Advertising group S4 raises margin forecast after cost-cuts drive record profit

Aug 5 (Reuters) - Advertising group S4 Capital raised its annual profit margin forecast on Wednesday after aggressive cost-cuts helped deliver a record first-half profit and sharply reduced debt, offsetting weak client spending amid the Iran war.

The company, founded by advertising veteran Martin Sorrell, said it now expects its full-year operational core profit margin to rise by 140 basis points, up from a previous target of at least 100 basis points.

Digital advertising groups are facing a double whammy as technology giants divert marketing budgets towards AI infrastructure while the economic fallout of the five-month old Iran war rattles business confidence globally.

To combat that, S4 has cut costs sharply, reduced headcount and slimmed down operations to support margins and reduce debt, which stood at £66.3 million ($89.2 million) as of June 30.

S4 shares were up 13.8% at 44.6 pence by 0805 GMT. They have doubled in value so far this year, but have still underperformed larger rivals such as Publicis Group and WPP.

CLIENTS SPEND ON AI OVER MARKETING

"We anticipate that clients will remain cautious in the near term," Executive Chairman Sorrell said in a statement, adding that technology clients were continuing to prioritise capital expenditure on expanding AI capacity over marketing budgets.

However, Sorrell said the AI spending surge would ultimately benefit S4, as the vast AI infrastructure being built would eventually need to be promoted to customers. The firm counts Meta, Google, and BMW among its clients.

S4's operational core profit rose 82.7% to £38 million in the six months ended June 30, as it also introduced an inaugural interim dividend of 1.35 pence per share.

It now expects full-year like-for-like net revenue to be down mid-single digits, from previous expectations of low-single digits.

($1 = 0.7431 pounds)

(Reporting by Yamini Kalia in Bengaluru; Editing by Mrigank Dhaniwala, Subhranshu Sahu and Jan Harvey)