Operating losses at Sir Martin Sorrell’s advertising start-up S4 Capital have ballooned on acquisition costs and staff pay.
The company warned on profits this summer, sending its shares tumbling, as it said employee costs at the rapidly expanding group had spiralled ahead of revenue and profit growth.
Staff numbers had now “stabilised” at roughly 9,100, according to a statement released on Wednesday, compared with just under 6,000 at the same time last year.
“We’re being much more selective in our hiring,” said Mr Sorrell, the company’s founder and executive chair, adding that pressure in the digital labour market was easing as tech companies such as Facebook and TikTok reined in hiring.
Sales at S4 grew to £446 million (€511 million) in the first six months of the year, 60 per cent higher than last year. Stripping out the benefit of acquisitions, organic sales were up 31 per cent.
Operating losses rose to £75m in the same period, compared with £17m in the first months of 2021.
“That’s because of acquisition payments . . . so that will wash out on the assumption that we don’t make further acquisitions,” Sorrell said.
“More important is the ebitda (earnings before interest, taxes, depreciation, and amortisation) ,” he said, adding that “most [large advertising groups] are guiding at 5 or 6 or 7 per cent growth, and we are guiding at 25 per cent plus”.
S4 confirmed on Wednesday that it was expecting to hit £120m in earnings before interest, taxes, depreciation and amortisation by the full year, a target it lowered this summer from a range of £154m-£165m.
Analysts at Citi said S4 had released a set of results “which, we think, will settle nerves”. Organic growth at the company was “comfortably ahead of expectations”, they added. Shares in S4, which have slid 63 per cent in the past year, were up by 3 per cent on Wednesday morning.
Mr Sorrell, who was ousted from WPP in 2018 after building the business into one of the world’s biggest advertising companies, has pursued an aggressive acquisition strategy at S4, buying 30 media groups in just under four years.
Many of the deals have been made by offering a 50:50 split in cash and S4 shares, an approach that has become trickier after its share price took two hits this year, the former stemming from a delay to publishing results.
The accounting issue that caused the delay was related to the company’s fast growth and prompted questions around checks and balances at the sprawling business. S4 has since said it has made investments in financial controls, risk and governance. - Copyright The Financial Times Limited 2022
