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

S4 Capital, the digital marketing firm led by Sir Martin Sorrell, has reported a 20% drop in sales after flagging up concerns about an advertising downturn, but said artificial intelligence (AI) projects are a growth area.

Despite a cautious trading update, shares in the company, which was founded by the man behind the advertising giant WPP, increased over 10% on Friday morning. The firm announced revenue of £210million for the first quarter, a significant decrease from the £262million recorded in the same period last year.

A notable decline in its technology services, which saw more than a 30% fall year-on-year, heavily impacted the sales figures. Sir Martin, serving as executive chairman, has been outspoken regarding the difficulties the digital advertising sector is facing, which have weighed heavily on the company's financial health.

On Friday, he highlighted that the downturn in sales is a reflection of "volatile global macroeconomic conditions" and "general client caution", with tech clients being particularly wary. S4 Capital, through its content arm Media. Monks, has delivered campaigns for high-profile clients such as Google, Meta, and BMW, and Sir Martin noted recent signs of improvement in this area.

To counteract challenging market conditions and escalating salaries, S4 Capital reduced its staff numbers by around 13% last year as part of cost-saving measures. The group has noted that its strategic moves are beginning to positively affect its cost structure and profit margins.

Additionally, the company has secured new contracts in the first quarter with high-profile brands such as Burger King, Panasonic, and Santander. There's also been an uptick in projects involving artificial intelligence, with clients delving into the tech for tasks ranging from copywriting to personalisation and enhancing overall efficiency.

Sir Martin commented: "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 ahead, S4 Capital anticipates a brighter second half of the year, although it still expects revenues to fall short of last year's figures.