SIR Martin Sorrell sent a chill through the advertising market today when he warned that revenues and profit margins at his S4 business are tumbling after a weak summer.
S4, which the world’s best-known ad-man set up after an acrimonious departure from WPP, boomed at first.
Lately it has faced accounting issues and has now cut sales forecasts for the second time in three months.
The shares crashed 25% to 71p leaving the company valued at a relatively meagre £415 million. The stock was 245p at the start of the year.
S4 has cut staff numbers at its Media Monks arm from 9000 to 8550 and warned that it “continues to take action” on jobs, “given the current market outlook”.
Staff in the content part of the company are especially vulnerable.
WPP shares were also hit, down 2% at 757p. Brokers at Peel Hunt cut their rating on Soho ad firm M&C Saatchi. Jessica Pok at Peel Hunt said: “There has been advertising softness across the industry.”
Sir Martin himself admitted that some clients are fearful of a recession, but insisted the biggest players – the “whoppers” in his word – remain robust. They include Google, TikTok and Diageo.
“Market reaction has been extreme,” he told the Standard. “We did suffer with local and regional clients. Small players are more susceptible to concerns about a recession, the world is a difficult place at the moment.”
He cited tensions between the US and China and the Ukraine war as the two biggest issues.
“This year and next year will be similar,” he said. “But stock markets will improve as interest rates come down.”
Once the UK and US elections are decided “the spigots will open,” he added.
Donald Trump is “not bad for the economy”, whatever one may think of him personally, said Sorrell, sometimes dubbed the Sage of Soho.
S4 revenues will be lower than last year. Before today, City analysts expected them to grow from £892 million to £920 million.
Jefferies said: “A second warning on revenue growth within two months will be a knock to the already fragile market confidence in S4’s all-important march towards longer-term margins of >20%...S4 needs to provide comfort on near-term earnings momentum as a priority.”
Sir Martin, at 78, remains one of the most high-profile business people in the UK. His departure from WPP, which he built into a global, multi-billion pound business, was clouded in allegations over his “personal misconduct”. He denied the allegations.
In his statement to the market on Monday he said: “We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.
“We expect the year as usual to be weighted to the second half, especially the fourth quarter, stimulated, in particular, by increased seasonal levels of clients’ activity and our artificial intelligence initiatives and the use cases we are developing with our clients.”
