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Okay. Good morning, everybody. I'm Martin Sorrell. I'm in London. We've got Peter Rademaker, who's in Amsterdam; with Victor Knaap; Scott Spirit, who's in Singapore; and Pete Kim, where are you, Pete?
New York City.
New York City. Okay. Good. And it's a god awful time, so thank you for getting up at such an early time. So we've got our Q1 update for everybody. And I'm kicking off, and then we're going to hand over to Peter to talk about our 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 & digital media. And I'm 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&A.So over to you, Peter.
Thank you, Sir Martin, and good morning to all joining us today on the first quarter trading update. And to summarize our first quarter of 2021, I would say, a very strong growth in top line following the very good Q3 and Q4 in 2020. And what we saw was a strong client momentum in our -- with our largest clients, such as Google, Facebook, Amazon, Proctor, AB Inbev and Netflix. As Scott will further elaborate that later on in his presentation. And next to that, our 2 whopper wins BMW/MINI and Mondelez has started to have significant positive impact in March. And this resulted in a Q1 reported revenue of 71%, up to GBP 121.6 million, and a Q1 reported gross profit, up with 71% to GBP 104 million in the first quarter. And more importantly, on a like-for-like basis, we saw our -- or our revenue grow with 35% on a like-for-like and then pro forma 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 GBP 50 million net cash again in the first quarter of 2021. And although there's 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 GBP 113 million, we're now considering a bond issue. At that moment, we did GBP 113 million, of which around GBP 95 million has been spent till the end of April this year. So that's before our final settlement for our payments on Raccoon and on Jam3. But we continue to examine merger opportunities in high-growth functional areas with both practices, and we are prepared to leverage the group up to around 2x EBITDA. So in other words, we would be looking for a bond issue of around GBP 250 million, GBP 275 million 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 '21 to grow with approximately 25% as a result of also doubling in size of organically over in a 3-year periods 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, 5 quarters. I would like to take you back to Q1 2020 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, in Q4 27% growth. And now we continued or even accelerated that fast growth rate to 33% in Q1 2021.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, the data & digital media performed to or had 24% share in the total of revenue and 28% on the gross profit. If you look at the reported numbers, our Content practice grew to GBP 92.2 million, which is 64% growth on a reported basis compared to Q1 2020. And data & digital media grew with 100%, last year reported GBP 14.7 million, now GBP 29.4 million, all in all, resulting in a 71% growth on a reported basis. But then again, 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 & 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 & digital media was 101% on a reported basis, and delivering 71% growth in gross profit, again, on reported. And in like-for-like, the Content practice contributed GBP 74.6 million, which was a 31% growth. And our data & 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 data & digital media, and then Content significantly picked up in the first -- or sorry, in March in the first quarter.And then on Slide 7, you see the graph with the gross profit comparison by the practice or in the first quarter performance. So what we saw in Q1 last year that Content grew with 19%. And now in Q1 2021, Content grew with 31%. And data & digital media last year at 17% in Q1. And then in Q1 2021, 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 address the like-for-like numbers, that the Americas grew with 30% to GBP 73.4 million, EMEA grew with 44% to GBP 21.6 million and Asia Pacific grew with 34% to GBP 8.9 million.So this was my last slide, a short update in relation to the trading 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 9 of February 11 since it described perfectly what our biggest challenge is the brands need to solve today.CMOs 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, Wesley ter Haar and our own Bruno Lambertini is exactly in line with our RFIs, RFPs and briefings we are working on today with BMW, Mondelez 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 1 and Tier 2 brands. Next to that, we freed up teams for integration of the labels in tooling, brand, finance and HR. And besides that, we invested in client corporates in 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 USD 20 million of revenue, Google, the brands 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 1 and Tier 2 clients and adding new logos and whopportunities globally. We still need to scale around 25% of the BMW and Mondelez 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 1 and 2 client growth.Next page, please. So a quick peek under the hood. Our client team process. We kicked off integrated reporting, a forecasting process for Tier 1 and Tier 2 clients across Content and DDM. We do monthly forecast and accounts update provided by client leads. And we reviewed strategic account updates with senior leadership for Tier 1 and select Tier 2 account led. 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 client the margin reporting at reforecast, 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 0. 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 decisions journey thinking.So if we look at a bit of a work that we created for BMW and MINI in the first months, so this is literally what the marketing engine produces. It's very diverse from landing pages for the BMW i4 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 10s of thousands of assets being produced at this moment, which we are not allowed to show you because of 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 1 and Tier 2 clients with social and fashion being the fastest-growing part of the business. We will see expansion and further integration of Decoded, Jam3, TOMORROW and Staud, our latest additions to the Content part of the business. And the growth is also fueled by the expansion of S4 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 the experiential popping up again, opportunities reemerging as hybrid events, where we do a cross offer between in-person and virtual in U.S. and part of APAC.So this is it from me. Over to Pete and looking forward to your questions at the end of the presentation.
Thank you very much. And we will now be discussing the data & digital media practice. Good morning, everybody, from New York City. It's great to be with you today.DDM, obviously, the data & digital media practice, obviously, had a pretty strong quarter and 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, 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. And 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 3 represents a very strong additions to what we see as an opportunity that is not really unveiling 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. See even more and more cases of physical branding and awareness budgets being combined with or shifting to performance teams. According to some news, 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 in trends that we see inside of marketplace as advertisers start to see the third-party data targeting diminish as the death 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 sites to further marry the creatives 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 potentially favor the few walled gardens like favor the walled, the 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 S4 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 this so-called death of the cookie. It's been a little bit of a task for us to kind of explain to the lay person exactly what the death of the 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 be 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 seems to be going away and then with the predictable changes and people around that. The trends that we're looking at roughly started in 2018, there's no real end in sight. And we are seeing a what we are calling internally, a self-reinforcing called Game of Thrones with multiple constituents and multiple kind of factors occurring, including competition amongst the industry, public opinion regarding intrusive tracking, data breaches, et cetera, 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 "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. 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, which is all necessary in order to help our advertisers and clients adapt. And so 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 on and pass it on to a discussion around our clients.
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 to 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 pitches 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 the 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 2020 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 2020, Q1 '21, 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 whoppers and future perspective whoppers. And you'll see this time last year, we had 8 clients that have done over GBP 1 million 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 million there and then also significantly more in the other larger brackets as well the GBP 0.5 million and up to GBP 0.5 million. 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 whoppers of the future and really locking in the 5 that we're projecting this year.Move on to the next chart, 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 beginning of 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 Rogier, who runs TOMORROW, is now running the entire Content business in China. So we merged our MediaMonks business into TOMORROW, and that's going full speed ahead, and then Staud 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's in February. And then in March, we announced Jam3, which is a highly awarded, highly creative digital creative and production firm based in Canada, which is 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 450 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 our existing MightyHive capabilities there in 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, a fast growth company to ex Googlers as the founders and something we see huge trajection for going forward.So that's what we've been up to mergers. We have a strong pipeline of mergers for the rest of the year. And as Peter 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 has been a very exciting in Q1 for us, obviously, driven by the growth in digital transformation and disruption and the recovery in worldwide GDP, which over the next 2 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 progressed 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. Obviously, 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 Raccoon announcement. And India, obviously, is being quite serious, too, and we're putting a lot of effort to making sure our people there are fully protected.From an overall point of view, S4 Capital continues to lead the industry in both growth and in margin and accelerating growth and accelerating margins. And as Peter has 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 million or so of M&A payments that we made since July of last year when we raised GBP 113 million. In Q1, we had average cash running between GBP 40 million and GBP 60 million, around GBP 50 million of 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 & digital media, say, we haven't seen these sort of levels of interest in our model since we have started.Now we made significant progress on our 20 squared whopper strategy. We have 5, and we've identified another 3 that we think will be around the GBP 20 million mark or near that this year. So we hope by the end of the year, we'll have 8. Scott gets extremely worried about me mentioning things like that because analysts add immediately 3x GBP 20 million or GBP 60 million to 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 million to GBP 275 million 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 for the 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 1 or 2 analysts has 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 have a brand trial in 2000 -- or brand awareness in 2018, brand trial in 2019 and we are certainly starting to get conversion at scale in 2020 and '21. And the model that we're developing, the disruptive model, which is a faster, better cheaper or based on speed, quality and value is gaining a lot of traction. We plan at the time when the marketing risk 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 S4 is not as an alternative, the holding company. I think that's very passe. I think what we should do and 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 reminded me yet again of what Warren Buffett used to say about the global advertising holding companies in the 1970s and 80s, he bought I think it was Ogilvie 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 the colleagues for the presentation. We'll open up for Q&A.
[Operator Instructions] We'll now take our first question from Emily Johnson from Barclays.
So 3 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 & digital media? Has new business being evenly split across two? Or should we expect data & digital media to grow faster given easier comps towards the end of last year?And secondly, can you talk a bit about your M&A plans? You expect $500 million of M&A firepower to be spent on a single merger? Do you have any preference towards mergers in Content or in digital media? Given that you've mentioned that the bond vision declined for Q2, does that mean that you have an M&A target in mind already? Or is this a more proactive step to give you flexibility if the right opportunity comes out?And then third question is you're guiding to strong operating EBITDA margin in FY '21? 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&A, and Peter, margins. Do you want to start, Scott, on M&A and the single Content versus data targets, et cetera?
Sure. Emily thanks for the question. So yes, from an M&A perspective, as Peter mentioned, we were 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 GBP 113 million through an equity placement, and most of that is 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 it from an M&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 don't think we're aiming for 50-50, 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?
Yes. 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 the 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 -- first half, sorry, we 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 that 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 of going back to this time last year, Q2 and Q3, Content outdistanced, if that's a fair way of putting it because data & digital media wasn't a slouch during those 2 quarters. But the Content was growing faster. And then we saw a switch, again, Content not a slouch either. But in Q4, I think data & digital media was up about over 30%, 35%, if I remember rightly. Peter's saying yes. And then into Q1 of this year, we've seen a gross profit level at data & digital media at 36% and Content at 31%. So it's Content picking up. And if I look at it month-by-month, in March, the Content really started to rev up. And I would anticipate in April, May and June, it will continue to be the pattern. So we've seen a fluctuation at very high levels, certainly in an industrial context. The growth rates sort of vary between the 2 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 mix factor, if you like, in the marketplace is driving a lot of concern, a 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 the third-party data is sort of really 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 think basically, the focus, we had a couple of conversations as late as last week with 2 major packaged 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 -- the comparatives in Q2 are weak. They were only 7% last year. 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 getting 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 '21 and then into '22. Does that cover what you want, Emily?
I'll now move to our next question from Patrick Wellington from Morgan Stanley.
A couple of questions. Firstly, for Peter, can you remind us what is the difference between revenue and gross profit? It's about GBP 20 million difference in Q1. Just can you remind us what the elements are in a difference? And secondly, on the bond issue, is there going to 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 S4 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 2 with CPG companies or 4 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, do you want to deal with these first two?
Yes. 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 the -- to our Content practice. Because at data & digital media, you basically see the same revenue and gross profit because they hardly encounter any third-party costs. And in Content, it relates to, just as an example, if we do a certain film shoots in combination maybe for social and even TV or like Peter was referring to some more experiential happening right now. But typically, in these kind of productions, we encounter third-party costs because we need to engage with, let's say, subcontractor or line producers or the like. And basically, that creates -- and it's part, of course, of SOWs and offers to clients that we have 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 the revenue and gross profit. And to your second question, what we are looking for is not so much more of convertible. So we're probably going to do for our term loan B structure/loans, that's to be decided we're going to probably wrap that up to have 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 on first.
Thanks, Peter. I mean on traction, Patrick, I think we're gaining traction. I think we have to pick our battle fields or our battles. I don't think we want to get caught up in the round robin. I mean if you went to a sort of a view of what's going on in the traditional industry. You have holding companies fighting with one another for media business, in particular, where they're discounting heavily given inflation guarantees, given pricing guarantees, which raises all -- in our minds all sorts of accounting issues actually, which probably have not taken into account. So that's 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 out costs, I mean creative directors don't move from one holding company to another without a significant increase in cost. So what you have 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 Victor pointed out in his brief presentation on the Content side and what Peter on the data & 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 the pandemic to amp up of reviews and changes. We think a 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. I noticed over the weekend, for example, Unilever talking about building, I think, it was another 16 in-housing units inside Unilever, for example. So you're seeing major shifts, structural shifts around agility, response, understanding the platform. Raccoon for us in a Brazilian context is a very good example of where changes are taking place in the marketplace. 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 -- we are getting and 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 company is in Q1, they were up all around 2% or 3% on a pretty dismal Q1 last year, and they're pretty much all the same. And there's very little differentiation between them. I think we have a differentiated offer. And of course we have the advantage of being the peanut and the smaller scale. All right, Patrick?
And Martin is it 4 -- yes, is it 4 CPG companies or?
We have -- yes. I think we indicated it was actually 4, yes, so that we're sort of talking to you about various things. But it goes beyond. It goes because 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.
We will now move to our next question from Steve Liechti from Numis.
I hope you can hear me. I got one question actually, only. Just a little bit more color the 3 whoppers that you're targeting for this year. I just want to understand, have 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?
There's a beads of sweat that disappeared from Scott's brow. They're existing ones. So there are 3 what I will call tech clients where we have existing relationship. I think what we said before is that we have the 5 call, let's say, which Victor touched on. We have another 3 that are trending towards whopper status, which are what I would call tech telecoms. And then we've identified -- I think it's a total of 15, including the 8 that I've just covered that we think will get to what we call Tier 1 status. So we have to another 5. 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're going to a whole new level? Or are they going to grow naturally at a strong rate anyway?
Well, I -- do you want to -- Victor, maybe Pete can chip 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, its growth of existing part of 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 & digital media or from Content production to creative or to influence your business. So we're opening up new territories plus new lines of businesses. And especially from Content to data & digital media is something that is very interesting and will drive the growth in in this year and next.
Yes. Pete, do you want to talk a little bit about how you see the data & digital media clients developing?
There is a little bit here. It's both mechanisms, right, increase in budgets in the existing activities as well as additional activities coming in. And as Victor noted, this -- a lot of these are kind of cross in between the data & digital media as well as the creative. And really, what we see is that this is the beginning and the emergence of the unitary structure as we continue to evolve and coalesce into something that really hasn't been seen before.
Yes. I'd just add there, 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 $500 billion, $550 billion and digital was $275 billion, $300 billion. And you've seen huge expansion in Q1 of digital advertising. When you look at all the FANGs or however you want to describe them, whether you're talking about Google, Facebook or Amazon or whoever where we're seeing very significant increases, you will see Google's ad revenues this year ago from $180 billion to $240 billion. You've seen Facebook go from $80 billion probably to about $110 billion. You've seen Amazon -- Amazon was up, what, 73% in Q1 of this year. It started with a base of 20%. So you could see Amazon -- we said Amazon will get to $100 billion 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 is becoming more dramatic as a result.
We'll now take our next question from Matthew Walker from Crédit Suisse.
I have got two questions. The first one is on digital media and data. You spoke about privacy. We saw WP (sic) [ WPP ] come up with Choreograph, which is often sort of commission data. I was wondering what is your version of an Epsilon or a Choreograph? Do you have one? Do you need one? Where are you getting your commissions data apart from just getting your client third-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 initial acquisition cadence just to see what the track record is like? And then final question is, last time on the call, you spoke about the advantage of maybe combining with an IT services company, any further thoughts on that or any progress on that?
Okay. Pete, do you want to respond on third-party data, Choreograph, et cetera?
I think that the writing is on the wall for third-party data, and that third-party debt is going to make a privacy legislation march us 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 out 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've kind of discussed it, which is -- and we kind of look at it from a perspective you just don't want to be spooky. And so you want to have a conversation between the advertiser and the consumer that doesn't lead 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 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, to back up a little bit. Firstly, the projections of these companies are very aggressive when we're looking at them. Obviously, they're in a sales process. 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 r not delivering strong top line growth. In terms of how they performed, yes, the vast majority has either met their projections or outperformed their projections. You can sort of see that in a pro forma results that Peter reveals. We have a reported like-for-like and pro forma. And pro forma is normally stronger, so that illustrates that the mergers have added to our growth, basically. The one thing I would stress is, 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 MediaMonks business there. We don't track 2 separate P&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 5 years like the holding companies do, we're integrating them on day 1.
Yes. I mean there's a sentence Matthew buried in the release, which talks about turbocharging that we got from the deals and the mergers that we've done. So I think on balance se feel -- I mean, there have been some examples, which we've discussed on these calls before, for example, with BizTech in Australia. We took the decision of Victor. Remember, we were talking our daily calls about keeping in place to the infrastructure we have there because sales engineers, Adobe engineers or people grossed in Adobe software couldn't visit the client. They were in short supply, and we took the view that we should keep those -- that cadre of engineers in place and that's proven be the right thing to do as we've seen a relatively sharp recovery in the -- certainly, the digital economy there. On what we might be doing longer term, I mean, there are 2 areas that we've sort of discussed. One is the one you mentioned, Matthew, IT services. Here in particular, we've used the example of Globant, which is a company which is doing brilliantly well -- as well in a global transformation area. So that's one area where we continue to build out our services. I mean 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 we want to do more in those areas and in the IT services areas. And when you see the growth of the 3 big cloud platforms, it makes you think that the importance of the marketing cloud is going to become even more so. And the other area is sort of moving up the funnel a bit. It's continuous debate inside our company, our firm as to what we should do in relation to that. I mean the number of us feel or a number of people in that discussion feel that we do have the planning capabilities and the upper funnel planning capabilities that necessary there are others that feel we could broaden that. So I think those are the sort of 2 areas where we have got scope apart, obviously, from adding to what we're doing in Content and data & digital marketing. As Scott mentioned, the balance probably between Content and data & digital marketing is too skewed to Content, to be fair. It's 70-30 at the moment. It probably should be at least 60-40. And we probably want to move a little bit more in that direction. Geographically, we want to shift a little bit away from the 70-20-10 to the 40-20-40. But as Scott mentioned, it's very much driven by we see in terms of our opportunities. But I would say, specifically on IT services it is still very much top of our mind as to we can do in those areas, too.
If I could just ask one quick follow-up, which is on brand. You mentioned you're seeing some steps move towards unitary brand. Is that going to be MediaMonks with the overarching brands, maybe you can explain a bit more?
Well, I've always wanted MightyMonks but I've failed. So you'll see that it will be -- it's actually a very flexible system. If you look very carefully at what's out there from us, you'll see it coming out. We wanted -- I mean, Victor, why don't you talk a little bit about the process that we're going through on this?
I'm definitely not going to talk about it. So what is happening? It's happening and it will be good. I promise you. But what's way more interesting is what's happening under the hood. We're moving 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 move to Slack, to Google, to Salesforce and so on and so forth. So I think the unitary structure is one P&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.
Yes, I would just 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 implemented it cautiously because we don't want to get involved in either any internal [ frecare ] or client [ frecare ] as others have got involved in when they have tried to slam things together. 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'll have 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.
We'll now move to our next question from Jessica Pok from Peel Hunt.
I've got 3 questions, please. The first is 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&A environment. Could you give a bit more color as to 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 pitches are won over time, I mean are we talking about what the size is? An indication of scale will be great.
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's and 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 3 -- it starts with 3 months, and it will end in 1.5 years to do the full integration. And every single month, when we have our S4 board meeting, we present from each and every 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, between around 67% of our total revenue comes from our Tier 1 clients. So that has our immediate focus. So the integration on the client side is almost immediate. Does it answer your question?
Yes.
Okay. And then Scott, do you want to talk about M&A and competition et cetera?
Yes. So just touching on what Victor is saying, I mean specific question around integrating one view of the client. That is the focus and the first focus when we're integrating these mergers. And from a tooling perspective, it's not only pretty easy because most of them are already using -- we use Salesforce, most of them are using Salesforce. So to bring 2 instances, 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 client relationships to them, whether that's on a geographic basis or a capability basis. So it works both ways. On the M&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 builds take advantage of all the 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 do believe that very competitive and they're more likely to choose S4. So I don't think it's particularly hampering us, but we are seeing pressure.
Yes. Jeff, I mean, just to follow up there. I mean you sort of got a very good example that came out last week. In the case of MediaMonks, the WPP came with an extremely aggressive bid valuation up to EUR 1.5 billion. And we merged at a value of 300 million. Now obviously, the price of our shares has risen since Victor and Wes and Peter made that call in July of whatever it was in 2018. But it's a good example of what Scott just said is that every IM we see goes upwards to the right. And in fact, I defy anybody to show me an IM which does go upwards to the right. And if somebody is offering a 4- or 5-year earn-out, they're going to do better on paper with that offer if they think they're going to hit the IM. They will with us. I think Pete can attest to the fact that MightyHive 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 what we're trying to do, which is to create a 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 unashamedly disrupt the old.On FMCG size, I mean, what we are trying to do is to build big relationships. We're totally focused on conversion at scale. So anything that we do with -- of significant scale with clients, we're looking at trying to get to achieve our 20 squared relationship. And as Victor mentioned, Allianz, which is a recent win out of Germany. That's a good example of where we're trying to build scale through expand. So everything, whether it's FMCG, in health care, in auto, wherever it is, we're trying to continue to build these relationships at scale. And the target that we have is GBP 20 million of gross revenue. Hopefully, as we get bigger, we'll -- and we achieve that 20 squared objective, we can either broaden us a 20 squared objective to 30 clients or whatever or raise the GBP 20 million target to GBP 30 million or whatever it has to be. I think Accenture's diamond clients are around GBP 200 million a year or something like that. And I remember when we were at WPP, we looked at clients to be in the top 10 to be at GBP 150 million or 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. Thanks. 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 the half year and further dynamic progress. Thanks very much, indeed.