin.
I think you made another quite interesting comment, though, which was on clients being quite shy about telling agencies or you that they're about to cut. Based on your sort of historical experience, when do they kind of. Assuming that there is gonna be some cuts, and I don't know, but.
Well, you
When do they tend to cut?
You-
Well, maybe my basic question is when do they tend to fess up and say, "Yeah, we are cutting"?
You know when you know. I mean, that's the honest answer to it. It's when they finally make the decision. Now, you know, a number of the sectors, I mentioned the streaming area for a minute. One of the reasons why some of the streamers have been under pressure is because of the highly competitive situation. You're not gonna deal with that by going into the shell and not spending. You might decide to do less in-house and more out-house 'cause you believe that that will give you a better solution. I mean, it is a bit related to Steve Liechti's question, and I think it was about tech or Tom's question about tech, which is.
I think it was Steve's about big and small, and then Tom's about the importance of tech. When you look at the big tech companies that we work with, they are showing at the moment. I mean, we touched base with a number of them last week. I would say of the biggest ones, they're all in reasonable shape. One of them obviously has been affected by IDFA, but I think is sort of rebasing estimates and of tech because the share price took such a hit that they're sort of rebasing their estimates from a lower level. I think they are consistently undercalling it.
The three continue to grow at a very strong rate. While it's true that some of them don't have exposure to China, they actually do because their second biggest profit unit is outbound China. That is Chinese companies working internationally. They may have had some impact because of China. They may have had some impact because of the war. What's interesting is that I think all of them, including the one that's under the most pressure, continues to see a very robust North American market. You know, the American economy is extremely strong at running a cost at very high inflation levels, and Latin America too.
I think overall, we feel pretty good about the way the tech companies are going. Obviously, non-tech, which is the other half of the business, is a much more varied picture. I mentioned one client raising prices very heavily in the consumer area. That can't continue. In order to get organic growth, they're gonna have to invest in continued careful spending, which means measurement, focus on sales, focus on sales effectiveness. I think that in a way plays to our strength, and I think it is, you know, I don't wanna say it's helpful because it's a difficult overall economy. It is helpful to ourselves.
Thank you. Thanks a lot.
We will now take our next question from Alex Apostolidis from Barings. Please go ahead.
Hi, good morning. I have questions mostly related to the accounting issues earlier this year that led to the delay in the 2021 audited results. My understanding is that that was related to the longer term contract part of the business in the legacy side at least. Can you provide a bit more information on which contracts that actually related to? You know, underlying all of these issues, do you see issues with the profitability of those contracts that were impacted? I have some follow-up questions after that.
Yeah. I don't think we can name names, but do you wanna talk, Mary, about with that one proviso, about the longer term contracts?
Yeah, of course. One of the reasons that the issues arose was because the business in 2021 grew very significantly, and this included increasing the complexity of the way that we contract with clients and some longer term contracts. The issues we had with IFRS 15 weren't solely limited to those larger longer term contracts, but they were a focus of the work that we did during the audit. What we saw is that the complexity meant that the judgments required under IFRS 15 were more complicated than in previous years. As we said when we did the full year results presentation, the lack of experience in the team created issues that we then dealt with as part of the audit.
When I think about the work we've got going on at the moment, and just to update you in terms of where we are with that. Since we did the full year results presentation, we've launched a very thorough process and control review around IFRS 15 and also training for the team. We've also done a full debrief with PwC. We spent an afternoon at their offices going through the issues that had arisen in some detail. I think it's testament to the way we work collaboratively with them through the audit process that there wasn't any new news in that, but it did allow us to discuss in detail, you know, how we take things forward and to make sure we've captured all their suggestions.
Yep. That's clear. Thank you. The second question also relates to this. I think on the call about a month ago, you mentioned that you wouldn't see or you weren't expecting to see a massive headcount investment, I think, on the finance side. Just to get a sense, is that still the case? You know, these initiatives that you're talking about, all the training, you know, going through IFRS 15 and all that, when will those measures come into effect or have they already come into effect?
Thank you.
Mary.
Yeah. When we talked about the investment necessary in terms of the finance infrastructure, so I was lucky enough to come in before we finished the budget, and so some of this was included in the budget. In aggregate, we think it will be somewhere between £4 million-£5 million , of which £ 2-3 will be incremental over our budget for the year. The processes and controls around IFRS 15 and the training for the team, I expect that to be complete before we close the half year. It's obviously very important to me that we don't encounter the same issues as we go through the half year review process as we had during the full year audit.
One other thing that we've done in the last three weeks is we've selected our internal auditor, and we've agreed terms with one of the Big Four firms , so that will begin imminently. In terms of some of the hiring I mentioned, as I said at the full year results, our new Content CFO started in February. Our new group financial controller started in April. They're already on stream, and particularly the Content CFO has her feet well under the table by now. We have the treasurer, the global compliance lead, and the global head of finance transformation will all start in June. I would expect over the summer, we will build out their teams as appropriate.
I do expect we'll be in a much, much better place by the time we get to the half year results announcement in September.
Okay. Just lastly, so is PwC gonna be your auditor, I guess, for fiscal year 2022? You know, you've been going back and forth with PwC. I assume they think all the measures that you're taking, they view those as adequate right now. If you can confirm that. Just lastly, I still don't understand, though, why you had to announce this delay, you know, the night before you were due to report. You know, these issues sound pretty well telegraphed and flagged. You know, why wait till the last minute? That was all I had. Appreciate your time.
Well, you know, on the very last point, obviously, as I said, it was embarrassing and was unacceptable, but that's the way that it happened. I mean, obviously, while we were working closely with PwC right up until the last minute, they were not as comfortable as they should be, and that's their prerogative. You know, they made the decision that they couldn't support it at that time. I mean, as to the question about continuing with PwC, we will continue with them, and we'll continue with the partner that is on the business at the minute. He has to rotate off in a year's time, so there will be a new partner coming onto the audit in due course.
You know, I agree with you that it was unfortunate, if I can put it that way, because we were working very closely together with them, but clearly in their minds they were not comfortable with letting us go ahead. As I said before, that's their prerogative. Whether you think that was unhelpful or unsatisfactory or not, I mean, that's what they felt. You know, they have rigorous internal review procedures, and that's the decision they came to. You know, we obviously were mortified by it and very disappointed, but you know, they felt that way or not felt that way. They made that decision, and we had to go along with it.
The best thing for us, of course, as Mary said, is that we produce our half year results on time, and we produce our annual results for 2022 on time and get a very clean bill of health in January, February, and March of next year.
Clear. Sorry, I just missed one. It's a quick one. The eight Whoppers that you talked about, what percentage of your total revenue are they? That's all I had. Thank you.
I haven't got the figure for the top eight. But while we're sitting here, I think we could say that the top eight, I would say about a quarter. We'll confirm the figures, but I would say it would rank at about a quarter of our revenues in the top eight. Thank you.
We will now take our next question from Joe Spooner from HSBC. Please go ahead.
Morning. Just going back to the first quarter performance, if I can you give a little bit of detail of what the like-for-like headcount was behind those like-for-like revenues that you've disclosed? I guess as you look into the uncertainties of this year, how are you going to manage that headcount? Is it a case of continuing to recruit up until the end of the first half and then allowing that headcount to deliver the margin improvement in the second half? Any kind of details around that would be helpful. Thanks.
Yeah. I mean, in raw numbers, we went from about 5,500 at this time last year to about 8,800 this year. Mary, do you want to comment on headcount and how you see control?
Yes. Thank you. As we look at the business, obviously, you know, over the last three or four years the business has grown very, very fast. You know, naturally as you might expect at this point, you know, we have an opportunity to do a review in terms of how we're organized and the capacity and the headcount that we have across the business. As we move into the second half, particularly in the light of the economic uncertainty and the turbulence that we're seeing in the macroeconomic climate, we do very much have an opportune point for us to take a look at the efficiency of the group and make sure that we're optimized for efficiency and also to support further growth.
That's some of the work we'll be undertaking as we move into the second half, Joe.
Thank you.
Sorry, Joe. Just quickly on that previous question. If you go back to our full year presentation, there's a slide in there that has a lot of client detail, and we break out the scale of our different client relationships. Our top 10 clients represented 41% of our revenue in 2021, so hopefully that's helpful. Apologies, Joe, for that.
No problem. There just a couple of comments in the statement that you put out earlier around employee churn, that was kind of running at high levels versus history. You're starting to see that come down. I don't know if you can add any kind of color around those comments.
Sorry, just repeat that again, Joe. Joe, I didn't get it.
I think in the statement this morning, there was some comments around employee churn.
Yes
...that they were at historically high levels.
Yeah.
You have started to see that come down at a more recent week. I just wondered if there's a bit more color that you could share around those comments.
Yeah. I mean, historically our churn rates have been about 15%-20%. Within the ad, I think the adcos when asked this question sort of talk about 25%-30%. I think what's happening, I think, you know, on our management calls each week, people give a view on where they see the churn going. I think what we-
Yeah
referred to earlier in the conversation, around the valuations of new tech companies and IPOs, that's sort of reduced the pressure and also the reductions, the cuts that we're seeing in some of the tech companies in terms of staffing, that has reduced the pressure on digital salaries and expectations. As a result, I think the pressure on churn is being reduced.
Thank you.
Thank you. As there are no further questions in the queue at this time, I would like to turn the call back to your speakers for any additional or closing remarks.
Well, thank you very much. We have another call later today for the US. It's Memorial Day. Apologies to everybody for doing this on Memorial Day, but we'll be back for the US call later on. Thank you very much.