2023-09-18 12:15:25 ET
S4 Capital plc (SCPPF)
Q2 2023 Earnings Conference Call
September 18, 2023, 08:00 AM ET
Martin Sorrell - Executive Chairman
Mary Basterfield - CFO
Scott Spirit - Chief Growth Officer
Wesley ter Haar - Executive Director
Christopher Martin - COO
Brady Brim-DeForest - CEO, TheoremOne
Conference Call Participants
So hello, everybody. This is our second call, and thanks to Wes and Chris and Brady for getting up in the middle of the night. I think Wes is in Mexico, and Chris is in Boulder and Brady is in Maine, surviving the hurricane. Okay, more hurricanes around.
We're going to spend some time with Mary on the results; and then Scott is going to cover market momentum and client analysis; and then Wes is going to talk about what we're seeing in content; Chris on Data&digital media; Brady on technology services; and then Wes come back and talk about AI and how we see the growth and development of that, which is encouraging. We'll then do a brief summary and outlook for you and then we'll open up for Q&A in addition to what we had this morning.
So to kick off, Mary, go ahead.
Thank you, Martin. Hello. Thank you for joining us today.
I'm going to start with the financial highlights. We had a very mixed half of 2023. Reported net revenue was up 19% to £446 million or 5% on a like-for-like basis in difficult market conditions. Growth slowed towards the end of the half with like-for-like net revenue growth of 7% in Q1 and 4% in Q2. These clients grew more cautious due to macroeconomic uncertainty. This was especially evident in one or two from the technology sector as well as regional and local clients. Even slower top line growth, operational EBITDA was £37 million, up 21% reported but down 30% on a like-for-like basis and below expectations.
We have experienced some people cost inflation, but we continue to exercise cost discipline, including headcount and discretionary costs. The number of Monks is down 5% on this time last year at around 8,550. Operational EBITDA margin was 8% versus 8% reported and 12% like-for-like in the first half last year Adjusted operating profit was £31 million and adjusted earnings per share were 1.7 pence. Net debt at the end of June was £109 million and leverage was 0.9x.
Moving to the income statement. Revenue grew 16% on a reported basis to £517 million with like-for-like growth at 3%. There was solid growth from the scaled client base with revenue from the top 20 up 9% and top 50, up 11% on a like-for-like basis. Reported net revenue of £446 million grew 19% or 5% like-for-like. This highlights continued momentum in a challenging environment.
Reported operating expenses of £407 million grew 18% or 10% like-for-like. This includes some people and other cost inflation, partially offset by cost management actions. Operational EBITDA for the six months to June was £37 million, up 21% on a reported basis and down 30% like-for-like. I have given you a breakdown of adjusting items in the table on the left-hand side. Acquisition, restructuring and other expenses were £6 million, down from £70 million for the same period last year due to lower M&A activity and reduced contingent consideration.
Finally, the increase in net finance expense was driven by a higher Euribor rate on the term loan, which provides us with secure long-term financing as well as some foreign exchange volatility.
Looking next at our three different practice areas: content, Data&digital media and technology services. My comments here are all on a like-for-like basis. Net revenue in content, our largest practice declined by 3% to £265 million. There was solid growth from the scaled client base, though some larger tech clients showed hesitancy and budget constraints. Some mid-tier clients were affected by market softness and internal restructuring. While overall trading was tough with new business, local and regional clients underperforming.
Data&digital media net revenue grew 2% to £107 million, again highlighting tougher market conditions, particularly in the activation and performance business. Technology services continued to deliver very strong growth. Net revenue was up 54% to £74 million, with spend by key clients weighted to the first half.
From a regional perspective, the Americas is our fastest-growing region up 7% and remains our biggest region at 79% of the mix. EMEA grew 2%, and our smallest region, Asia Pacific, was down 7% with slower demand in China and some underperformance.
Moving now to operational EBITDA by practice. Again, my comments are all on a like-for-like basis. Operational EBITDA in content of £7 million was impacted by lower than budget revenues, together with some people cost inflation and higher IT costs. Headcount was lower at the period end due to controls on hiring and our work on efficiency. Combined with further cost actions, this will support the practice's EBITDA delivery in the second half.
Data&digital media also experienced some people cost inflation as well as increased travel costs after the lifting of COVID restrictions. Together with a tougher trading environment, this resulted in operational EBITDA of £16 million.
Technology services was up 50% at £27 million, reflecting an excellent top line performance supported by growth in the organization. This resulted in continued strong margin delivery with an operational EBITDA margin of 36%. Central costs grew as expected from £10 million to £13 million, reflecting a full six months of the investment in finance, legal and assurance made in 2022. Touching briefly on the balance sheet and facilities. We maintained a liquid balance sheet with long-dated maturities to support the business and its future growth.
Moving to cash flow on the next slide. CapEx of £5 million is mainly investment in IT infrastructure. This has halved from last year, which included fit out of key offices. Interest paid includes increased payments on the term loan, driven by the higher Euribor rates. We continue our focus on working capital and receivables. Net, this resulted in a free cash outflow of £2 million, broadly in line with last year. This takes net debt to £109 million. The cash spend on combinations was minimal in the first half, and we expect the forecast combination payments to be made in the second half.
Turning now to our guidance for the full year. Following slower-than-expected trading over the summer months, including August and current client activity levels, we have revised full year expectations. We now expect net revenue to be down on the prior year and operational EBITDA margins in the range of 12% to 13.5%.
As in recent years, the full year results will be heavily weighted to the second half, and in particular, the fourth quarter, reflecting seasonality and anticipated client activity. We continue to manage costs tightly, and given the market outlook, we are taking further action, especially in content to support second half profit delivery. We expect the net finance cash charge of about £28 million and an effective tax rate between 24% and 26%, which is slightly lower than previous guidance.
We are reducing our prior guidance for cash contingent consideration from £102 million to £95 million, which is all expected to be paid in the second half. And we maintain our net debt guidance of £180 million to £220 million for the year-end. The Board will consider a dividend of 1 pence per share when the final results for 2023 have been determined.
In summary, after a challenging first half in difficult market conditions, we are expecting an improved performance in the second half. And longer term, we are working hard to improve the returns.
And with that, I will hand over to Scott.
Great. Thank you very much, Mary, and thanks for joining, everyone.
There's no doubt that 2023 has been a tough year for our core addressable markets. Digital media spend is projected to grow 8.9%, which is a decline on the double-digit growth in 2022 and the 30% plus growth we saw in the COVID bounce back year of 2021. A bottom-up analysis of the major platforms shows that they are expected to grow just over 10% this year, rising to 14% next year.
Growth at the platforms began to slow dramatically in H2 last year, so they're now lapping easier comps unlike our business, which maintains strong growth throughout '22 and slowed in Q1 this year based on the more conservative 2023 budgets of our enterprise clients. Our other addressable market is digital transformation, whilst there are plenty of broadly defined third-party reports out there to show a large and still relatively healthy market. When we look at the results and guidance of our direct competitors in this field, we can see that most of them are experiencing negative growth this year after many years of steady 20% top line growth. That said, analysts expect a recovery to the mid-teens in 2024.
With that backdrop, growth has been much harder to come by this year. That said, it's not all doom and gloom in those markets. There's still pockets of excitement and opportunity in our addressable markets. The first and obvious one is artificial intelligence. We've been discussing this on our earnings calls all year and had a specific Investor Summit hosted by Wes at the end of June, which is available on our website for those that missed it.
Wes will give us an update on where we are later in the presentation, but the early signs are certainly encouraging that this will be an opportunity for us to grow and continue to differentiate ourselves and disrupt the industry. Elsewhere in Digital Media, there are areas such as retail media or influencer which continue to outperform the market, and we've certainly seen influencer in the wider social category as a bright spot in our business.
Finally, whilst overall revenues for the top 25 agencies were relatively flat in 2022, S4 expanded its market share of 37% to take a 1% share. And while this year has been challenging, we remain convinced we can scale our share over time based on our talent, our service offering and our client relationships.
In terms of clients, as you can see, we still have significant exposure to the technology sector at 44% of H1 reported revenue. Obviously, there's been some caution about this sector this year, given many large tech companies are going through their years of efficiency, and we have not been immune to these pressures. However, we still have several large tech companies growing their spend with us this year. And longer term, we are confident this is a sector which will continue to provide growth opportunities ahead of the overall market.
The main growth category for us has been financial services, the full year impact of the portfolio of finance clients at 1.1 and some good wins in land-and-expand cases at decoded. Whilst growth overall has been hard to come by this year, our long-term strategy of building broad-scale relationships with the world's leading enterprise clients continues to deliver. We have eight clients with revenues above £10 million in the first half versus £5 million last year and a further £9 million in the £5 million to £10 million category versus £6 million last year.
As we pointed out in the RNS, and Mary mentioned, like-for-like revenue growth from our top 20 clients of 8.9% and top 50 clients of 11.4% is ahead of the overall group. Our whopper strategy continues to pay dividends. The challenge has been further down the client list with longer sales cycles and a tougher trading environment, meaning growth from new clients and project-based clients has been more difficult than last year. This is more marked at the local level when dealing with smaller, more localized client relationships.
On the whopper front, we had 10 last year, and obviously, one of those was Mondelez, which will not be at that level in 2023, although remains an important client. It's hard to predict exactly where we will end up in 2023 with whoppers. We have clear line of sight on 8, and as our largest clients are getting larger, we have several others that are projected to be at or close to the £20 million cutoff.
With that, I'll now pass over to Wes to handle the content update.
Wesley ter Haar
Thank you, Scott, and hey, everyone.
I will run us through a content practice update and then after handing over to Chris and Brady for the other practice updates. I'll be back with a deeper dive on AI specifically. You will see us talk about AI practice, of course. But as it is such an important topic in our industry and beyond general update on our progress and positioning.
Seems relevant but first, if you go to the next slide, on then. This echoes what we've heard from Mary and Scott already, it is a year of genomic slowdown. We're quite heavily weighted in tech where we saw that play out, and we've had some struggles in local markets. This is a bit of an industry refrain. General macro pressures in play. We see quite a bit of budget and conservatism. We're seeing delays on Asian planning among some of our clients. And there's also a general I would say, concern about a potential recession. And all these things together are slowing down sales cycles.
If there is a positive note here, Scott's point, it is that we're still seeing growth, of course, what we call our bigger client relationships. We call them scaled and selected portfolio. That growth, which is quite healthy is currently not offsetting some of the other slowdown. That means super practically, we have more to do when it comes to matching costs and revenue.
Let's dig into revenue in a bit more detail on the next slide. There are a few areas of strategic focus. And one is you're doubling down in regions that have struggled like Latin America and Asia Pacific. We're making sure we reignite those areas for growth. We also have, for instance, the Middle East where we're doubling down as an example of an area where we see a lot of good traction, and we believe there's a lot of growth available to us and our teams.
We're also off to the races with our first wave of new logos and revenue related to our AI offering. It's early, but the signs are really positive and we expect that to grow and grow and grow. And then leading into our bigger client relationships, even more, we've opened up what we call our PlusOne program, which really is just a more strategic way to up and cross-sell our services, our subject matter expertise through our single P&L model into our key client relationships.
If we go to the next slide, just a quick latest example, experience banks. We launched this to market last week. It's been up and running for a few months now. This is built around the merger of Jam3 in combination with some of our existing teams, truly best-in-class offering in the industry. And what's been good to see is that the easy access to this expertise has already resulted in sizable new engagements with our existing clients for CES - for Super Bowl, which is always really from moment to activate around Complexcon.
To give you a bit of a sense of the strength of this offering, last week, Eventex released our top 100 event organizers and agencies for the year, and Media.Monks came in at number three. So we expect this offering to grow and grow, early signs are really positive. And we see it driven following the steps of our Social.Monks offering, which is why we regard it as a leader in the industry.
If we go to the next slide, I want to talk a bit about mergers in general, we're a significant way through our merger model. That's good for a variety of reasons. One, it allows us to better align our offering to reflect what our clients need. I think Experience.Monks is a really great example of that. We're making it easier to buy but there's also the opportunity to drive cost efficiencies. We will see more of that in H2. But in general, the merger process means our operational teams
integrate, we have better control and higher earning cost and it is easier to eliminate duplication.
Important note here, as leadership, we don't necessarily believe you can cut your way to growth. So the flip side of this ongoing process is that we've hired senior talent in key markets, new managing directors in Paris, in London and Amsterdam and Sao Paulo, and we actually have a few more exciting hires lined up. Hopefully, we'll be able to announce one this month.
Which if we go to the next slide, is key - our ability to attract great talent has been a feature for our business for a while now. We're also seeing that inflected back in partnerships some new updates here. I would say our partnership with the Sphere in Vegas is really exciting for people who have not heard of the Sphere in Vegas. It's an absolutely stunning new venue. It's worth Google if you haven't seen it. We are a partner to this Sphere and helping them sort of make it advertising ready. We launched our first advertising engagement on that very unique campus a few weeks ago for YouTube and the NFL sponsorship. More to come.
We're growing our footprint when it comes to Roblox activations and activities. We just launched [Clastic], which is, I think, a really great example. We're very excited about the growth in that channel. And then I'll talk a bit more about our partnership with NVIDIA during the general AI update. And specifically about the loans we just had at IBC together with NVIDIA, AWS and Adobe.
And then, of course, we have a great and ongoing relationship with Salesforce. Chris will provide some additional updates there, but we have a coated generation AI report that we'll launch this week. And then we also launched a Feature of Loyal to report together with Salesforce, Reddit, another client and Polygon, which I think just in general, great examples of top leadership with some of these key partners which brings me to the last slide and to echo Scott's note here.
Clearly not an easier to manage. We will continue to use what is a tough year to implement changes, changes that make us leaner, changes that make us light on our feet and provide us with more levers for growth. We plan to optimizing internal teams and structure. That's a bit of a balancing act. We've been able to do that without negatively impacting levels of quality levels of service and we're optimistic about the progress being made and especially what that means for our exit rate in both revenue and cost as we enter 2024. And it's bouncing act that we've also combined with building out an industry-leading AI vision. That vision is being brought to life of course our practices. I'll give us a more holistic overview after the other practice updates.
But first, I'll hand over to Chris and Brady. Chris, over to you.
So let's dive right into our 2023 outlook for Data&digital media. We're observing a cautious sentiment around media and large-scale marketing investments in the second half of the year. This has led to a lower commitment rate, particularly impacting our revenues derived from the percentage of media spend from our clients. And this includes our media technology activation performance units.
Clients are looking to consolidate and find efficiencies and are pushing decisions until 2024. However, our business is somewhat insulated from this trend. Our clients are controlling staffing investments, and that's where our transformations and managed services businesses shine, offering staff augmentation for both seasonal support and downsized client teams.
We're also experiencing slower decision-making cycles, pushing new investments to year-end or even 2024. We're using this time to launch major updates to our media operating system and Audience Solutions in Q4. And these updates will incorporate next-gen AI, optimizing and integrating media workflow with the creative side of the business.
And through the remainder of the year, we're also making a final push to move work to lower-cost talent hubs and install that very same automation in those hubs, while controlling costs significantly reducing hiring and other expenditures through the end of the year to balance off the revenue shift.
Moving on to our wins for 2023. We secured a new high profile - sorry, we secured new high-profile clients like Deciem and Kimberly-Clark. Deciem is a leader in science-backed skincare, representing a new media win across four deferent markets. And Kimberly-Clark, on the other hand, has consolidated programmatic media activities across the globe with Media.Monks, a significant win made possible through close partnership with Google.
And our media AOR offering is gaining momentum as we won contracts with Kraken, Netflix and Trustpilot. These wins validate our model for future - for the future role of our services against legacy incumbent global media agencies.
And our thought leadership in the AI and automation space has been strong with key partnerships and stage presence. We've been named a launch partner for Salesforce's Web3 and AI announcements, and we're actively co-marketing and co-pitching with Salesforce, Amazon and Google.
And we're not just talking. We're delivering. We're ramping up our development of modularized enterprise-grade cloud-based media data and analytics products. And the biggest push that we've had is coming in Q4 with the launch of our Media OS tool and our inflection planning approach to faster and automated media investment and decision making. This program has been piloted with new clients and is primed for a public launch in 2024.
A significant investment and existing relationships and tech platform partnerships are accelerating automation software adoption, and we have multiple large-scale enterprise clients buying and installing our SaaS solutions, and we are looking forward to publishing the efficiency improvements that these automation tools are providing to our clients. We've also launched automation consulting services with early successes in case studies showing a 60% decrease in process inefficiencies, a 50% decrease in admin needs and a 29% decrease in platform overheads saving our clients both time and money.
Our focus on CRM and data cloud adoption is also not just buzz wording. It's translating into accelerated deal velocity. Our AI pilot program with Salesforce's marketing GBT is already showing promising traction with mutual clients with Salesforce. These are all calculated bets in automation and emerging AI traction will set us up well for 2024.
We're optimistic but realistic. We're anticipating broader economic headwinds as clients are also cautious about investments heading into Q4 in 2024. However, our client base and Data&digital media, while delaying investments is robust and expecting to rebound over time.
Thank you very much for the time today. I'll now hand it off to Brady in our tech services practice.
I'm excited to share our progress and achievements in the technology services pillar across H1. We've had a very strong first half of the year. Our primary focus continues to be on improving volume and then some to the top of the funnel. We signed a number of new clients for the pillar, including Philips, Rise 8, BMW, Southwest and Apex amongst many others. And we're seeing continued success selling and collaboration across the pillars in terms of the next slide.
Our strategy of landing and expanding has proven effective, especially in Experience.Monks, Platform.Monks, and Data.Monks are winning together with our internal partners scaling across the enterprise, moving from the office of the CMO to the office of the CTO and vice versa. The end-to-end value proposition is fundamentally very appealing to our target client demographic.
Next slide. We're continuing to expand our service stack, of course, with meaningful new capabilities like our global consulting services line, cloud services and AI, where we picked up a number of new engagements with the clients, including SC Johnson, Kraft Heinz and T-Mobile. Our new AI service offerings include AI readiness assessments, AI innovation studios and rapid discovery geared specifically towards AI. We've had a dedicated leadership like ex-Googler Aniruth Sarathy for Cloud and Kwasi Ankomah for AI.
Our consulting services layer on the next slide is continuing to expand globally, serving as the tip of spear for our land and expand strategy, helping us to deliver continuous innovation to our clients while developing long-term demand signals and unlocking new opportunities.
Next slide. We recently introduced our first commercial self-service AI product called DocRobot, you can try out today at www.docrobot.ai. DocRobot allows users to - aggregate, convince and - to put business intelligence information at scale while consuming sensitive and confidential data. We're using it to extend capabilities within our consulting practice, and also exploring direct licensing opportunities within our client portfolio as well.
And finally, on the last slide, we're continuing to invest in the most critical elements of our short-term and mid-term growth strategy, demand generation. We made two key hires in half one and with our new Technology Services pillar CMO; and Patrick Ward, our VP of Marketing. Efforts under their leadership have driven substantive upside in the top of the funnel.
Especially when it comes to the strategic staffing side of the business, where we're seeing increased demand signals as our clients, and prospective clients shift from FTE to continued workforce focuses.
On the other hand, we've been focusing on deepening, and broadening our partnership strategy, including meaningful - a meaningful new relationship with Oracle will be within this week at CloudWorld and with NVIDIA as part of the overall Media.Monks and video relationship. That's everything on the technology services side. Let's jump back to Wes for an update on AI.
Wesley ter Haar
Thank you, Brady. Okay. We've talked a lot about this, and talk a little about being fast on first. Our commitment stays the same when it comes to being fast on first AI. Go to the next slide, I'll do a relatively fast update on our positioning and progress and if there are any questions we can dive in during our Q&A.
Let's look at what's happening now. We can go to the next slide. Since our previous update, which is a few months ago, I've done AI now sessions with over 100 enterprise leaders. And while they are still legal and ethical complexity in play, we have never seen the scale of interest at this level of the organization before. And while we are clearly early in the revenue cycle.
The potential plus our product market fit can be summarized by the quote on the following slide after one of our sessions. So why is there this level of excitement at the C level, I would say it's because this isn't about incremental change. AI can truly or look manifestly better value for our clients.
And if you go to the next slide, it really comes down to three main areas. And after this, I'll show you some concrete examples. So first area is more efficiency. We're helping our clients in place parts of manual labor spend part of physical spend with cloud and compute.
We go to the second slide. Part of this is about effectiveness. If you are less economically constrained when it comes to making things, and making more things, how do we actually make sure that more is better to do that well, we need our data, and media teams to make sure we compound the effects of the additional material that we're creating, and learn from that become more predictive.
And then the next slide really is the last part of this stack its experience, right? We can define consumer experiences that literally weren't possible half a year ago, and it means for our clients, there's opportunity to lead for competition within their categories, and within their industry. A few core examples.
You can go to the next slide. We're building pipelines. This isn't just about using AI tools. This is a combination of technology workflow, and talent. And that combination replaces additional parts of the marketing, and advertising stack. Some examples are photography pipeline where mix of talent, and machine is creating massive efficiencies for our clients when it comes to asset output.
Another example is what we call scaled copy. Again, a combination of technology, workflow and talent creates efficiencies, more output at higher speed. But what's important is that these pipelines then will look more effective marketing, better advertising, right, more personalized, more targeted, more contextual.
And to make sure we actually capture that value, our data teams are helping our clients set up their data pipelines, right? AI can feel like mathematics sometimes, but literally, its data science, data structure, data syntax. That's the real key to getting to more value of the technology stack.
This way of thinking, if we go to the next slide, this idea of workflows is very aligned with NVIDIA. We're building out that partnership. I think the relationship is well captured within this quote. Our collaboration with the Monks will help deliver more engaging and personalized experience for brands and consumers.
But it isn't just the relationship with NVIDIA in this space. We have relationships across what we call the cloud and compute space. And why that is exciting is it allows us to go-to-market together in very disruptive ways.
Go to the next slide. This is an example of last week, but it's still happening. I think IDC today is the last day. This is a go-to-market together with NVIDIA, AWS and Adobe, where we're launching software-defined production services for major global broadcasters - very new, of course, today, is the last day, but we have very high interest from major broadcast across the globe. We help to import some good news in next session together, and we are NVIDIA's only integrator of choice for this tech stack.
If we go to the next slide, I think important just to talk about what this moment is, this is a completely new game. This is a cloud and compute revolution. If you look at the last 10 years of our industry, that's been about software eating the world, AI is now digesting it, right? And I thought Citi's AI our fresh import that came out recently had a really good view of the value stack in this space.
And because of our focus on being fast, first, we're playing at every level - by our partnerships, of course, silicon and infrastructure, our projects and products hit across software and applications. And as you've seen all of our practices have services and pipelines to help our clients be faster first in their specific industry.
And while we don't build the financial models, that honestly is not our job, we are helping clients train in human. This full stack offering means we have active engagements across a growing set of clients and sectors.
If we go to the next slide. Again, this is early from a revenue perspective, but we have efficiency plays. We have effectiveness plays, and we have experienced players already in the works. Some of this is early right workshops, consultative and strategy practices, pilots. But as we improve the value of this moment and within that moment, our own value, the revenues, of course, will compound. And it's great to see how active and healthy our pipeline already is when it comes to AI engagements.
So if we go to the next slide, I guess, this is the key question. Why are we so excited about this moment? There's everything to playable. This illustrates the size of the addressable market, even with massive influx of money into digital or cloud's decade, a fifth of which or firms doesn't have an upside.
Only quarter of enterprise workflows happens on cloud and a large percentage of what we call mature digital advertising clients still struggle with the basics, like dynamic, creative, optimization, let alone and then solutions between data content media. The question then is why is that the case? The big part of that reason is simple economics. And as we've said many times, AI changes those economics. Don't just take my word for that.
If we go to the next slide, take Louise's work, one of the key operational leaders driving into port of 50 games.
Go to the next slide, take it from Michael, who will be creating leading new ways for our clients to interact, and interface with their data sets.
And if we go to the next slide, take it from Vincent, part of the experience team, where they're working on consumer experiences that we've always imagined right, and are now possible because of AI.
And with that, if we go to the next slide, make sure to download and read our generation AI reported together with Salesforce out later this week. Of course, I know this is a very hot topic. So always available for any follow-up chats and discussions in this space. And with that, I'm going to hand over to Sir Martin.
Thank you. Thanks, Wes, and thanks, Brady and Chris, again, for getting up in the middle of the night to deliver this from Mexico and Colorado and Maine. And just on a summary and outlook. We had, as we said, a very mixed first half net revenue growth of 5% like-for-like behind our expectations, and that reflected the challenges that we're seeing macro-economically, and client fear or concern about recession.
There has, however, been solid growth across the scaled client base across the whoppers and the opportunities with our top 20 clients being up 9% versus the 5% for the firm as a whole. And the top 50% - the top 50 clients, up 11%. We've seen longer sales cycles, and that's particularly evident in content, and especially with - tech services with technology clients, and local and regional clients.
I think the scaled clients and the portfolio clients, that's what we call the whoppers and the opportunities now have increasingly grown, and we've seen an increase in our scale and scope with our major clients. And our top 13 or so clients cover about 55% of our revenue base, which this year is around £1 billion. Profitability, however, does reflect that slower line - slower top line growth overall.
And there has been some people, and cost and indirect cost inflation. And we came out below budget at £37 million for the first half versus £30 million last year, but on a like-for-like basis, obviously down. We've taken a disciplined approach to cost management, and there has been a focus on efficiency and integration, which will positively affect H2 and Q4 in particular, but there is more to do, as has been highlighted.
The number of people that we have in the firm, the number of Monks, is now down about 8,500 versus 9,000 or so this time last year. On the cash flow front, net debt of £109 million is better than last year, which was £135 million at the same time and better expected primarily due to the timing of combination payments, they will be made more in the second half of this year.
And year-end guidance remains £180 million to £220 million for net debt. The Board is focusing on inaugural dividend of at least one pence per share depending on the 2023 outturn, and that does reflect the board's confidence in our strategy. There's continued ESG focus on three areas: zero impact workspaces on sustainable work and diversity and last, but not least, on equity and inclusion.
And we're getting as we pointed out, initial traction from AI conversations and initiatives, the AWS, Adobe NVIDIA, for example, being a good example of that. And we remain at the forefront of leading this change. The revised we've altered our guidance. We've revised our full year net revenue target down like-for-like, we expect it to be likely down like-for-like on prior year with the operational EBITDA margins now targeted at 12% to 13.5%.
And having said all that, we remain confident in our talent, in our business model and strategy, and focus on scaled and portfolio of clients, and that positions us well for above-industry growth in the future in the longer term. But with an emphasis on improving efficiency, and margins. And last, but not least, we're the focus on returning the cash flow to share owners in the form of dividends, and share buybacks. So with that, I'll hand over to the operator to see if there are any questions.
And it seems we have no questions today. So with this, I'd like to hand the call back over to - Sir Martin for any additional or closing remarks.
Apologies again for everybody getting up in the middle of the night with no questions. But anyway, thanks for the presentation. And we'll - we had about 170 people on the first call - 190 people on both - means of communication and about 55 on this call. So thanks, everybody, for your time, and attending and thanks to all the presenters for the effort. Thank you very much. See you for Q3.
For further details see:S4 Capital plc (SCPPF) Q2 2023 Earnings Call Transcript