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S4 Capital (LSE: SFOR) – Tough H1, growing AI

S4’s H124 results show the impact of the continuing tough trading environment, with net revenue down 13.5% like-for-like. A focus on costs, including a 12% reduction in headcount across the group, means that the operational EBITDA margin has just edged ahead (again on a like-for-like basis) to 8.0%. The reluctance to spend of the tech clients is again cited, along with a delay in a substantial contract within the Technology Services segment and general macroeconomic malaise as factors that have pulled back net revenue expectations for the full year.

As is the norm for the sector, results will be heavily second-half weighted and net debt at the year-end is anticipated within a range of £150-190m, from £183m at the half-year. Where the group is seeing a lot of interest, though, is in its AI-driven offering, where client interest is very high and is starting to translate into assignments. This is also showing through in new business activity, where mass personalisation at scale is promising significant uplifts in return on investment for advertisers and brands. Success here should help boost the recovery in S4’s operating margins.

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