S4 Capital PLC on Monday said its fourth-quarter trading was in line with its recently-lowered expectations, though the advertising agency predicts tough market conditions will persist in the new year.

Muted client spend, which weighed on S4 Capital’s fortunes last year, is likely to continue in 2024. However, it expects client caution to abate slightly, believing interest rates will come down.

Shares in the company shot-up 5.4% to 42.64 pence each in London on Monday morning, eating into some of the 72% slump suffered in 2023.

‘After four years of very strong growth, 2023 was a difficult year impacted by volatile macro conditions and, consequently, cautious spending from clients, particularly those in the technology sector and from smaller project-based assignments,’ Executive Chair Martin Sorrell said.

After a fourth-quarter that went in line with its recently-downgraded guidance, the London-based company expects to report a like-for-like net revenue decline of roughly 4% for 2023. Like-for-like net revenue had surged 26% in 2022.

Its operational earnings before interest, tax, depreciation and amortisation margin is expected to land in the 10% to 11% range, weakening from 13.9% in 2022. It margin outlook had been cut from a 12% to 13.5% range in November.

The company had also cut guidance in July, when it downgraded its like-for-like net revenue growth outlook to 2% and 4%, before predicting a ‘likely’ decline for 2023 in September. Its operational Ebitda margin outlook had once stood at the 15% to 16% range, before being cut to 14.5% to 15.5% in July, and then to the 12%-13.5% forecast in September.

S4 Capital added: ‘The company improved operational Ebitda margin performance in the second half of the year as a result of significant cost reductions. Net debt is expected to be towards the lower end of the guided range of £180-220 million, with circa £10 million of merger payments delayed to 2024.’

Executive Chair Sorrell said he is not expecting to see a ‘macro-economic improvement’ this year.

‘Client caution on marketing spend will likely persist, although not at last year’s level given interest rates are likely to fall over time,’ he added.

‘In these unpredictable times, we are focused on positioning the company for medium term growth, improving profitability and returning funds to shareowners.’

S4 Capital announces annual results on March 27.

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