S4 Capital PLC on Wednesday predicted a tough year ahead after soft spending by clients saw revenue and billings drop in 2023.

Shares in S4 Capital, the London-based digital advertising, marketing and technology services firm, slumped 8.0% to 40.98 pence in London on Wednesday morning.

‘Challenging macroeconomic conditions and client caution [are] likely to persist, despite the prospect of lower interest rates,’ S4 Capital said.

In 2024, S4 Capital said it is targeting like-for-like net revenue to be down on the prior year with a broadly similar overall level of operational earnings before interest, tax, depreciation and amortisation as 2023, as a result of cost reductions made in the previous year.

The company noted the comparatives with 2023 will be difficult in the first-half but will be easier in the second-half.

Peel Hunt analyst Jessica Pok said the outlook is ‘disappointing, with lack of green shoots in the near term. This contrasts with peers, which are slightly more optimistic.’

The downbeat outlook came as S4 Capital released results for 2023 which it said were in line with revised expectations.

The pretax loss in 2023 was £13.9 million narrowed from £159.7 million the year before, while the adjusted operating profit fell 28% to £82.0 million from £114.1 million.

Revenue fell 5.4% to £1.01 billion from £1.07 billion, or by 7.8% on a like-for-like basis. Billings eased 1.1% to £1.87 billion from £1.89 billion.

S4 Capital said this primarily reflected challenging macroeconomic conditions compared to 2022.

It also reflected cautious spending from clients, particularly those in the technology sector and by smaller client relationships and regional and local clients, along with a difficult year for new business and a lower seasonal uplift in the fourth quarter.

Executive Chair Martin Sorrell said: ‘We had a difficult 2023 reflecting challenging global macroeconomic conditions, fears of recession and high interest rates. This resulted in client caution to commit and extended sales cycles, particularly for larger projects, a difficult year for new business, as well as spend reductions from some regional and smaller client relationships.’

In 2024, S4 Capital said it expects Content to show a profitability improvement and Data&Digital Media to show a similar top and bottom line performance to the prior year with some margin improvement.

The outlook for Technology Services is more ‘challenging and expected to be lower, following a reduction in activity with some key clients.’

Over the medium to longer term S4 Capital continues to expect growth to outperform markets and operational Ebitda margins to return to historic levels of around 20%.

Last week, shares in S4 Capital rose following a report in The Wall Street Journal that it had rejected a bid valuing the company at around $700 million last year from Stagwell, another agency.

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