S4 Capital, led by Sir Martin Sorrell, has reported an 11.4 percent decrease in first-quarter sales, following two profit warnings this past year. This decline is attributed to tech clients prioritizing investments in AI over traditional marketing efforts.

The company’s revenue in Europe and the Middle East witnessed the steepest decline, plummeting over 17 percent compared to the previous year. In the US, revenue fell by 11 percent, while the Asia-Pacific region experienced a 13.6 percent decrease.

Sorrell, 80, established S4 Capital six years ago after his exit from WPP, where he worked for 33 years. The firm specializes in digital advertising and has expanded through acquisitions, notably with Monks and Mighty Hive, which were merged to create Media Monks. S4 Capital operates in 33 countries.

The company anticipates improved performance in the latter half of the year, driven by revenue from new business initiatives. However, they continue to place an emphasis on cost management.

As for its financial standing, S4 Capital reported a net debt of £144.8 million, a reduction from £206 million in the same quarter last year. The company aims to further decrease this amount to between £100 million and £140 million by year-end.

The workforce continues to shrink, with the number of employees, referred to as “Monks,” totaling 7,000 at the end of the quarter, which represents an 8 percent reduction from the previous year and a 2 percent decrease from the end of last year.

The company stated, “We uphold a disciplined stance in managing our cost structure and persist in our efforts to enhance margins through improved efficiency, utilization, billability, and pricing.”

In March, Sorrell expressed concerns about companies being more judicious with their expenditures, especially in light of global economic uncertainties. He reiterated these points on Thursday, noting that the macroeconomic landscape had indeed become more daunting as we advance into 2025.

“As indicated earlier, the trading performance in the first quarter reflects the persistent impact of what can only be described as volatile global economic conditions. Consequently, clients exhibit caution, with technology clients—who contribute nearly half of our revenue—continuing to prioritize capital investments in AI over operational spending like marketing,” he remarked.

S4’s technology services segment, which generates around 15 percent of overall revenue, has been adversely affected by the loss of a significant client.

Sorrell further mentioned, “We are continuing to concentrate on cultivating larger, robust relationships with leading enterprise clients, enhancing our margins through greater efficiency, utilization, billability, and price adjustments. We firmly believe in our strategy, business model, and talent, which, along with strong client relationships, position us for long-term growth.”

Analysts from Jefferies have maintained their buy recommendation for S4 Capital and noted that, despite the underwhelming guidance for 2025, the improved net debt situation was a positive sign.

The Advertising Association’s recent report, released at the end of April, forecasts a 6.3 percent increase in advertising investment to reach £45.2 billion by 2025, along with a 5.6 percent growth to £47.8 billion in 2026. This marks a downward revision from earlier estimates due to prevailing economic challenges and US trade tariffs.