S4 Capital downgrades outlook for second time in two months

Sir Martin Sorrell’s digital advertising firm has seen its shares plunge after warning over its full-year outlook for the second time in as many months after slower-than-expected summer trading.

S4 Capital said it now expects annual like-for-like net revenues to be below the previous year’s outturn and it further cut guidance for its underlying profit margin, to between 12% and 13.5%.

Shares lost more than a quarter of their value at one stage, before later standing over 22% lower in Monday morning trading.

The firm also revealed it is cutting its workforce, with its content division bearing the brunt as S4 Capital said it had reduced the number of staff in its Media.Monks division by 5% to 8,551 and “continues to take action”, on staffing numbers.

The results alert follows a downgrade in July, which sent shares in the group tumbling after it trimmed its guidance for like-for-like net revenue growth to between 2% and 4%, compared with an earlier forecast of 6% to 10%.

In July, it also cut expectations for underlying profit margins to between 14.5% and 15.5%, down from the 15% to 16% range guided for previously.

Sir Martin Sorrell, executive chairman of S4 Capital, said: “We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.”

He added: “We expect the year as usual to be weighted to the second half, especially the fourth quarter, stimulated, in particular, by increased seasonal levels of clients’ activity and our artificial intelligence initiatives and the use cases we are developing with our clients.”

Its half-year results showed like-for-like sales lifted 2.5% in the six months to June 30, with net revenues up 5.1%

It said profitability was below its targets in the first half due to slower sales growth.

But it still narrowed pre-tax losses to £23.2 million, against losses from £85.6 million.

It said the slower-than-forecast sales performance reflected the “more challenging global macroeconomic conditions and clients’ caution reflecting fears of recession”.

“We see longer sales cycles, particularly for larger transformation projects, and whilst all practices have seen some impact, this is most evident in content and in particular with one or two technology clients and regional and local opportunities,” it said.