S4 Capital maintains guidance after solid first quarter

The company reported a significant increase in both revenue and net revenue, with growth rates of 26.5% and 28.1% respectively, amounting to £262m and £219m.

Its like-for-like revenue and net revenue also experienced positive growth in the period, with respective rates of 6.1% and 6.8%.

The growth was primarily attributed to a strong performance of the technology services sector.

S4 Capital said it had been successful in expanding its client base through a strategy of ‘land and expand’, resulting in continued client conversion at scale with leading clients.

Additionally, S4 said it maintained a robust balance sheet, with net debt of £136m at the end of March, representing a ratio of 1x operational EBITDA.

The firm said it was planning to offset the share options issued to its employees in 2023 by initiating a share buyback in the second half.

Looking ahead, the firm remained optimistic as it reaffirmed its full-year outlook of net revenue growth of 8% to 12% throughout the year.

Additionally, it was aiming to achieve an operational EBITDA or net revenue margin target of 15% to 16%, in line with its prior expectations.

“We have had a solid start to the year, with net revenue rising 7%, while maintaining a focus on balancing growth in net revenue with costs, which is reflected in our people numbers remaining almost constant,” said executive chairman Sir Martin Sorrell.

“Net revenue growth is pretty much in line with the first-quarter constant currency growth of the major tech platforms, which averaged 6.4%.

“Two- and three-year like-for-like net revenue stacks are 41% and 74%.”

Sir Martin said technology services led S4’s growth in the first quarter, followed by content and the data and digital media segment, reflecting a growing client focus on digital transformation.

S4 maintained its full-year target of 8% to 12% net revenue growth, and was targeting 15% to 16% operational EBITDA-to-net revenue margin, with net debt in the range of £180m to £220m, Sir Martin Sorrell added.

“Any contingent merger payments will be satisfied in 2023 and net debt in 2024 is expected to decrease substantially given our current capital allocation strategy.

“There has been considerable speculation about the potential impact of AI and AGI on our industry with various commentators making early decisions on potential winners and losers.

“It is very early days, and the world is not even in the foothills of exploration and development, but this new industrial revolution is already set to have a major impact on productivity and the patterns of employment.”

The company believed it would make its “disruptive model” even more inevitable for clients, Sir Martin explained, adding that the firm was determined to establish a leadership position, and leverage it.

“We are immediately seeing positive impact in four areas - use of AI as a superpower or supertool to improve our people's effectiveness; speeding up the creation of advertising content through faster copywriting and visualisation; hyperpersonalisation at scale providing more empathetic advertising assets; and improved media planning and buying, particularly in digital improving targeting and optimisation and catering to client concerns around TV frequency capping and reach.

“The net effects of these developments will improve the effectiveness and efficiency of what we do - faster, better, more efficient, more and now.”

At 1022 BST, shares in S4 Capital were down 0.07% at 138.9p.

Reporting by Josh White for Sharecast.com.