S4 Capital, an advertising group founded by Martin Sorrell, lost about a quarter of its value on Monday morning after the latest in a series of warnings over revenues and profits.
The group said revenues in 2023 would be lower than last year and profit margins narrower after slower than expected trading over the summer. S4 pointed to more challenging global macroeconomic conditions and client caution reflecting fears of recession. This has led to its customers among the big brands and tech groups taking longer to make decisions, with profitability below budget.
Shares in S4 fell to a record low after a 28 per cent drop to 68p (79 cent), less than a tenth of a 2021 peak of 878p.
Analysts at Jefferies said the second warning on revenue growth within two months would be a knock to the “already fragile market confidence” in S4′s longer-term profit targets. It cut forecasts on revenue and earnings.
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Mr Sorrell predicted that conditions would continue to be weak into next year. “Clients are very cautious,” he said. “CEOs are very bullish but it’s different within the company.”
He pointed to the fear of recession among some clients, alongside the continued impact of the war in Ukraine and caution over potential political threats such as a dispute between China and Taiwan.
Mr Sorrell founded S4 after being ousted from WPP in 2018 with ambitions to create one of the world’s biggest digital advertising companies. He has pursued an aggressive acquisition strategy, buying dozens of media groups and expanding its operations around the world. However, the company has since been hit by questions over costs and its short-term strategy to drive profit margins after a succession of profit warnings and an accounting issue last year, with shares now a fraction of what they were trading at during the pandemic.
S4 has cut close to 500 jobs, taking the number of staff to 8,550, and it promised that it would “continue to take action” on costs. The group has been less able to finance further acquisitions using its devalued shares.
The company reported a loss before tax of £23.2 million in the six months to June 30th, narrower than £85.6 million in the same period last year. Revenue was £517 million, up 15.8 per cent on a reported basis but just 2.5 per cent like-for-like. Like-for-like net revenue is expected to be down in 2022 and operational earnings margins between 12 per cent and 13.5 per cent.
Mr Sorrell said the company’s performance in Asia was particularly weak, blaming a slow recovery after the pandemic, but added that it had fared better in the US. He said the company would continue to focus on efficiencies, pointing out that it had continued to build its business with its largest clients.
The company’s creative operations that make content for clients were especially weak, with revenues down 2.5 per cent on a like-for-like basis, while its data and digital media and technology services operations both grew.
S4 said: “Content had a very challenging first half, particularly in May and June with one or two technology clients and regional and local opportunities.” – Copyright The Financial Times Limited 2023
