Martin Sorrell’s S4 Capital warns on profit as top-line goes into reverse

By Paul Sandle

LONDON (Reuters) -Revenue at Martin Sorrell’s digital ad group S4 Capital declined sharply in the third quarter, wiping out all of the growth achieved in the year to date and prompting another profit warning, as a reluctance to spend by some tech clients worsened.

Shares in the company fell as much as 24% to an all-time low after it reported a 10% drop in third-quarter net like-for-like revenue and cut its full-year earnings margin guidance to 10-11%, which it already reduced to 12-13.5% in September.

S4 Capital, set up by Sorrell in 2018 after he left rival WPP, has been hard hit by a downturn in marketing, particularly by its smaller clients and some in tech.

Sorrell said trading in the third quarter was “difficult, reflecting the global macroeconomic conditions”.

He said clients were cautious to commit and sales cycles had extended, particularly for larger projects and in the tech sector.

“Within companies there’s a degree of caution about spending,” he said in an interview.

“Clients have got their hands in their pockets because they are worried about probably two things. One is inflation and interest rates, and the second is the macro: U.S.-China, Russia-Ukraine and obviously Israel and Hamas in the Middle East and Iran.”

Shares in S4, which Sorrell has used to fund acquisitions, fell to 51 pence at the open on Thursday. They were trading down 15%% at 57 pence at 1145 GMT.

Analysts at Citi said the drop in like-for-like revenue was worse than the market expected and had inevitably pressurized margins.

S4’s focus on digital media has left it more exposed to the downturn than its bigger rivals.

WPP cut its own outlook last month after its like-for-like revenue shrunk by 0.6% in the quarter, with a weak performance in China adding to the tech downturn.

(Reporting by Paul Sandle; Editing by Kate Holton, Elaine Hardcastle and David Evans)