S4 Capital shares plummeted on Thursday as the group trimmed its outlook and revealed reported billings fell by 7 per cent to £450.3million in the third quarter.
The digital advertising agency, founded by Sir Martin Sorrell, saw reported revenue fall 18.1 per cent to £245.9 million, down 13 per cent on a like-for-like basis.
The group’s share price was down 16.52 per cent or 11.09p to 56.06p on Thursday afternoon, having slumped over 70 per cent in the last year.
A deteriorating economic environment has seen companies around the world cut back on marketing spend in 2023, hitting the bottom line of S4 rival WPP, as well as media companies and broadcasters like ITV.
In charge: Sir Martin Sorrell is the executive chairman of S4 Capital
Sir Martin Sorrell, executive chairman of S4 Capital, described third quarter trading as ‘difficult’, reflecting ‘global macroeconomic conditions.
He added that S4 had suffered ‘continued client caution to commit and extended sales cycles’, particularly for larger projects and ‘to some extent’ tech sector clients.
And the downturn has lead to job losses.
The number of people working at the company stood at 8,187 by the end of the third quarter, down 4 per cent compared to 8,551 at the end of the first half, and 9 per cent lower than in June 2022, when the number stood at 9,041.
By the end of the quarter, the firm’s net debt stood at £185million, while the EBITDA was £107.2.million. The group expects its net debt to rise in the fourth quarter.
Reported content practice revenue fell 22.7 per cent in the third quarter to £160.9million, down 18.2 per cent on a like-for-like basis.
On forecasts, the group said: ‘Given slower than expected trading in Q3 and current client activity levels, we expect that like-for-like net revenue for 2023 will be below the prior year, with an operational EBITDA margin now of around 10-11 per cent.’
Sorrell said: ‘Despite the slowdown in Q3, we continue to see year to date growth from our top clients with like-for-like revenue growth at our top 20 clients up 2.9 per cent and at the top 50 up 4.6 per cent.
‘We expect, as usual, Q4 profitability to be the strongest quarter of the year – stimulated by the usual seasonal levels of client activity and the Artificial Intelligence initiatives and use cases we are developing with our clients, along with the actions taken on cost management.’
‘We remain confident our strategy, business model and talent, together with scaled client relationships position us well for above average growth in the longer term, with an emphasis on deploying free cash flow to dividends and share buybacks, especially as in 2024 will have no further merger payments.’
Commenting on S4’s third quarter performance, AJ Bell investment director Russ Mould said: ‘People initially set great store in Martin Sorrell’s position at S4 Capital – amid hope he could repeat the acquisition-led strategy which turned WPP into a global advertising giant before his acrimonious departure.
‘That hope is looking increasingly forlorn as S4 warns on profit again. The idea of creating a specialist digital advertising agency from scratch and outpacing rivals with legacy assets was an enticing one.
‘But S4 has proved just as vulnerable, if not more so, to a deterioration in the economic outlook. Marketing spend is one of the first items which gets cut in a downturn.’