S4 Capital reports 'difficult year' as net revenue drops 4.5%

Sir Martin Sorrell’s S4 Capital has reported a 4.5% decline in like-for-like net revenue for the full year 2023 and forecast a continued downward trend for 2024.

Sorrell said macroeconomic conditions, recession fears and high interest rates resulted in "client caution to commit and extended sales cycles, particularly for larger projects, a difficult year for new business, as well as spend reductions from some regional and smaller client relationships”.

The decline follows a four-year trend of strong growth for the group in which like-for-like net revenue grew by 44% in 2019, 19.4% in 2020, 43.7% in 2021 and 25.9% in 2022.

Though expecting a decline in like-for-like net revenue for 2024, the group expects profit performance to be similar to 2023 overall.

S4 Capital had an operational Ebitda margin of 10.7% in 2023, in line with revised expectations in its Q4 trading update in January.

Like-for-life operational Ebitda was down 36.6% to £93.7m, which it noted was “primarily due to lower revenue”. Headcount dropped 13% compared with December 2022, when the group employed 8,300 people.

Billings including pass-through costs were $2.4 billion, down 1.4% like-for-like compared with $3.2 billion in 2022.

'Whoppers' and takeover speculation

S4 Capital operates a "whopper" strategy focusing on building relationships with revenue-driving clients, highlighted as those that deliver more than $20m (£16m) of revenue a year.

Though these top clients continued to drive revenue in 2023, they were not exempt from the macroeconomic pressures squeezing other clients. 

The group ended 2023 with 10 "whoppers" on its books, the same number as in 2022.

Sorrell added: “We saw better relative performance and continued resilience in our top 20 and top 50 clients, with our 10 largest client relationships strong.

“We remain confident that our talent, business model, strategy and scaled client relationships position us well for above average growth in the longer term, with an emphasis on deploying free cash flow to boost shareowner returns.” 

Analysts noted that takeover speculation, as reported in the Wall Street Journal earlier this month, seems unlikely. 

When asked about the takeover approaches from rival Stagwell, Sorrell stated the group had “received nothing credible”.

Venture capitalist and executive adviser Jean-Benoit Berty has joined S4 Capital as chief operating officer. 

The group has also simplified its board structure and strengthened the executive committee.