Okay. Good morning, everybody. I'm Martin Sorrell. I'm in London. We've got, Peter Rademaker who's in Amsterdam with, Victor Nat, Scott Spirit who's in Singapore, and Pete Kim.
Where are you, Pete?
New York City.
New York City. Okay. Good. And it's it's a god awful time, so thank you for getting up at such an early time. So we've got a Q1 update for everybody.
And I'm kicking off, and then we're going to hand over to Peter to talk about a trading update. You can see from the presentation, the first section. And then Victor will talk a little bit about what's happening on the content. And then Pete, data and digital media. And then back to Scott to talk about clients, what we've been doing on the merger front.
You saw the Raccoon announcement this morning, and I'll come back briefly for summary and outlook and q and a. So over to you, Peter.
Thank you, mister Martin, and good morning to all of you on this today on the first quarter trading update. And to summarize our first quarter of twenty twenty one, I could say a very strong growth in top line following a very good q three and q four in 2020. And what we saw was a strong decline momentum in our with our largest clients such as Google, Facebook, Amazon, Procter, AB InBev, Netflix, and Scott will further elaborate that later on in his presentation. And next to that, our two wobber wins, BMW MINI and Model S,
have started to have
significant positive impact in March. And this resulted in a Q1 reported revenue of 71%, up to CHF121.6 million and a Q1 reported gross profit up with 71% to 104,000,000 in the first quarter. And more importantly, on a like for like basis, we saw our revenue grow with 35% on a like for like and then on a pro form a basis, no difference with that. And our gross profit grew with 33 in the first quarter on a like for like basis. And what we saw, and I will come back to that slightly later, that all regions showed a very strong growth in the first quarter.
Our cash flow that remains very strong in the first quarter with average balances of around EUR 50,000,000 net cash again in the first quarter of twenty twenty one. And although there is a strong net cash balance, we are considering near term bond issue to further enhance our merger transaction firepower. In line with what we did last year in the summer in July 2020, where we did an equity raise of €130,000,000 we're now considering a bond issue. At that moment, we did €130,000,000 of which around €95,000,000 has been spent till the April year, so that's before our final settlement or our payments on Racoon and on Jam3. But we continue to examine merger opportunities in high growth functional areas of both practices, we are prepared to leverage the group up to around 2x EBITDA.
So in other words, we would be looking for bond issue of around $250,000,000, $275,000,000 in the course of the next of this quarter. And finally, on this slide, 2021. As you remember, we've given our expectation earlier that we would expect 2021 to grow with approximately 25 as a result of also doubling in size organically over a three year period of time, which would have a compound growth of around 25%. But we have upped our expectation also as a result of Q1 performance as well as strong pipelines to now to 30%, a sector leading 30% growth on a like for like basis for both revenue and gross profit. And if you go to the next slide, you will see the graphs the graph over, let's say, five quarters.
I would like to take you back to Q1 twenty twenty with 19% growth, Q2 when COVID hit quite hard in our organization with a 7% growth. All months contributed positively, but still a 7% growth. And we strongly picked up in Q3 with 23% growth and in Q4, 27% growth. And now we continue or even accelerated that fast growth rate to 33% in Q1 twenty twenty one. The next slide that shows you the different performances of the practices.
And content contributed 76% of total revenue and 72% of gross profit, and therefore, data and digital media performed or had 24% share in the total of revenue and 28% on gross profit. If you look at the reported numbers, our content practice grew to €92,200,000 which 64% growth on a reported basis compared to Q1 twenty twenty. And data and digital media grew with 100%. Last year reported €14,700,000 now €29,400,000 all in all resulting in a 71% growth on a reported basis. But then again, if if we take into account the mergers that we did last year, our content practice grew with 35% on a like for like basis, and also data and digital media had the exact same growth base at 35% on revenues on a like for like basis.
In relation to gross profit, content contributed or grew, sorry, with 62% on a reported basis, and data and digital media was 101% on a reported basis, delivering 71% growth in gross profit, again, on reported. And in like for like, the content practice contributed GBP 74,600,000.0, which was a 31% growth. And our data and digital media practice grew with 36%. What we saw, especially in January and February, that growth rate, what we saw in Q4, continued in that in digital media and then the content significantly picked up in the first or sorry, in March in the first quarter. And then on Slide seven, you see the graph with the gross profit comparison by practice or in the first quarter performance.
So what we saw in Q1 last year, the content grew with 19%. And now in in q one twenty twenty one, content grew with 31%. And data and digital media last year at 17% in q one, and then in q one twenty twenty one with 36% delivering the growth rates for the full quarter as I just described. And then going to my last slide by geography. Americas is still very important in our total group performance with 70% contribution out of total.
Last year, that was 72%, slightly decreased as a result mainly as a result of EMEA that is now contributing 21% in gross profit compared to last year at 19%. And APAC, as in last year, contributed 9% of the total gross profit. So what you saw what we've seen, and I'll I'll address the like for like numbers, that The Americas grew with 30 to 73,400,000.0. EMEA grew with 44% to 21,600,000.0. And Asia Pacific grew with 34% to 8,900,000.0.
So this was my last slide, a short update in relation to the training and the financials. So I will now hand over to Victor, who will take you through some of the developments in the content practice.
Thanks, Peter, and many thanks for joining the call today. Before I start talking about the state of the content business in Q1, I'd like to share the summary of the Forrester report you see at Sheet nine of February eleven, since it describes perfectly what our biggest challenges brands need to solve today. CMOs of global brands need to pivot to become truly multi local operations. That means on a technological, cultural and behavioral level, brands need to create a global brand message while meeting local customers' expectations. And this article, with contributions of Sir Martin Wessel Terje and our own Bruno Lombortini is exactly in line with the RFIs, RFPs and briefings we are working on today with BMW, Monmouth and recently Allianz.
So with that in mind, I'd like to start with what have we been up to in Q1. Next sheet, please. So our main focus in Q1 is building integrated client teams across content, DDM and countries for our 42 Tier one and Tier two brands. Next to that, we freed up teams for integration of the labels in tooling, brands, finance and HR. And besides that, we invested in client cockpits and categories like governmental, PR, virtual events, social and beefing up our APAC presence.
Our main focus of the presentation today is the state of the whoppers. And whoppers are clients that spend more than CHF 20,000,000 of USD revenue: Google, the brand under NDA Facebook, BMW and Mondelez. And for BMW and Mondelez, we started scaling up the teams in markets and hubs, approximately 120 FTE per brand. While the revenue in January and February was slightly behind, we saw much better numbers in March and see serious tractions in the coming months. So what's next?
It's a truly exciting moment in time. We've never seen this type of new business activity, and it feels like a once in a decade opportunity to get new business across our Tier one and Tier two clients and adding new logos and opportunities globally. We still need to scale around 25% of the BMW and Model S teams, while winning new business for brands like Allianz. We will do a continuous push on reporting, on tooling, branding and integration and have a rigorous focus on Tier one and two client growth. Next sheet, please.
So a quick peek under the hood. Our client team process. We kicked off integrated reporting and forecasting process for Tier one and Tier two clients across content and DDM. We do monthly forecast and accounts updates provided by client leads, and we refute strategic account updates with senior leadership for Tier one and select Tier two account bets. And we newly appointed our Head of Clients, Amy Michael, who was previously client Chief Client Officer at Firewood.
And this process will be repeated quarterly, and we will add the client margin reporting as we forecast too. And then we received a lot of questions and interest about how BMW and Mondelez are doing. So just to zoom into that in the next sheet. So we see a significant up forecast for reforecast zero. We see increase in revenue across photo and film, expansion of our retained teams and we see integration opportunities.
The planning is underway to onboard 29 European markets, and we see some cost efficiencies through our near and offshore hubbing. And besides our work in content, which I will show a couple of examples for on the next sheet, we also see integration opportunities going into ad tech, social media and Adobe DAM implementations. And if we will look at Mondelez, we see upside possibility from August onwards, where we are actively engaged in the 2022 planning process. And our priorities are unlocking the web work in Europe, which entail around 80 projects, and we're trying to move upstream in campaign planning, personalized content at scale and customer decision journey thinking. So if we look at a bit of our work that we created for BMW and MINI in the first months.
So this is literally what a marketing engine produces. It's very diverse from landing pages for the BMW I four release to newspaper ads to YouTube, how to videos and to social ads across MINI and BMW. And there's much more in process. There are tens of thousands of assets being produced at this moment, which we are not allowed to show you because it's all new car releases. So if we move on to the last page, what's next?
In general, we see an enormous client optimism and budget growth, especially in our Tier one and Tier two clients, with social and fashion being the fastest growing part of the business. We will see expansion and further integration of Decoded, Gemtree, Tomorrow and Stout, our latest additions to the content part of the business. And the growth is also fueled by the expansion of Sfour capabilities through integration, especially tech and data cross selling into the content clients. And global client teams are realizing additional regional growth opportunities outside of our clients' HQ region. And last but not least, we see experiential popping up again.
Opportunities reemerging as hybrid events where we do a cross offer between in person and virtual in U. S. And parts of APAC. So this is it for me. Over to Pete, and looking forward to your questions at the end of the presentation.
Thank you very much. We will now be discussing the data and digital media practice. Good morning everybody from New York City. It's great to be with you today. DDM, obviously, the data and digital media practice obviously had a pretty strong quarter.
We're very pleased with those results. And today, we'll be talking about a couple of topics in detail. You see in the background on this particular slide, you know, a headline, recent headline from the trade press discussing some of the ongoing travails inside of privacy and first party data, which will be one of our topics today. Next slide. First, trend that we want to just mention is that we see a strong uptick in demand for performance marketing service for performance marketing services.
We have been responding to this through some of our recent mergers with, folks like Metric Theory, Decoded Advertising, and this morning's announcement around Raccoon out of Brazil. And all three represents a very strong addition to what we see as a, opportunity that is really availing itself in the marketplace. We're seeing performance budgets lift across the board. There's many reasons for this, including, the COVID era's acceleration of digital transformation, some transition of traditional marketing dollars to digital, which once again has been ongoing but was accelerated by the recent pandemic. Seeing more and more cases of digital branding and awareness budgets being combined with or shifting to performance teams.
You know, according to some views, every dollar should be a performance dollar in terms of creating ROI or net measurable ROI for a marketing team and then the general sort of, ongoing uptick that we've been seeing for many, many years. The opportunity and trends that we see inside of this particular marketplace, as advertisers start to see the third party data targeting diminish as the depth of the cookie continues to ensue, I think that, we will be uniquely positioned to help these marketing performance programs through the transition to reliance not on third party data, but instead on first party data. The diminishing audience based targeting and increased automation, right, really creates additional opportunities, to further marry the creative and content excellence from our colleagues over at MediaMonks with the performance marketing execution, really delivering upon the executional aspects of the unitary structure that we were really founded upon. And these changes will will potentially favor the walled gardens like Google, Facebook and Amazon with which we are closely partnered. Moving on to the next slide.
We see, let's take a slightly deeper look into what's going on with the death of the cookie and how privacy is disrupting digital marketing and how s four is actually uniquely positioned to help, our clients and advertisers in general adapt. The first thing is, to really understand the broad picture. I think it's safe to say that digital marketing is in the midst of a decade long state of upheaval and which seems to be accelerating. Virtually no area of digital marketing and advertising will be untouched by the so called death of the cookie. It's been, you know, a little bit of a task for us to kind of explain to the layperson exactly what the death of a cookie means in terms of its imports.
And the closest that I've come is to imagine a change in the physical world akin to the loss of gravity, something that has just always been there and that has impacted so many different types of products and the processes is now just you know, seems to be going away and, with the, predictable changes and upheaval around that. The trends, that we're looking at roughly starting with 02/2018, there's no real end in sights. And we are seeing a what we are calling internally a self reinforcing, quote, game of thrones with multiple, constituents and multiple kind of factors occurring, including competition amongst the industry, public opinion regarding, intrusive tracking data breaches, etcetera, and then government scrutiny and regulation across privacy, geopolitics, antitrust, and it all creates a very confusing cocktail that has very high stakes indeed. Against this backdrop, adapting to the, quote, death of the cookie is going to require advertisers and their partners around the world to make some very, very significant adjustments, whether that be in direct to consumer relationships and the value proposition of each collection and processing of consented consumer and marketing data, once again, moving forward to the first party or even zero party, as we like to call it, marketing data, digital media and planning and buying, the impacts on creative strategy, and, of course, performance measurements.
You know, in our view, we are fairly well positioned with the multidisciplinary breadth and the focus on these types of technologies and a cutting edge understanding of what's happening in order, which is all necessary in order to help our advertisers and clients adapt. And so we're we as we mentioned before, all of these do seem to be causing a boost inside of an emphasis around the so called walled gardens where we're particularly well positioned. And over to the right, you can see just a kind of blow by blow, point by points explanation of how we are very well positioned in each of these areas. With that, I will move it on and pass it on to a discussion around our plants.
Thanks, Pete. Good morning, everybody. So I'm going to cover off clients and what we've been up to from a merger perspective. So on Slide 19, you'll see it's been an extremely strong quarter from a new business perspective. I think you've seen that in some of the slides Victor has talked about, certainly expanding our existing relationships with the BMWs, Mondelez and some of our other Whoppers.
So we've seen great traction with the Googles and Facebooks and Amazons of the world. And some of our newer clients, clients like Robinhood as well that have really expanded and PayPal, their relationships were across S4. It's been a great quarter for new business, new clients as well. So you can see some of the logos there from new clients that we've won business from across the group and across the world. It's an incredibly busy time from a new business perspective.
I think as Victor said, it feels like a real opportunity for us get a once in a decade kind of land grab of new business, a fairly frenetic pace of pitching. We're in several major pitches with consumer goods companies, consumer electronics, technology companies, pharmaceutical companies, really across the board. So great traction so far this quarter and all of our metrics that we track internally around where things are going, what kind of pictures we're involved in and the volume of that are all extremely positive and significantly up on where we were last year. On the next chart, you'll see a chart that you're probably quite familiar with now around our client portfolio. So comparing Q1 last year with Q1 this year, you'll see that technology is still by far our biggest sort of portion of client business, has declined slightly, so down from just over 50% to just under 50%.
And that's natural given the growth we've seen in BMW and Mondelez and some of the other newer wins that we've had in other categories in the past couple of quarters. But certainly, long term, we anticipate that staying around 50% of our business, and we've had good traction from existing and new clients in the tech sector as well. Moving on to the next chart. There's a couple of charts here, a couple of graphs that you'll recognize from the last from the FY twenty twenty results that we did. So we'll keep these updated as we go through.
Again, you can see on the left there, significant uptick in scale of our client business. So top 10, top 20 and top 50 clients by revenue for Q1 twenty twenty, Q1 twenty twenty one, big increases across the board there. And on the right, this is really what we look at in terms of tracking our larger client relationships and the current WAPAs and future prospective WAPAs. And you'll see this time last year, we had eight clients that had done over £1,000,000 worth of revenue with us, and that represented 44% of our cumulative total revenue. This year, we've got 18 clients that represent 47% of our revenue above GBP 1,000,000 there and then also significantly more in the other larger brackets as well, the
GBP 500,000.0
and up to 500,000.0. So really great traction with clients. And as we've talked about in the release and Victor mentioned, and I'm sure Martin will talk about in his comments, getting more visibility on the WAPAs of the future and really locking in the five that we're projecting this year. Move on to the next chart, '23, around mergers. So it's been a busy quarter.
We've been fairly active on the merger front. We announced Decoded and Metric Theory, both of which Pete referenced when he was talking about Performance Media and our expansion into that. We announced them in the January, although they actually formally closed on New Year's Eve last year. And in January, we also closed Tomorrow, which is an expansion of our business in China, and that's now pretty much integrated. So Roger, who runs TMRO, is now running the entire content business in China.
So we merged our MediaMarkt business into TMRO, and that's going full speed ahead. And then Stout Studios in Stuttgart, which is our automotive specialist and the backbone of our BMW engine, which Victor also talked about. We did a deal in Australia and New Zealand with Datalicious, adding to our Google Analytics capabilities in Asia Pacific. That was in February. And then in March, we announced Jamfri, which is a highly awarded, highly creative digital creative and production firm based in Canada with a significant portion of their revenues coming from The U.
S. And offices in Uruguay and Amsterdam as well. And then today, we're very excited to announce Raccoon. So Pete touched slightly on this, but this is a fantastic performance marketing business based in Brazil, a very significant business, over four fifty people, one of the main partners for Google and Facebook and other digital platforms down there in Brazil. And really, it's very exciting for us to have capabilities there and programmatic and to do essentially what we did in The U.
S. With metric theory to merge that in with strong performance media assets and big relationships across the major digital platforms there. So that's something we've got high hopes for, fast growth company, two ex Googlers as the founders and something we see huge projection for going forward. So that's what we've been up to in mergers. We have a strong pipeline of mergers for the rest of mentioned in his opening remarks and in the statement, we'll be looking to issue a bond imminently to augment our firepower in that regard.
So with that, I will hand you over back to Martin.
Thanks, Scott. Thanks, Peter. Thanks, Victor. And last but not least, Pete getting up so early in the morning in New York. So that's a quick summary of what we've seen in what is a has been a very exciting Q1 for us, obviously, by the growth in digital transformation and disruption and the recovery in worldwide GDP, which over the next two years, we think is going to be extremely strong.
And we've seen an acceleration in our growth rate, not just from Q4 of last year to Q1 and the comparison to this time last year, but also as we progress through January and February, March, we accelerated in terms of the growth rate into March, and we see continued acceleration into Q2 and beyond. So most importantly, our people are generally safe and mostly still working from home. Our office utilization rates are still very low pretty much across the world, although where Scott's sitting in Asia Pacific, it's stronger. But we still have great concern for our colleagues, particularly in Brazil and in India. And the situation in Brazil is not great, as we mentioned in the Racoon announcement.
And then India, obviously, has been quite serious too, and we are putting a lot of effort to making sure our people there are fully protected. From an overall point of view, Essil Capital continues to lead the industry in both growth and in margin and accelerating growth and accelerating margins. And as Peter's pointed out, we still have a very strong balance sheet, strong liquidity and cash flow. And important to just point out, despite the GBP 95,000,000 or so of M and A payments that we've made since July when we raised GBP 113,000,000. In Q1, we had average cash running between GBP 40,000,000 and GBP 60,000,000, around GBP 50,000,000 average cash balances.
Very healthy new business record and pipeline. And as Victor and Wes and Pete and Chris as they look at content and data and digital media say, we haven't seen these sort of levels of interest in our model since we've Now we've made significant progress on our 20 squared WAPA strategy. We have five, and we've identified another three that we think will be around the 20,000,000 mark or near that this year. So we hope by the end of the year, we'll have eight. Scott gets extremely worried about me mentioning things like that because analysts add immediately three times 20 or 60,000,000 our revenue forecast.
And whilst we're very optimistic about our revenue growth rate, we prefer you not to do that, at least to keep Scott happy. We have a robust merger pipeline. And as Peter mentioned, we have a bond issue that's imminent around the GBP $250,000,000, GBP $275,000,000 mark. On the ESG side of things, we set very demanding targets. We've set a net zero target of 2024.
Our annual report is coming out on May 10. It's our third annual report and has a very comprehensive ESG report there, which goes into a lot of detail about our targets. But at net zero, we've made a lot of progress as a matter that's very close to Victor's heart around B Corp status, and we hope by the end of this year to have achieved that. As you know, we've increased our gross profit target, our guidance from 25% to 30%, which looks on the surface, as one or two analysts have pointed out, to be pretty conservative. We're already running at 33%, and the target is for the year of 30%.
And I'd be very disappointed if we didn't get well in excess of that 30%. Our unitary structure is leading to conversion at scale. It's very pleasing that we've seen that. We had brand trial in 2000 or brand awareness in 02/2018, brand trial in 02/2019, and we're certainly starting get get conversion at scale in 02/2021. And the model that we're developing, the the disruptive model, which is faster, better, cheaper, or based on speed, quality, and value, is gaining a lot of traction with clients at a time when the marketing VIX factor, if there was such a thing, is at very high levels because of Google, particularly because of Google's decisions around privacy and Apple's too.
So finally, I think the best way to think about Sfour is not as an alternative to the holding companies. I think that's very passe. I think what we should do, what we feel very strongly is that analysts and shareowners and potential shareowners just think about us being a royalty on the growth of digital transformation disruption. It's this weekend was the Berkshire Hathaway AGM, and it it reminded me yet again of of what Warren Buffett used to say about the global advertising holding companies in the nineteen seventies and eighties. He bought, I think it was Ogilvy and IPG on the back of the fact that they were a royalty on the growth of globalization.
We represent, I think, a royalty on the growth of digital transformation and digital disruption, very much the technological bucket which is front and center in everybody's mind. So with that as background, thanks again to colleagues for the presentation. We'll open up for Q and A.
Thank
you. We'll now take our first question from Emily Johnson from Barclays. Please go ahead.
Good morning. So three questions from me, please. First one, can you talk about how you expect the 30% growth guidance for the full year to be split across content and data and digital media? Has new business been evenly split across the two, or should we expect data and digital media to grow faster given easier comps towards the end of last year? Secondly, can you talk a bit about your m and a plan?
Do you expect the £500,000,000 of m and a firepower to be spent on a single merger? Do you have any preference towards mergers in content or data and digital media? And and given that you've mentioned that the bond issuance is planned for q two, does that mean that you have an m and a target in mind already, or is this a more proactive step to give you flexibility if the right opportunity comes up? And then third question is you're guiding to strong operating EBITDA margin in FY 'twenty one. Can you provide any color on what exactly that means?
Should we expect EBITDA margin up by 50 basis points, 100 basis points in 2021? Okay,
Emily. Thanks very much. Maybe I'll deal with the first one, Scott, M and A and Peter margins. Do you want to start, Scott, on M and A and whether it's single content versus data targets, etcetera?
Sure. Hi, Ali. Thanks for the question. So yes, from an M and A perspective, yes, as Peter mentioned, we're looking to get the bond done relatively quickly and raise that money more as a war chest. I mean, it's very similar to what we did back in the summer in July when we raised $113,000,000 through an equity placement, and most of that's now spent across the various mergers that we've done since then.
So there's no specific deal in mind. It's really a war chest against a very healthy pipeline of deals and no one deal that would take all that firepower. Certainly, at this stage, We're looking at various deals. We don't tend to look at from an M and A perspective, it's not scale is not the key metric that we look at when we're looking for potential mergers. We're really looking to augment our capabilities, to expand our geographical presence, to solidify and create new client relationships and to bring in talent.
Those tend to be the lenses we look for rather than simply doing stuff for the sake of it based on size. So that's and then across content and DDM, I think the mergers would be we've certainly done more in the DDM side in the past few months. We've been obviously, the content part of the business is larger in terms of scale, we'd like to balance that out a little bit more. I think we're aiming for fifty-fifty, but we'd like to do that a little more. And then geographically, trying to do more stuff out here in Asia, although we do still see significant opportunities in The U.
S. So hopefully, that answers your questions there.
Peter, do you want to talk about margins?
Yeah. Sure. So to your question, Emily, on margins, what we as you remember last year, what we saw, we ended up with 21% approximately as EBITDA as a percentage of gross profit. And
what
I see currently is sort of for this year a sort of similar range where we indicated early 20% to 22%. We ended at 21. And also for 2021, I would see a similar margin. First of all, of course, we're growing very fast, which also means ramping up in employees like also similarly like we did last year, first year be first half, sorry, be prepared for the growth of the second half, although we see growth right now. That's one thing.
And the second thing is that I would expect also some more slightly more OpEx investments in some of the categories like we did with fashion and luxury at the end of last year but we're aiming for certain other areas for this year. So all in all, I would expect our margins to be at the sort of same level as we did in 2020.
And just coming back to your first question, Emily. We've had a pattern, you know, going back to this time last year, Q2 and Q3, content outdistance, if that's fair way of putting it because data and digital media wasn't a slouch during those two quarters, but content was growing faster. And then we saw a a switch. Again, content not a slouch either, but in q four, I think data and digital media was up about over 30%, 35%, if I remember rightly. Peter is saying yes.
And then into Q1 of this year, we've seen a gross profit level data and digital media 36% and content at 31%. So content picking up. And if I look at it month by month, in March, content really started to rev up. And I I would anticipate in in April, May, and June, it will continue to be the pattern. So we've seen a a fluctuation at very high levels, certainly in an industrial context, the growth rates sort of vary between the two segments.
As we go through the year, I would expect content to continue to gain momentum, but data and analytics because of the that marketing VIX factor, if you like, the marketplace is driving a lot of concern constructive concern amongst clients. I mean, clients are really thinking hard about what they should do with their consented first party data sources. I think third party data is sort of really in in in the background now. It's being pushed to the background. I know there's a lot of noise around third party data, but I I I think, basically, the focus we had a couple of conversations as late as last week with two major package goods companies about what they're doing on the first party data area, and they're trying to consolidate their resources as rapidly as they possibly can.
So I would expect the growth. I mean, I'd be very disappointed if we didn't have a significantly greater organic growth rate beyond what we've seen even in Q1 by the end of this year. I mean, we have a the comparatives in Q2 are weak. They were only 7% last year. I mean, we didn't have a bad Q2 last year like others and the holding companies were down about 10%, 15%, 20%.
But we have easier comparatives, so I would expect a pickup in the growth rate. And then although the comparatives get tougher as we go through in Q3 and Q4, I would expect the underlying GDP growth rate and the secular shift to digital transformation and disruption to help us certainly in 'twenty one and then into 'twenty two. Does that cover what you want, Emily?
Yes. That's very clear. Thank you.
Thank you.
We'll now move to our next question from Patrick Wellington from Morgan Stanley. Please go ahead.
Yes. Morning, everybody. A couple of questions. Firstly, for Peter, can you remind us what is the difference between revenue and gross profit? It's about 20,000,000 difference in q one.
Just can you remind us what the elements are in that difference? Secondly, on the bond issue, is there gonna be any equity element? Is there, for instance, a convertible element, within that? And then the third question, which is maybe for Martin, can you talk a bit about traction? I think at the full year, you talked about s four, you know, really beginning to break through with big clients.
You talk in the release about how many major pitches you're on. I'm not sure whether it's two with CPG companies or four major pitches with CPG companies. There was talk about the additional upside with Mondelez in August and also this once in a decade opportunity. So can you talk to us about traction and how much you're sort of breaking into the big leagues, if you like?
Okay. Peter, you want to deal with those first two?
Yeah. So to your first question, Patrick, the difference in revenue and gross profit, I think you can also see that in the tables that we included in the release as well as in this presentation that it basically applies to our content practice because at Dayton Digital Media, you basically see same revenue and and and gross profit because they hardly encounter any third party cost. And in content, it relates to just as an example, if we do certain film shoots in combination maybe for social and even TV, or like Victor was referring to, some more experiential happening right now that in typically, in these kind of productions, we encounter third party costs. We need to engage with, let's say, subcontractor or line producers or or the like. And, basically, that creates and and it's part, of course, of SOWs and offers to clients that we that we have some some certain, I would say, external cost of sales in order to deliver that specific campaign or experiential or that experience to our clients.
So that's basically the where it happens at content, and that's the distinction between revenue and gross profit. And to your second question, what we what we are looking for is not so much for a convertible. So we're probably going to do for a term loan B structure slash bonds. That's to be decided. We're going to probably wrap that up.
I've had several discussions with our banks and wrap that up, but it's very likely that it's going to be a normal bond Term Loan B structure and not so much a convert.
Thanks, Peter. I mean, on traction, Patrick, I think we're gaining traction. I think we have to pick our battlefields or our battles. I don't think we want to get caught up in the round robins. I mean,
if you if you
went to a sort of helicopter view of what's going on in the traditional industry, you know, you have you have holding companies fighting with one another for for media business in particular where they're discounting heavily given in inflation guarantees, giving pricing guarantees, which raises all, in our minds, all sorts of accounting issues, actually, which probably are not taken into account. So that's at one level from a pricing point of view. And from a labor cost point of view, there's the round robin of sort of creative directors and people moving from one holding company to another, which again pushes up costs. I mean, creative directors don't move from one holding company to another without a significant increase in cost. So what you you have in in those on those battlefields is revenue being compressed and costs being driven up, and we just don't want to touch that.
We really want to be where we think we can add significant value, and we think that's, as as Victor pointed out in his brief presentation on the content side and what Pete did on the data and digital media side, really looking at the areas where we think we can add significant value. So having said that, there's a lot
of movement
in the marketplace. It might have been, you know, the pandemic built a dam up of of reviews and changes. We think a lot lot of clients are unhappy with their existing arrangements, and I think the pandemic probably gave them the time to focus on their unhappiness or discontent. You know, I noticed over the weekend, for example, Alan Jopp at Unilever talking about building, I think it was another 16 in in housing units in inside Unilever, for example. So you're seeing major shifts, structural shifts around agility, response, understanding the platforms.
And for us in a Brazilian context is a very good example of where changes are taking place in the marketplace, their their relationships with Google and Facebook, for example, in the Brazilian media markets are very strong and capable of significant expansion even beyond current levels. So I think traction is you know, we are getting a tailwind from the secular trends that we've talked about, GDP and digital transformation. And tactically, we're doing well too because we are differentiated. I think the interesting thing about the holding companies is in q one, you know, they were up all around two or 3% on a on a on a pretty dismal q one last year, and they're pretty much all the same. And there's very little differentiation between them.
I think we have a a differentiated offer, because we have the advantage of being being the peanut and the smaller scale.
Alright, Patrick?
And, Martin, is it four four c p yeah.
No. Is it four CPG companies? Or we
we have yeah. I think I think I think we indicated it was actually four, yes, so that we're sort of talking to you about various things. But it goes beyond it goes beyond the CPG, Patrick. I mean, I think there is a general sort of reevaluation taking place of what clients are doing and how they're doing it. And I think that's to our benefit because we are a new shiny object in that context.
That's great. Thank you.
We will now move to our next question from Steve Lakeley from Numis. Please go ahead.
Morning, everybody. I hope you can hear me. I've got one question actually only. Just a little bit more color on the three whoppers that you're targeting for this year. I just want to understand, are those existing clients that you're looking to take up to the level of a whopper?
Or are they completely new and would be incremental clients or business to the group? Thank you.
There's a beads of sweat that have disappeared from Scott's brow. They're they're existing ones. They're existing ones. So the the they're they're three, what I would call, tech clients where we have existing relationship. I think what we said before is that, you know, we have the the five core, let's say, which Victor touched on.
We have another another three that are trending towards WAPA status, which are what I would call tech telecoms. And then, you know, we've identified I think it's a total of 15, including the the eight that I've just covered that we think will get to what we call tier one status. So we have to identify another five. But the answer to your question is they are existing, not new.
And just to be
clear, are they are you pitching for new incremental business for them so they'll go to a whole new level? Or are they just gonna to grow naturally at a strong rate anyway?
Victor, do you want to yes, Victor, maybe Pete can chip in as well. I mean, yes, our strategy is very much around land and expand. But Victor, do you want to talk a little bit about how we're building the relationships? You've touched on it in your slides.
Yes. It's a bit of both. So on one side, it's growth of existing parts of the business that we're in. On the other side, there's a lot of new territories, but also new lines of business. So from content to experiential, from content to data and digital media or from content production to creative or to influencer business.
So we're opening up new territories plus new lines of businesses and especially from content to data and digital media is something that is very interesting and will drive the growth in this year and next.
Pete, do you want to talk a little bit about how you see the data and digital media clients developing?
Very similar to Victor. It's both mechanisms. Right? Increase in budgets in the existing activities as well as, additional activities coming in. And as Victor noted, there's, a lot of these are kind of crossed in between the two, you know, digit data and digital media as well as the creative.
And really what we see is that this is the beginnings of and the emergence of the unitary structure as we continue to evolve and coalesce into something that really hasn't been seen before.
Yeah. I I just add that I think I think last year was a sort of tipping point because digital now is what more than 50% of the market. So if the market last year was $50,550,000,000,000 and digital was $2.75, 300. And you've seen huge expansion in q one of digital advertising. I mean, look at all the fangs or however you want to describe them, whether whether you're talking about Google or Facebook or Amazon or whoever.
And we've seen very significant increases. You you you will see Google's ad revenues this year go from $180,000,000,000 to $2.40. You've seen Facebook go from 80,000,000,000 probably to about 110. You've seen Amazon Amazon was up, what, 73% in Q1 of this year. It's with a base of 20.
So you could see Amazon we've said Amazon will get to GBP 100,000,000,000 driven by small and medium sized businesses. So you are seeing a radical shift, which is being reflected in the FANG numbers, the platform numbers and indeed in our own numbers, which we think will continue because of this secular shift that's taking place, which has become even more dramatic as a result of the pandemic.
Okay, great. Thanks.
We'll now take our next question from Matthew Walker from Credit Suisse. Please go ahead.
Thanks a lot. Good morning, guys. I've got three questions. The first one is just on on digital media and and and data. You spoke a lot about privacy.
We saw WP come up with choreograph, which has got some sort of commissioned data. I was wondering what is your version of of an Epsilon or a Choreograph? Do you have one? Do you need one? Where are you getting your commissioned data apart from just getting your clients' first party data?
Second question was on acquisitions. You've done a lot of acquisitions, obviously. Just wondering how many of those are sort of outperforming what percentage of acquisitions that you've done are outperforming the the initial acquisition case, just to see what the track record is like? And then final question is, last time on the call, spoke about, you know, the advantages of maybe combining with an IT services, company. Any further thoughts on on that or any progress on that?
Okay. Pete, do you want to respond on third party data, choreograph, etcetera?
I think that the writing is on the wall for third party data, and that third party data is going to make a when privacy legislation marches forward, the entire points of all of this is to emphasize the direct data relationship between the consumer and the advertiser. So with that in mind, our focus is really to emphasize and play up that angle to help our advertising clients to develop direct relationships, consented relationships with their consumers and to help them with that first party data or even zero party data as we, as we kinda discuss it, which is and, you know, we kinda look at it from the perspective of, you know, you just don't want to be spooky. And so you want to have, you know, a conversation between the advertiser and the consumer that, doesn't leave the consumer wondering, how did you know that about me? And so the, that's really where we're going with that, and I think that it will just play itself out. And so that does mean that we are going to be focusing more on the advertisers' data rather than trying to bring our own data to that because it just flies in the face of everything that we see is happening in the marketplace right now.
Scott, do you want to respond on acquisitions or mergers as we call them, how they're performing?
Sure. So the vast majority so first, if I back up a bit, firstly, the projections of these companies are very aggressive when we're looking at them. Obviously, they're in a sales process, so it's in their interest to have aggressive projections. But they're also very fast growing companies. I mean one of the criteria we look at is strong top line growth.
So we're not interested in merging with companies that are not delivering strong top line growth. In terms of how they performed, yes, the vast majority have either met their projections or outperformed their projections. You can sort of see that in the pro form a results that Peter reveals. We have a reported like for like in pro form a, and the pro form a is normally stronger. So that illustrates that the mergers have added to our growth, basically.
The one thing I would stress is that in some cases, it's quite difficult for us to track because of that unitary structure. And because we if you take tomorrow in China, for example, that's already fully integrated with the MediaMux business there. We don't track two separate P and Ls. So the business is doing great overall in China. So tomorrow is clearly contributing to that.
But how much of that I can attribute to tomorrow versus our existing business? It's impossible to say because we believe in that unitary structure and instant integration. So we're not leaving these companies hanging out there on their own for five years like the holding companies do. We're integrating them on day one.
Yes. I mean there is a sentence, Matthew, buried in the release, which talks about turbocharging that we got from the deals, the mergers that we've done. So I think on balance, we feel I mean, there've been some examples which we've discussed on these calls before. For example, with BizTech in in Australia, we took the we took the decision. Victor, remember, we were talking on our daily calls about keeping in place the infrastructure we have there because sales engineers, Adobe engineers, or people versed in Adobe software couldn't visit the client.
They were in short supply, we took the view that we should keep those that that cadre of engineers in place, and that's proven to be the right thing to do as we've seen a relatively sharp recovery in the, certainly, digital economy there. On what we might be doing longer term, I mean, there are two areas that we've sort of discussed. One is the one you mentioned, Matthew, IT services in particular. We've used the example of Globant, which is a company which is doing brilliantly well as as well in a in a global transformation area. So that's one area where we continue to to build out our services.
And we have very I mentioned Adobe, and we have a very strong relationship there. We have a growing relationship with Salesforce, for example. Obviously, a growing relationship with Microsoft. But, you know, we want to do more in those areas and in the IT services areas. And when you see the growth of the the three big cloud platforms, it makes you think that the importance of the marketing cloud is gonna become even more so.
And the other area is sort of moving up the funnel a bit. It's continuous debate inside, you know, our company, our firm as to what we should do in relation to that. I mean, that number of us feel or number of people in that discussion feel that we do have the planning capabilities and the the upper funnel planning capabilities that necessary. There are others that feel we could broaden that. So I think those are the sort of two areas where we've got scope apart obviously from adding to what we're doing in content and data and digital marketing.
As Scott mentioned, the balance probably between content and data and digital marketing is too skewed to content, to be fair. It's seventy-thirty at the moment. It probably should be at least sixty-forty, and we probably want to move a little bit more in that direction. Geographically, we want to shift a little bit away from the seventy-twenty-ten to the forty-twenty-forty. But as Scott mentioned, it's very much driven by what we see in terms of opportunities.
But I would say, specifically on IT services, it's still very much top of our mind as to what we can do in those areas too.
Thanks. I just have one quick follow-up, which is on brand. You mentioned you're doing some steps to more move towards unitary brand. Is that going to be medium monks with the overarching brand? Maybe you can explain a bit more.
Well, I I I've always wanted Mighty Monks, but I failed. So you'll see that it will be it will be it's actually a very flexible system. If you look very carefully at what what's out there from us, you'll you'll see you'll see it coming out. We we wanted to avoid I mean, why don't you talk a little bit about the process that we're going through on
this? No. I'm I'm definitely not gonna talk about it. So But it's happening. It's happening, and it'll be good.
I promise you. But what's way more interesting is what's happening under the hood. We're moving into into one set of tooling, and we're really building a company with one operating model based on the most modern SaaS products. So we moved to to to Slack, to Google, to Salesforce and so on and so on. So I think the unitary structure is one p and l philosophy, is one set of tooling so everybody can work together.
And the brands, I will make sure to update you when the time is right.
I would just add add to be fair that it's a very flexible framework, and it can be the way that it works is people can introduce their own individual sort of adjustments and refinements. And the other thing to say is that we've we've implemented it cautiously because we don't wanna get involved in either any internal fracker or client fracker as others have got involved in when they've tried to slam things together. So so I think we've taken it carefully, and we've socialized it with must be about 250, 300 people inside the company so they all know the direction in which it's going, and they've had the opportunity to comment on it. And they have done, actually. So but we're pretty much there.
And as I say, despite what Victor says, if you look very carefully at what we're doing, you'll see it.
Thanks a lot.
We'll now
move to our next question from Jessica Pok from Peel Hunt. Please go ahead.
Hi. Good morning, everyone. I've got three questions, please. The first is kind of going on from, the question earlier about the one set of tooling, especially the one client view. For any mergers which happen, how fast can the mergers be integrated so that you have a good one client view?
And secondly, just about the M and A environment, could you give a bit more color as whether the environment is getting more or less competitive? And then finally, just on, what you've mentioned about FMCG pitches, which you're involved in. I mean, I know it's a bit of speculation now, but in terms of the size, if these one of these pictures are won over time, I mean, we talking about what the size is? Indication of scale would be great. Thank you.
Okay. On the first, Victor, do you want to talk about tooling and how quickly can you on integration get to one client?
Yes. So actually, we're super clear on the mergers where we want to go to. So all the mergers know we're moving into a singular brand. All the mergers know that we're moving into a singular set of tooling. But we also don't want to stick a logo on the wall and then say we're integrated now.
So it's a step by step approach. So it starts with Scott and the entrepreneurs that talk to the future merger candidates to signing the deal and revealing it like how we tend to do that to the post merger integration team that takes it on and does it step by step. But in generally, we give an entrepreneur that joins around three it starts with three months and it will end in 1.5 to do the full integration. And every single month, when we have our S4 board meeting, we present from each and every of the mergers where they are in the process and what needs to be done and what the next steps are. Obviously, when we presented our client overview is, from the top of my head, around 67% of our total revenue comes from our Tier one clients.
So that has our immediate focus. So the integration on the client side is almost immediately. Does that answer your question?
Yes, thanks.
Okay. And then Scott, do you want to talk about M and A and competition, Yes,
sure. Just touching on what Victor was saying, I mean, your specific question around integrating one view of client, that is the focus and the first focus when we're integrating these mergers. And from a tooling perspective, it's normally pretty easy because most of them are already using we use Salesforce. Most of them are already using Salesforce. So to bring two instances of Salesforce together is pretty easy.
But there's a big sort of manual effort as well in terms of the management and the entrepreneurs across the group welcoming these new companies in and opening up their client relationships to them, whether that's on a geographic basis or a capability basis. So it works both ways. On the M and A side, yes, I mean, I think particularly in The U. S, there's certainly more competition in the kind of targets we're looking at, and that's really driven by private equity. So what we're seeing is that direct investments by private equity funds or we're seeing private equity invested agencies that are sort of doing roll up strategies and trying to buy assets.
It's mainly focused in The U. S. It is competitive and, I guess, putting pressure on valuations to a certain degree. But we believe we have a very different story and opportunity for entrepreneurs. And at the end of the day, if we can match valuations, our belief is that the entrepreneurs that want to be part of S4 and want to continue to be entrepreneurial and build take advantage of all that S4 offers in terms of geographic expense, in terms of access to clients, in terms of access to broader capabilities, for the entrepreneurs that, that excites, we we do believe that we're very competitive and they're more likely to to choose Sfour.
So I don't think it's particularly hampering us, but we are seeing pressure.
Yeah. I mean, to follow-up there. I mean, you sort of got a very good example that came out last week, you know, in the case of of MediaMonks, you know, that that WBB came in with a extremely aggressive bid up valuation up to €1,500,000,000, and we merged at a value of 300,000,000. Now, obviously, the price of our our shares has risen since Victor and Wes and Peter made that call in July whatever it was of 02/2018. But it's a good example of what Scott just said is that every I'm we see goes upwards to the right.
In fact, I defy anybody to show me an I'm which doesn't go upwards to the right. And if somebody's offering a four or five year earn out, they're gonna do better on paper with that offer. If they think they're gonna hit the I'm they will with us. I think Pete can attest to the fact that that Mighty High had 20 something like 20 bids, and I think we were the fourth best from a purely financial point of view. So to Scott's point, people are buying in to to what we're trying to do, which is to create the new model.
Going back to Patrick's question of getting traction with a new model, that's what we're trying to do. We're trying to, you know, unashamedly disrupt disrupt the old. On on FMCG site size, I mean, look. What what we are trying to do is to build big relationships. We're totally focused on conversion at scale.
So anything anything that we do with of significant scale with clients, we're looking at trying to get to achieve our 20 squared relationship. As Victor mentioned Allianz, which is a recent win out of Germany, you know, that's a good example of where we're trying to build scale through land and expand. So everything, whether it's FMCG, in health care, in auto, wherever it is, we're trying to continue to build these these relationships re relationships at scale. And the the target that we have is 20,000,000 of gross revenue. You know, hopefully, as we get bigger, we'll and and we achieve that 20 squared objective, we can either broaden that 20 squared objective to 30 clients or whatever or raise the 20,000,000 target to 30 or whatever it happens to be.
I think Accenture Accenture's diamond clients are around 200,000,000 a year or something like that. And I remember when we were at WPP, we looked at clients, you know, to be in top 10 had to be about a $150,000,000. So, we have a long way to go. So we're very much at the beginning of the journey. So we'll see what we can do.
Okay.
Is that are we finished with our questions?
There are no further questions.
Thank you very much, operator. Thanks, everybody. Thanks for joining us on Q1, and we look forward to seeing you again for the half year and further dynamic progress. Thanks very much
indeed. Thanks, everyone.