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S4Capital plc (LSE:SFOR) has reported a decline in net revenue for the full year but remains confident in achieving its profit targets. Despite challenges, including a difficult macroeconomic environment and reduced activity in its Technology Services division, the company expects to see stable operational EBITDA thanks to cost-cutting measures and second-half performance gains.
Key Financial Highlights
S4Capital reported a 15.6% reduction in net revenue, with a 13.5% like-for-like drop compared to the previous year. The company’s revenue of £422.5 million reflected an 18.3% decline on a reported basis and 16.2% like-for-like. Operational EBITDA came in at £30.1 million, down 17.5% on a reported basis and 8.2% like-for-like, as anticipated.
The company’s net debt stands at £182.9 million, primarily due to share buybacks and combination payments, but also benefiting from improved free cash flow.
Operational Performance and AI-Driven Wins
The company highlighted a major new client win driven by AI-focused initiatives, signaling the potential for future growth in this evolving sector. However, broader performance has been impacted by caution from large technology clients and a significant decline in transformation activity from a major Technology Services client. Despite this, S4Capital noted stronger digital media planning and buying activity, with billings of £908.9 million—down 1.8% on a reported basis but up 0.8% like-for-like.
Challenges and Cost Reductions
S4Capital faces a challenging environment with continued global macroeconomic uncertainty and high interest rates, which have prompted cautious spending from clients. In response, the company has implemented significant cost reductions, which have helped offset the revenue shortfall. These actions are expected to stabilize operational EBITDA, with S4Capital targeting a similar performance to 2023, despite the greater-than-expected revenue decline.
Second Half Outlook
The company expects a stronger second half, driven by cost-saving initiatives and seasonality. While net revenue for the year is expected to decline more than anticipated in May 2024, S4Capital aims to maintain operational EBITDA levels through continued focus on its cost base. The company remains confident in its profitability, particularly within its Content practice, which is forecasted to show improvement. Data & Digital Media is also expected to perform similarly to the prior year, with modest margin growth.
Challenges in Technology Services
Technology Services remains a challenging area for S4Capital, with the company predicting lower performance due to reduced activity from a key client. This division's slowdown continues to weigh on the company's overall outlook, particularly as the sector faces ongoing headwinds from macroeconomic conditions and client hesitancy.
Net Debt and Future Leverage
S4Capital expects to end the year with net debt between £150 million and £190 million. The company continues to target financial leverage of around 1.5 times operational EBITDA over the medium term. Looking ahead, S4Capital remains optimistic about returning to growth, forecasting its long-term performance to outpace the market. The company also expects its operational EBITDA margins to return to historical levels of around 20% over the medium to longer term.
