S4 Capital sees sales fall by a fifth after warning over advertising slump

Digital marketing firm S4 Capital has revealed its sales fell by a fifth after its boss sounded a warning over an advertising slump but said it was cashing in on artificial intelligence (AI) projects.

Shares in the company set up by Sir Martin Sorrell, who founded the world’s largest advertising company WPP, jumped by more than a 10th on Friday morning despite the tentative update.

It reported revenues totalling £210 million for the first three months of the year, down 20% on a reported basis compared with the £262 million generated this time last year.

One of the biggest drags on sales came from its technology services, which dropped by more than 30% year on year.

Executive chairman Sir Martin has been vocal about the challenges facing the wider digital advertising world over the past year, which has put his firm’s finances under pressure.

He emphasised on Friday that the sales slump reflects “volatile global macroeconomic conditions” and “general client caution”, particularly among its technology customers.

The company has worked on campaigns for brands including Google, Meta and BMW through its content division Media.Monks, which Sir Martin said had started to improve in recent months.

S4 Capital axed its workforce by about 13% last year to save costs in the face of a tough market and rising wage bills.

This move was starting to have a beneficial impact on its cost base and profitability, the group said.

Furthermore, the firm revealed it had won new work over the first quarter with brands including Burger King, Panasonic and Santander.

It has also seen a boost from projects involving AI with customers experimenting with the technology, particularly for jobs like copywriting, personalisation and general efficiency.

Sir Martin said: “We continue to develop our larger, scaled relationships with leading enterprise clients and are increasing our focus on margin improvement through greater efficiency, utilisation, billability and pricing.

“In addition to significant new business activity, we continue to capitalise on our prominent AI positioning, developing multiple initial assignments as clients start to experiment with and implement applications.”

Looking forward, S4 Capital said it expects conditions to improve during the second half of the year, but revenues will still be lower than the previous year.