Sir Martin Sorrell’s S4 Capital slumps as advertisers show caution

Sir Martin Sorrell’s advertising empire blamed a pullback in spending by technology clients for a steep fall in revenue, which sent its shares down sharply towards an all-time low.
A combination of an uncertain economic backdrop, high interest rates and continuing caution from its clients sent net revenue at S4 Capital down more than 15 per cent, or 13.5 per cent on a like-for-like basis, to £376 million in the six months to June 30. Debt increased to £183 million from £109 million, which the company said was partly down to its share buy-back programme.
The company’s share price fell as much as 16 per cent in early trading as investors digested the news, before paring back losses to fall 6.3 per cent, or 2¾p, to 42¼p.
Sorrell, a veteran advertising entrepreneur, said: “Trading in the first half reflects the continuing impact of both challenging global macroeconomic conditions and high interest rates. This particularly impacted marketing spend by some technology clients and our technology services practice was affected by a reduction in one of our larger relationships.”
The interim results reported a statutory pre-tax loss for the period of £17.2 million, narrowed from £23.2 million a year earlier. Net revenues in the tech services sector fell by 37 per cent to £46 million.
Geographically, the Americas account for 78 per cent of S4’s net revenue, Emea makes up 16 per cent and Asia Pacific 6 per cent. Asked whether he would consider shifting the company’s listing to the US, Sorrell said: “It probably would make sense, given the concentration of our business and who our clients are, but not until we’ve got our act together.”
He said it was not a simple decision, however, not least because of the legal, accounting and management resources needed to make the move. He added: “I don’t buy the argument necessarily that a US listing instantly changes the dynamics. If you look at the case studies, some do better, some don’t. If you’ve got a business that’s growing, that’s well managed with a strong business in the US, it will do better in the US because they have a more liquid market”.
The company has focused on adding large clients, which it refers to as “whoppers”, General Motors being its latest. It also won new business from Marriott, Burger King, Panasonic, FanDuel, AliExpress, Decathlon, Santander, SC Johnson and PepsiCo.
Sorrell said of the General Motors deal: “It will end up being probably our second or third largest client.”
Analysts at Liberum said: “S4’s performance continues to lag the peer group. While high exposure to digital transformation spend contributes to this underperformance, the prospect of a sustained large gap in the like-for-like growth rate between S4 and the industry of around 10 per cent in the second half makes it hard to see an investor sentiment shift near-term.”
Sorrell added that “small wins” that leveraged the group’s AI capabilities were “encouraging, although are yet to deliver the top-line turnaround we hoped for”.
As part of cost savings, the company has been reducing its staff numbers, taking the average number of employees in the first half down 12 per cent to 7,553 compared with 8,500 the year before.
S4 Capital was created in 2018 soon after Sorrell acrimoniously left WPP, which he had turned into one of the world’s biggest advertising groups. The company is focused on the digital advertising market and has grown quickly through mergers, having been built on the €300 million acquisition in 2018 of Media.Monks, an Amsterdam-based agency that creates digital campaigns, and the $150 million purchase in the same year of MightyHive, which buys online advertising for clients.
Earlier this year, Stagwell, a rival company run by Mark Penn, cast an eye over S4 but the approach was rebuffed by Sorrell, who owns a controlling share. It was “a figment of his imagination, or a conversation in the shaving mirror”, Sorrell said.