S4 Capital maintains profit targets after tough first half

19th Sep 2024 09:34

(Sharecast News) - S4 Capital maintained its full-year profit targets in its interim results on Thursday, despite a significant drop in net revenue, as it warned of a bigger-than-expected fall in full year net revenue.

The London-listed company recorded a 15.6% decrease in net revenue to £376.1m, with a like-for-like reduction of 13.5%.

It put the decline down to ongoing global macroeconomic uncertainty, high interest rates, and cautious spending from key technology clients.

Operational EBITDA met expectations at £30.1m, down 17.5% on a reported basis and 8.2% like-for-like.

The operational EBITDA margin improved by 50 basis points to 8.0%, driven by substantial cost reductions and a focus on second-half performance.

Billings slightly decreased by 1.8% to £908.9m, but showed a marginal increase of 0.8% like-for-like, supported by stronger digital media planning and buying activities.

The firm reported an operating loss of £3.7m for the six months ended 30 June - an improvement of £2.7m compared to the prior year, primarily due to lower combination-related expenses and reduced share-based payments.

Basic losses per share stood at 2.0p, down from 3.5p in the first half of 2023, while adjusted basic earnings per share were 1.2p, slightly below the 1.3p reported in the same period last year.

S4 Capital's net debt increased to £182.9m, reflecting planned share buy-backs and combination payments, alongside improved free cash flow.

The company said it anticipated year-end net debt to remain between £150m and £190m, supported by a balanced liquidity position and long-dated debt maturities.

Looking ahead, S4 Capital maintained its profit target for the year, while expecting like-for-like net revenue to decline more than previously anticipated due to continued market uncertainties and reduced transformation activity from key clients.

However, the company projected operational EBITDA to remain broadly similar to 2023, supported by ongoing cost reductions and strategic focus on efficiency.

It saw Monks experiencing continued profitability improvements in its content, and data and digital media practices, while technology services could face ongoing challenges due to reduced client activity.

The company was aiming to achieve financial leverage of around 1.5 times operational EBITDA over the medium term, and anticipated net debt to end the year within the £150m to £190m range.

"As highlighted previously, trading in the first half reflects the continuing impact of both challenging global macroeconomic conditions and high interest rates," said executive chairman Sir Martin Sorrell.

"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.

"There has been improvement in content practice first half margins, reflecting the actions taken on the cost base both last year and this year."

Sorrell said the company continued to develop its larger, scaled relationships with leading enterprise clients and are maintaining our focus on margin improvement through greater efficiency, utilisation, billability and pricing.

"We maintain our profit target for the full year and, as in prior years, financial performance will be significantly second half weighted.

"We remain confident in our strategy, business model and talent, which together with scaled client relationships position us well for growth in the longer term, with an emphasis on deploying free cash flow to improve shareowner returns, now all significant combination payments have been made.

"In addition to a very significant new account, we continue to capitalise on our prominent AI positioning and we continue to see multiple initial AI related assignments as clients start to use our MonksFlow tools and our experience to implement applications."

At 0914 BST, shares in S4 Capital were down 11.68% at 39.75p.

Reporting by Josh White for Sharecast.com.