REG - S4 Capital PLC - First Quarter Trading Update
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RNS Number : 3100D S4 Capital PLC 07 May 2026
7 May 2026
S(4)Capital plc
First Quarter Trading Update
("S(4)Capital", "the Company" or "the Group")
Full year guidance reiterated
Reported net revenue(2) down 8.9%, 5.0% like-for-like(3 )
First quarter performance in line with expectations with improving operating
margins
Quarter end net debt(5) £111.8 million, 1.4x pro-forma 12 month Operational
EBITDA(1), down £33.0 million reported and £45.6 million like-for-like
The Company repurchased €85.2 million of its Term Loan B at a discount
reducing it to €289.9 million with a targeted reduction to €250 million
2026 like-for-like net revenue expected to be in line with current analyst
consensus, slightly below 2025, with operational EBITDA(6) margin targeted to
increase by at least 100 basis points
2026 net debt target unchanged at £60-90 million
The Board will approve an interim dividend of 1.1p and recommend a final
dividend of 1.1p, subject to shareowner approval where necessary, if
performance and liquidity targets are delivered
The Company's capital allocation policy prioritises dividends first, debt
repayment second and share buy-backs third
The Board will implement a 50% dividend payout policy out of adjusted basic
earnings per share over the medium-term, subject to financial targets being
met
Key financials
£ millions Three months ended Three months ended change Reported change
Like-for-like(3)
31 March 2026 31 March 2025
Billings(4) 419.8 463.3 (9.4%) (4.9%)
Revenue
Marketing Services 151.8 162.6 (6.6%) (3.1%)
Technology Services 13.0 15.5 (16.1%) (10.3%)
Total 164.8 178.1 (7.5%) (3.7%)
Net revenue
Marketing Services 136.2 148.3 (8.2%) (4.5%)
Technology Services 13.0 15.4 (15.6%) (10.3%)
Total 149.2 163.7 (8.9%) (5.0%)
Net revenue by Geography
Americas 122.9 130.5 (5.8%) (0.5%)
EMEA 17.9 24.3 (26.3%) (27.8%)
Asia-Pacific 8.4 8.9 (5.6%) (4.5%)
Total 149.2 163.7 (8.9%) (5.0%)
Financial highlights
¤ Reported revenue £164.8 million, down 7.5% and 3.7% like-for-like.
¤ Reported net revenue £149.2 million, down 8.9% and 5.0% like-for-like.
This reflects heightened macroeconomic uncertainty caused by the conflict in
the Middle East and continued client caution, especially amongst technology
clients, as they allocate even more spend to building Artificial Intelligence
(AI) infrastructure. The four main Hyperscalers alone are planning to spend
over $700 billion in 2026.
¤ Subject to shareowner approval, the Board proposes to pay a final
dividend of 1.1p per share in respect of 2025, amounting to £7.4m, a 10%
increase compared to 2024, on 10 July 2026 to all shareowners on the register
as at 5 June 2026.
¤ 2026 like-for-like net revenue is expected to be in line with current
analyst consensus, slightly below 2025, with operational EBITDA margin
targeted to increase by at least 100 basis points, primarily due to the
annualised impact of the 2025 cost actions. As a result of those cost actions,
the proportion of operational EBITDA realised in H1 2026 is expected to
increase compared to H1 2025.
¤ Quarter end net debt was £111.8 million, or 1.4x net debt/pro-forma 12
month operational EBITDA versus £144.8 million on the same date last year.
This is a reported improvement of £33.0 million and a like-for-like
improvement of £45.6 million over the first quarter end of 2025. We continue
to target a net debt range of £60 - £90 million for year end.
¤ The Company continues to repurchase its Term Loan B at a discount, with
a total of €85.2 million repurchased to date, including the €25.7 million
previously announced. This reduces the outstanding Term Loan B to €289.8
million, with a target to reduce it further to a steady state of €250
million.
¤ The Board also plans to implement a medium-term dividend payout policy
of 50% of adjusted basic earnings, if financial targets are achieved. For
2026, the Board will approve an interim dividend of 1.1p and recommend a final
dividend of 1.1p, subject to shareowner approval where necessary, if
performance and liquidity targets are met and would be a first short-term step
in implementing the capital allocation policy on dividend payout.
Sir Martin Sorrell, Executive Chairman of S(4)Capital Plc said:
"Trading in the first quarter has been in line with the Board's expectations,
despite client caution reflecting continuing macroeconomic and geopolitical
volatility, heightened by the increased conflict in the Middle East.
Technology clients continue to increase capital expenditure on expanding AI
infrastructure and capacity, with the four main hyperscalers alone planning to
spend well over $700 billion in 2026. We anticipate that clients will remain
cautious in the near term, as global GDP growth slows, inflation increases and
interest rates stubbornly refuse to fall or even increase.
However, we remain confident in our strategy, business model and talent,
together with our scaled client relationships and strong momentum behind our
new go-to-market proposition.
We see significant opportunities as clients become more selective about growth
geographically and increasingly focused on implementing technologies such as
AI, Blockchain and Quantum to drive efficiency. We are also seeing the
benefits of our own restructuring and cost programmes and continue our focus
on cost control and margin improvement. We are seeing significant AI marketing
transformation at scale in verticals where there are existential threats - in
autos in response to Chinese AV's and EV's; in financial services, in response
to fintech platforms; and, finally, in package goods, as previous price
increases during and post-Covid make it difficult to pass on commodity price
increases and consequently pressure margins
We reiterate our full year guidance and expect 2026 like-for-like net revenue
to be in line with current analyst consensus, slightly below 2025, with
operational EBITDA margin targeted to increase by at least 100 basis points,
primarily reflecting the annualised impact of the 2025 cost actions. We target
2026 year end net debt of £60 to £90 million.
The Company's capital allocation policy is dividends first, debt repurchase
second and share buybacks third. The Company has continued to repurchase its
Term Loan B at a discount, with €85.2 million repurchased to date, including
the €25.7 million previously announced. This reduces the Term Loan B
outstanding to €289.9 million, with a targeted reduction to €250 million.
The Board plans to implement a 50% dividend payout policy in the medium-term
and the first step will be the payment of a 1.1p dividend both for the interim
and final dividends for 2026, if financial targets for 2026 are achieved and
shareowners approve. This reflects our commitment to deliver consistent
shareowner returns."
Notes (in this document):
1. Operational EBITDA is operating profit or loss adjusted for
acquisition related expenses, non-recurring items (primarily acquisition
payments tied to continued employment, amortisation and impairment of business
combination intangible assets and restructuring and other one-off expenses)
and recurring items (share-based payments) and includes right-of-use assets
depreciation. It is a non-GAAP measure management uses to assess the
underlying business performance. Operational EBITDA margin is operational
EBITDA as a percentage of net revenue.
2. Net revenue is revenue less direct costs.
3. Like-for-like is a non-GAAP measure and relates to 2025 being
restated to show the unaudited numbers for the previous year of the existing
and acquired businesses consolidated for the same months as in 2026, applying
currency rates as used in 2026.
4. Billings is gross billings to clients including pass through costs.
5. Net debt excludes lease liabilities.
6. This is a target and not a profit forecast.
Q1 Trading Update
As previously highlighted, trading in the quarter reflected both continued
uncertainty around global macroeconomic conditions, particularly reflecting
the heightened conflict in the Middle East and lower marketing spend from
technology clients, which account for approximately half of revenue, as they
focussed on boosting capital expenditure to build out AI infrastructure and
capacity.
Reported billings were £419.8 million down 9.4%, 4.9% like-for-like.
Reported revenue was down 7.5% to £164.8 million, 3.7% like-for-like.
Reported net revenue declined 8.9%, 5.0% like-for-like, which did represent a
sequential improvement over the final quarter of 2025.
Q1 operational EBITDA was in line with our expectations, reflecting the
benefit of cost actions taken in 2025 in reaction to lower activity levels and
a continued focus on pricing and billability. The number of Monks in the
Company was circa 6,200 at the end of the first quarter, down 11% compared to
circa 7,000 at the end of the Q1 2025 and 2% lower than year end of circa
6,350. We maintain a disciplined approach to managing our cost base and
continue our drive for margin improvement through greater efficiency,
utilisation, billability and pricing.
Performance by Practice
Marketing Services like-for-like net revenue for the first quarter was down
4.5% and 8.2% reported to £136.2 million, reflecting ongoing caution
especially in EMEA and lower activity with some of our larger technology
clients.
Technology Services first quarter like-for-like net revenue was down 10.3% and
15.6% reported to £13.0 million, impacted by continued client caution,
especially amongst technology clients as they allocate even more spend to
building AI infrastructure, as well as longer sales cycles for new business.
Performance by Geography
On a like-for-like basis, the Americas performed stronger than expected with
net revenue down 0.5% and now accounts for 82% of the Company's net revenue.
EMEA, accounting for 12%, was down 27.8%. Asia Pacific (APAC), accounting for
the remaining 6% was down 4.5%.
Reported Americas net revenue was £122.9 million, down 5.8%, EMEA net revenue
was £17.9 million, down 26.3% and Asia Pacific was £8.4 million, down 5.6%.
New business and AI
Continuing the trends seen during the year, we are seeing our AI initiatives
considerably improve visualisation and copywriting productivity, deliver
considerably more effective and economic hyper-personalisation at scale, more
automated and integrated media planning and buying, improving general client
and agency efficiency and democratise knowledge, flattening organisational
structures. We are now producing high quality commercials using AI
technologies such as Runway, Luma, Flux, Omniverse (Nvidia), Substance (Adobe)
and Unreal that take hours and days to produce at significantly lower cost
rather than traditional production techniques, which take weeks and months at
significantly greater cost. The quality continues to improve in real-time
and clients that are exposed to the results of these AI technologies are very
excited about their implementation and the commercial impact on their
marketing budgets and return on investment. As a result, we are changing our
revenue model from a purely, time-based approach to one more based on outputs
- i.e. use of assets and subscriptions.
We are seeing significant opportunities for new business, particularly driven
by our AI tools and capability. This is particularly so in the Automotive
sector, where we have recently won assignments from major manufacturers in
Japan, South Korea, China and India as the category establishes itself as an
early adopter of AI at scale, in reaction to the existential pressure from
Chinese EV's and AV's. We see similar opportunities in Financial Services
where we have seen an uptick in pipeline and wins as Financial Institutions
move beyond pilots and concerns around AI governance to full scale adoption,
again reflecting an existential threat, this time from new fin-tech platforms.
In FMCG we continue to build on the traction of winning "Real-Time Brands" and
"Orchestration Partner" engagements with two leading US-based Global clients
in 2025, one of these client relationships has expanded internationally and we
are engaged in several scaled pitches in this category. Package-goods is a
third vertical where an existential threat, this time increasing commodity
prices and an inability to pass on price increases to consumers, given recent
price hikes during inflationary Covid and post-Covid periods. We continue to
win multiple exploratory assignments and AI film projects, as clients
experiment and explore AI applications and develop AI use cases. AI capability
is becoming more central to the agency's way of working and new business
efforts. In this regard the Company's early adoption of AI and proactive
approach to staff training on AI is beginning to pay off. A number of clients
have called out the proprietary AI applications we have implemented, and as a
result, we have won four major AI industry awards in the last two years.
Our go-to-market propositions, Orchestration Partner, Real-Time Brands, Media
Acceleration and Digital Transformation are all starting to
resonate strongly with clients. These are built around hyper-personalisation
at scale, social media, brand strategy, platform expertise and leveraging of
technology.
Dividend
On the 23 March 2026 the Board proposed a final dividend of 1.1p per share,
amounting to £7.4 million, subject to shareowner approval. This will be paid
on 10 July 2026 to all shareowners on the register as at 5 June 2026.
Balance Sheet
Quarter end net debt(5) was £111.8 million, or 1.4x net debt/pro-forma 12
month operational EBITDA. The pro-forma 12 month operational EBITDA was £82.5
million. This compares to £144.8 million reported at the end of the first
quarter last year, or 1.7x. We expect net debt to reduce as we progress
through 2026 and reiterate our target of £60 to £90 million for year end.
ESG
We remain committed to the pillars of our ESG strategy: Our Responsibility to
the World, People Fulfilment, and One Brand. We have strengthened our external
reporting and reporting tools, while further embedding ESG governance and
integrating ESG into our strategic direction and day-to-day decision-making.
This shows a more mature and integrated approach to transparency and
reinforces ESG as a fundamental part of how we operate.
Summary and outlook
Clients are expected to remain cautious in the near term due to macroeconomic
uncertainty, evolving tariff dynamics, and the heightened conflict in the
Middle East. In addition, technology clients are shifting priorities toward AI
capex rather than opex including marketing. Despite this, the Company remains
confident in its strategy, business model, talent, and scaled client
relationships, positioning it for sustainable long-term growth.
Full year guidance is reiterated with 2026 like-for-like net revenue expected
to be in line with current analyst consensus, slightly below 2025, with
operational EBITDA margin targeted to increase by at least 100 basis points,
primarily due to the annualised impact of the 2025 cost actions. As a result
of those cost actions, the proportion of operational EBITDA realised in H1
2026 is expected to increase compared to H1 2025.
Our targeted range for net debt at 31 December 2026 is £60 million to £90
million. We target medium-term leverage of under 1.0x pro-forma 12 month
operational EBITDA. Over the longer term we expect operational EBITDA margins
to increase significantly and return to historic levels of around 20%.
The Company's capital allocation policy is to prioritise dividends first, debt
repayment second and share buy-backs third as net debt falls further. Further
The Company has repurchased €85.2 million to date. The Board is implementing
a medium-term dividend payout policy of 50% of adjusted basis earnings. As a
first step, the Board will approve an interim dividend of 1.1p and recommend a
final dividend of 1.1p, subject to shareowner approval where necessary, if
performance and liquidity targets are met.
The strategy of S4Capital remains the same. The Company's unitary, purely
digital transformation model, based on first-party data fuelling the creation,
production and distribution of digital advertising content, distributed by
digital media and built on technology platforms to ensure success and
efficiency, resonates with clients. Our promise 'faster, better and more
efficient' and a unitary structure both appeal strongly, even more so in
challenging economic times.
Webcast and conference call
A webcast and conference call will be held at 09:00 BST in London.
09:00 BST webcast (watch only) and conference call (for Q&A):
Webcast: https://brrmedia.news/SFOR_Q1_26 (https://brrmedia.news/SFOR_Q1_26)
Conference call:
UK: +44 (0) 33 0551 0200
US: +1 786 697 3501
Quote 'S4 Capital Q1 Results' when prompted by the operator.
Enquiries to:
S4 Capital plc
Tel: +44 (0)20 3793 0003
Sir Martin Sorrell, Executive Chairman
About S(4)Capital
S4 Capital is a purely digital advertising and marketing services business
built for global, multinational, regional, and local clients and
millennial-driven influencer brands. The business operates through two data
and digital media driven Practices: Marketing Services and Technology
Services, emphasising 'faster, better and more efficient' execution in an
always-on consumer-led environment. Its unitary structure positions the
Company as a systems integration partner delivering real-time relevance in the
post-agency era.
The Company now has approximately 6,200 people in 34 countries with
approximately 82% of net revenue across the Americas, 12% across Europe, the
Middle East and Africa and 6% across Asia-Pacific. The longer-term objective
is a geographic split of 60%:20%:20%. Marketing Services accounted for
approximately 91% of net revenue and Technology Services 9%. The target
allocation is a practice split of 75%:25%.
Sir Martin Sorrell was CEO of WPP for 33 years, building it from a £1 million
'shell' company in 1985 into the world's largest advertising and marketing
services company, with a market capitalisation of over £16 billion on the day
he left. Prior to that, Sir Martin was Group Financial Director of Saatchi
& Saatchi Company Plc for nine years.
Disclaimer
This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives relating to the Company's services) are
forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These forward- looking
statements speak only as at the date of this announcement. S(4)Capital
expressly disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of the Company for the current or future years would necessarily match
or exceed the historical published earnings per share of the Company.
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accessible from hyperlinks on its website for any other website, is
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continue to hold, or dispose of, shares in the Company.
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