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Shares in Sir Martin Sorrell’s S4 Capital fell sharply after the group warned that revenues this year would be lower than last year’s, in the latest blow to investors in the digital marketing company.
S4, which was set up by Sorrell in 2018 as a tech-focused agency after he left advertising agency WPP, warned that trading had been worse than expected in the past three months.
Revenues at the advertising agency were almost a fifth lower year on year at £245.9mn, while billings from clients were down 7 per cent at £450.3mn.
The company blamed tough macroeconomic conditions and clients reluctant to commit to sizeable marketing projects, especially in the technology sector.
Shares in S4 initially dropped a quarter on Thursday morning after its latest profit warning sent them into freefall. They recovered some of the losses to trade at 59p, a tenth of a peak of 878p just two years ago.
The company has now lost more than two-thirds of its value since the beginning of the year after multiple profit warnings, with the first half of the year proving equally tough for trading at the group.
As a result, S4 said that like-for-like net revenue for 2023 would be below last year’s, with an operational margin for earnings before interest, tax, depreciation and amortisation forecast at 10 to 11 per cent, from 12 to 13.5 per cent.
Sorrell said: “Trading in the third quarter was difficult, reflecting the global macroeconomic conditions with continued client caution to commit and extended sales cycles, particularly for larger projects and to some extent clients in the technology sector.”
S4 said full-year profits would be heavily weighted to the last quarter, reflecting anticipated client activity, along with the impact of cost cutting.
The group said it would end the year near to the top of its guided range on net debt of £180mn-£220mn, reflecting an aggressive mergers and acquisition spree over the past few years.
Sorrell has wanted to create one of the world’s biggest advertising companies, focused on digital marketing and new technologies such as artificial intelligence. As part of these plans, he has bought dozens of small rival groups, but this has left S4 saddled with legacy payments to their founders and difficulties in bringing together different teams spread across the world.
Sorrell said he remained confident in his strategy and business model, which he argued would position the group “for above average growth in the longer term, with an emphasis on deploying free cash flow to dividends and share buybacks, especially as 2024 will have no further merger payments”.
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