Investing.com -- S4 Capital’s (LON:SFOR) shares jumped over 10% on Monday following its full-year 2024 results, driven by the company’s decision to reinstate its dividend, improved cash flow, and signs of stabilization in revenue declines.
The digital advertising, marketing, and technology services company reported an operating loss of £302.8 million for the year, reversing a profit of £20.2 million in 2023.
The loss was primarily due to a £280.4 million non-cash impairment charge, reflecting reassessments in the Content and Technology Services divisions amid challenging market conditions.
"Our performance in 2024 reflected the impact of challenging global macroeconomic conditions, high interest rates, and some underperformance when compared to our addressable markets," said executive chairman Sir Martin Sorrell in a statement.
"Technology clients continue to prioritize capital expenditure over operating expenditure, such as marketing, and our Technology Services practice was affected by a reduction in one of our larger relationships," Sorrell said.
Revenue fell to £848.2 million, a decrease of 16.1% compared to the previous year’s £1,011.5 million.
Net revenue, which excludes direct costs, declined by 13.6% to £754.6 million. Fourth-quarter results improved, with like-for-like net revenue declines slowing to about 4%, compared to 12.6% in Q3 and 15.2% in Q2, as per analysts at Jefferies.
Content services, which account for 65% of total revenue, improved to a decline of just -2% in Q4, signaling a gradual recovery.
Operational EBITDA stood at £87.8 million, down from £93.7 million in 2023, but with an improved margin of 11.6%, compared to 10.7% the prior year.
Jefferies noted that cost control measures contributed to a 0.9 percentage point margin expansion in 2024, with stronger second-half results adding 1.9 percentage points. Data & Digital Media achieved a 12.2 percentage point margin expansion, reaching 29.3%, the highest since 2021.
"Despite this, the Company reduced its operating margins and net debt markedly, while maintaining strong liquidity and cash flow below the lower end of our target range due to our focus on working capital and cost management," Sorrell added.
Geographically, the Americas remained the largest market, accounting for 78% of net revenue, but reported a 14.6% decline.
The EMEA region saw a 7.3% decrease, while APAC was down 16.7%, with challenges in Australia and Singapore contributing to the decline.
By business unit, the Content practice recorded net revenue of £475.5 million, a 7.4% decline, while Data & Digital Media posted £192.4 million, down 7.2%.
The most significant drop was in Technology Services, which fell 36.7% to £86.7 million, reflecting the impact of reduced revenue from a key client.
According to Jefferies, S4 derives around 45% of its revenue from technology clients, who are currently prioritizing AI-related capital expenditures over marketing spend, further impacting performance.
Despite the decline in revenue, the company reduced its net debt to £142.9 million from £180.8 million at the end of 2023.
Free cash flow improved to £37.8 million, compared to £13.8 million in the previous year, benefiting from working capital management. S4 Capital expects net debt to fall further in 2025, targeting a year-end range of £100 million to £140 million.
"The macroeconomic environment in 2025 will remain challenging given significant uncertainty in economic policy, particularly tariffs. In geopolitics, US/China relations, Russia/Ukraine, and Middle East conflicts add further complexity, and therefore clients are likely to remain cautious. With that said, we expect to benefit from improving conditions in the second half and for the full year we expect net revenue and operational EBITDA to be broadly similar to 2024, with a further reduction in net debt," Sorrell added.
Jefferies reiterated S4 Capital’s 2025 guidance, expecting net revenue and operational EBITDA to remain broadly in line with 2024.
The first quarter is projected to be difficult, with conditions improving in the second half as new business pipelines strengthen.
The brokerage also noted that S4’s reinstated 1p dividend per share, representing a 3% yield, is a signal of confidence in the balance sheet and future prospects.
The UK-based company anticipates further improvements in net revenue and operational EBITDA in the second half of 2025, supported by new business opportunities and efficiency measures.
The focus remains on cost control and maintaining a strong balance sheet amid ongoing macroeconomic uncertainties.