Earnings call transcript: S4 Capital Q3 2025 sees revenue decline, stock down

S4 Capital reported a decline in revenue for the third quarter of 2025, with net revenue falling to £167 million, a 4.4% decrease on a like-for-like basis. Year-to-date revenue also saw a decline of 8.4%, totaling £552.1 million. The company’s stock price reacted negatively, dropping by 7.59% to £21.75. Despite the revenue decline, S4 Capital has reduced its net debt to £151 million from £180 million in September 2024, and leverage improved to 1.8 times pro forma 12-month operational EBITDA.

Key Takeaways

• S4 Capital’s Q3 net revenue fell by 4.4% year-over-year.
• The company reduced its net debt by £29 million over the past year.
• Stock price dropped by 7.59% following the earnings release.
• AI investments and partnerships are central to future growth strategies.
• Workforce was reduced by 5% as part of cost-cutting measures.

Company Performance

S4 Capital’s performance in Q3 2025 was marked by a continued decline in revenue, reflecting challenges in the broader macroeconomic environment and a slowdown in technology client spending. Despite these hurdles, the company has made strides in improving its financial health by reducing net debt and enhancing leverage ratios. The strategic focus on AI and partnerships with major tech firms like Google and NVIDIA positions the company for potential future growth, although immediate results have yet to materialize.

Financial Highlights

• Q3 Net Revenue: £167 million, down 4.4% year-over-year.
• Year-to-date Revenue: £552.1 million, down 8.4% year-over-year.
• Net Debt: £151 million, improved from £180 million in September 2024.
• Leverage: Improved to 1.8x pro forma 12-month operational EBITDA.

Outlook & Guidance

S4 Capital expects stronger performance in the second half of 2025, maintaining EBITDA guidance similar to 2024 levels. The company is targeting a margin improvement from the current 12% to 20%. However, it remains cautious about organic growth prospects for 2026, given the volatile macroeconomic conditions. The potential for an enhanced final dividend for 2025 could provide some optimism for investors.

Executive Commentary

CEO Martin Sorrell expressed confidence in the company’s strategy and talent, emphasizing the role of AI in driving efficiency and innovation. He noted, "We remain confident in the strategy, in the business model, and in our talent." The company’s focus on AI has led to significant cost reductions in creative production, allowing clients to reinvest savings into media budgets.

Risks and Challenges

• Macroeconomic volatility and technology client spending cuts could continue to pressure revenue.
• The transition to a single ERP system, expected to complete by early 2026, may pose integration challenges.
• Competitive tensions in the AI marketing and production space could impact market share.
• Workforce reductions might affect operational capabilities and employee morale.
• Achieving targeted margin improvements will require careful management of costs and resources.

Full transcript - S4 Capital PLC (SFOR) Q3 2025:

Martin Sorrell, CEO/Founder, S4 Capital: Good morning, everybody. Welcome to our Q3, third quarter update. Radhika will give a background on the trading in Q3, and then Scott will talk about market momentum and some client analysis, and I’ll come back and give a brief summary and outlook. Over to you, Radhika.

Radhika, CFO, S4 Capital: Good morning, everybody. I will start with the financial headlines for the third quarter and 2025 year-to-date. Performance in the period continued to be impacted by the ongoing volatile global macroeconomic conditions. Client caution has continued given the uncertainty. Revenue in the quarter was GBP 191.7 million, down 1% on a like-for-like basis and 3.4% on a reported basis. Year-to-date revenue was GBP 552.1 million, down 8.4% like-for-like and 11.1% on a reported basis. Net revenue in the quarter was GBP 167 million, down 4.4% on a like-for-like basis and 6.9% on a reported basis. Year-to-date net revenue was GBP 495.2 million, down 8.2% like-for-like and 10.8% on a reported basis. We expect stronger profitability in the second half, with weighting towards the fourth quarter. This reflects recent new business wins and cost reductions actioned.

The number of Monks are circa 6,500, down 5% from circa 6,900 at June 2025 and down 13% from circa 7,500 this time last year. This program primarily focused on a range of non-billable roles across the business and further back-office efficiencies. We closed the period with a net debt of GBP 151 million, lower than GBP 180 million at 30 September 2024, or GBP 194 million on a like-for-like basis. Net debt increased by GBP 5 million compared to GBP 146 million at half-year, reflecting the group’s inaugural dividend payment, restructuring costs, and continuing FX headwinds. Average month-end net debt for the quarter was GBP 154 million compared to GBP 184 million for the same quarter last year, or GBP 197 million on a like-for-like basis. Leverage has improved to 1.8 times pro forma 12-month operational EBITDA compared to this time last year at 2.2 times and against the half-year at 2 times.

Moving on to the full-year guidance, we expect like-for-like net revenue to be down by upper single digits. Full-year like-for-like operational EBITDA is targeted to be broadly similar to 2024. We expect net debt to be in the range of GBP 100-140 million. Moving on now to the net revenue by practice and geography. Marketing services net revenue for the quarter was GBP 150.8 million, down 2.8% on a like-for-like basis and 5.3% on a reported basis. Year-to-date, marketing services net revenue has decreased 5.2% like-for-like, or 8.1% reported, to GBP 449.8 million. This reflects the slower onboarding of recent client wins, including General Motors, Amazon, T-Mobile, and PIF, and now two unannounced leading US-based global FMCG companies alongside general client caution. Technology services was impacted by longer sale cycles for new business and ongoing challenging macroeconomic conditions.

Net revenue in the quarter decreased 16.5% like-for-like, or 19.4% reported, to GBP 16.2 million. Year-to-date, Technology Services net revenue has decreased 29.6% like-for-like, or 31.4% reported, to GBP 45.4 million. From a geographical perspective, the Americas, which represent around 80% of net revenue, was up 1.6% like-for-like in the third quarter to GBP 136.1 million, with stronger growth in Latin America. Year-to-date, net revenue declined by 5.6% like-for-like to GBP 394.3 million. Europe, the Middle East, and Africa were down 26.6% like-for-like in the third quarter to GBP 22.6 million. Year-to-date, net revenue was down like-for-like 17.3% to GBP 74.4 million. Asia-Pacific net revenue down 16.2% like-for-like in the third quarter to GBP 8.3 million. Year-to-date was down 15.3% like-for-like to GBP 26.5 million. With that, I hand over to Scott for the market update.

Scott, Executive, S4 Capital: Thanks, Radhika, and good morning, everybody. Thank you for joining the call. As we continue to address the challenges that the business has been facing and rebuild our foundations for growth, we are seeing some progress that makes us more optimistic as we move forward. First, the pace of technology client spend cuts has slowed. Now, whilst the investments in CapEx continue to grow at really significant pace, and in the past week, we’ve seen several of the big tech companies report increased AI investment for both 2025 and 2026. Combining this with continued focus on operating expenses and, in some cases, significant job cuts, we are starting to see stabilisation in their marketing spends as they start to invest in differentiation for their AI products in a highly competitive market and illustrate some ROI on those CapEx investments.

High-profile campaigns from the likes of OpenAI, Anthropic, and Perplexity have added to the competitive tension. Secondly, we continue to innovate our product, launching our AI platform, Monk’s Flow, at CES in January 2024. Over the course of the past two years, we’ve continued to innovate, win awards, bring on board partners such as Google, OpenAI, NVIDIA, Adobe, and Runway, and implement at scale with existing clients such as Google, BMW, SC Johnson, and Amazon. We’ve also developed and started to convert a specific AI-focused sales pipeline, which is progressing beyond proof of concepts to more significant scaled transformational assignments, such as the recent two FMCG wins. We are also building traction in AI film production, with almost 20 agentic films currently in production, a new revenue stream for us. Thirdly, client wins.

The Whopper client losses are mostly out of our comparables, and we’ve had a stronger pipeline and new business performance recently. Starting with General Motors a year ago, we’ve had a regular cadence of significant wins, including T-Mobile, Amazon, PIF, and more recently, two leading US-based FMCGs, one a new client and one an expanded remit with an existing client. Fourthly, on people. Whilst the overall number of monks has declined, we have continued to hire across country and regional management, capabilities, growth, and client leadership, talent who are now driving these new business wins. We’ve also made hires with an operational focus on the optimisation of pricing, utilisation, billability, and improving our margins and getting those staff cost ratios in line. Fifth and finally, centralisation and cost control. From an integration perspective, the mergers are now fully integrated, and we go to market as a single brand, Monks.

We’ve centralised key functions such as finance, legal, HR, and IT, and the company operates on the same platforms such as Slack, Salesforce, Workday, and Google Workspace. Our migration to a single ERP is well underway and will be completed in early 2026. We’ve simplified the business around marketing and technology services. We have a clearly articulated organizational structure based around geographical leadership and capability expertise. We have and continue to implement cost controls with the goal of getting our staff cost ratios in line with the industry averages. Overall, with positive new business trends and some stabilisation in tech company spend, continued progress in our AI product offering, and a strong focus on cost, we are seeing an improved performance in H2. We reiterate our EBITDA guidance for 2025 and are starting to set up well for 2026.

I have a couple of the agentic films which I referenced earlier that we’ve been working on to share with you. The first one is an ad for Progressive Insurance, which just aired this week. On this one, we were brought in by their creative agency, who came up with the concept to produce the film using artificial intelligence, using technology from partners such as Google, VO, Nuke, Flux, Runway, and Stable Diffusion.

Radhika, CFO, S4 Capital: The road can be a wild place. There are all kinds of drivers out there. That’s why Progressive Snapshot personalizes your insurance rate based on your driving. So you’re not stuck paying for someone else’s mistakes. What? Is there something wrong with my hair?

Scott, Executive, S4 Capital: The second film is some work for General Motors, which is a fully agentic film where we created agents to do everything from research to creating the brief, script writing, and ultimately production. In this case, it was all based around our internal technology, Monk’s Flow, but using external technology from partners such as, again, Google, VO, Nuke, and Flux.

We all know our kind of truck. The one that can light up a job site and still carry us down a road no map can find. It is not about the thanks or the spotlight. It is about doing it right. That strength is what keeps us moving, and we need a truck built to do the same. Silverado EV, all truck, all electric, all Silverado.

From a client perspective, we continue to have a really compelling client list with some of the world’s leading and most innovative companies. In 2024, nine of them were what we call Whoppers. That’s with revenues of $20 million plus, which is a differentiator for a company of our scale. Most of our direct competitors have a much more fragmented client list with smaller relationships. As you can see, we continue to have a significant presence in the technology industry. You can see the GM win has also positively impacted our auto share, and other recent wins have been in telco, financial services, and FMCG. These are strong relationships that help us attract and retain talent to work on them.

In terms of comparing the scale of our largest clients, just to be clear on the methodology here, we are comparing the top 10, 20, and 50 current clients with the top 10, 20, and 50 client cohorts in the same period in 2024. We are now seeing some stabilisation here with a small bit of growth in the average size of our top 10 clients and far smaller declines in our top 20 and 50. If we look at the year-to-date actual growth of our current top 10 clients versus their equivalent position in 2024, we see 7% growth for our top 10, 7% growth for our top 20 clients, and 6% for our top 50. Illustrating our focus on building scaled relationships with enterprise clients is paying off. I will pass you back to Martin for the summary.

Martin Sorrell, CEO/Founder, S4 Capital: Thanks, Scott. Thanks, Radhika. Just a brief summary. Q3 net revenue fell by almost 7% reported and 4.4%, which actually is a sequential improvement over Q2 by 4.4%. That reflected ongoing client caution, as Scott has outlined, and the timing of significant new business wins. Year-to-date revenue is down 10.8% and 8.2% like-for-like. Fully like-for-like net revenue is expected to be down by upper single digits. Third quarter month-end average like-for-like net debt fell by GBP 43 million, from GBP 197 million last year on a constant currency basis to GBP 154 million, despite the payment of the inaugural dividend, which cost about GBP 6-7 million. We maintain our full-year guidance for EBITDA, which is expected to be broadly similar to 2024 on a like-for-like basis, with a stronger performance expected in the second half as last year, reflecting new business wins and implemented cost reductions.

A cost reduction program was initiated to mitigate the revenue challenges that we’ve had, and this saw a number of months reduced by 5% to around 6,500 since June 2025 and by 13% from this time last year. This is clearly delivering in-year benefits and contributing to the right sizing of the business, particularly as we go into 2026. We maintain our 2025 target net debt range of GBP 100 million-GBP 140 million. Monthly at the moment, we’re varying between about GBP 120 million and GBP 150 million. The board will consider approving an enhanced final dividend for 2025 if the improved second-half performance and liquidity targets are delivered. Those are the targets for 2025. We’re seeing our AI initiatives, as Scott has pointed out, improve visualisation and copywriting productivity, deliver considerably more effective and economic hyper-personalisation at very significant scale, delivering more automated and integrated media planning and buying.

Improving general client and agency efficiency, and democratising knowledge and flattening organizations. We remain confident in the strategy, in the business model, and in our talent, which together with the scaled client relationships. Unusual for a company of our size, they position us very well for growth in the longer term. With that as the background, we’ll go into Q&A.

Conference Operator: Thank you. If you’d like to ask a question, please press star one on your telephone keypad. We’ll take our first questions from Laura Mateo from Morgan Stanley. Your line is open. Please go ahead.

Morning, everyone. Thanks for taking my question. I have two pleas. The first one is on production. You’ve mentioned that you produce movies for your clients. I understand this is not something that you were doing much before AI. Does that add a sustainable new revenue stream then? The second question is, you now expect a lower revenue base for 2025. What additional cost-saving measures are you taking to be able to maintain your previous EBITDA guidance? Thank you.

Martin Sorrell, CEO/Founder, S4 Capital: Scott, do you want to take the first?

Scott, Executive, S4 Capital: Yeah. Hi, Laura. Yes, absolutely. I mean, it’s not that we didn’t do any film production before. We did some. What AI allows us to do is a lot more. I think what we’re seeing now is we’re building up quite a pipeline of film work, where some of it, as the Progressive example, is where creative agencies are bringing us in as their specialised AI production partner. That’s actually the original traditional MediaMonks business model. It’s sort of reinvigorating that to a certain degree. More often than not, we are essentially doing the whole thing, using Monk’s Flow to do the sort of research and sort of creative brief and script writing, etc., and then using external technology to do the actual production. Yeah, this is a sustainable new revenue stream for us. It’s relatively small at the moment. I think.

Companies are still working out how they price these things. In many cases, they are proof of concepts because they’re looking to understand how the technology works and what can actually be achieved. Going forward, I think this will be important for us.

Martin Sorrell, CEO/Founder, S4 Capital: Just to amplify that a little bit, we believe that create costs should be about 10% of media budgets. In many cases, the clients that we either have or talk to are spending as much as 15% or 20% on create costs. We see a very significant opportunity to improve that ratio and freeing up money from create for media. Scott mentioned 20 or so projects of this nature going on at the minute. In addition to that, every conversation we have with CMOs, for example, we’ve had three or four in the past couple of days. Every conversation we have is punctuated with this issue or this focus on create costs. Inside organizations, it’s not so much the CMOs and CIOs and CTOs that focus on this. It’s the CFOs. They are the prime driver of improved efficiency.

Radhika, do you want to talk about cost mitigation?

Radhika, CFO, S4 Capital: To your point, Laura, as you know, in June, we had 6,900 monks. We’ve reduced that to 6,500, and that has been actioned. That is delivering the in-year savings to deliver the EBITDA guidance that we’re sticking with. Continually, we are now really forensically looking at our cost base to make sure we are deploying the resources against the revenue. We’re doing that on a constant basis.

Martin Sorrell, CEO/Founder, S4 Capital: Yeah, I’ll just add to that that we’re very conscious of the fact we’re still operating in excess of industry averages for staff costs. Net revenue figures, the standard seems to be 65% with fully loaded bonuses, both short and long term. Those bonuses accounting for about 3% of net revenue. So 62% clean of bonuses, 65% with bonuses is where we think we should be. And our operating management accept that. The question in our minds is how long it will take us to get to that 65%. We expect an improvement next year. We’re in the planning phase for next year, both our three-year plans for 2026 to 2028 and our budget for 2026. That is going to be a significant part of what we look at next year, in addition, of course, to focusing on the top line. Does that cover it?

Conference Operator: Thank you very much.

Martin Sorrell, CEO/Founder, S4 Capital: Yep. Okay.

Conference Operator: Yep.

Martin Sorrell, CEO/Founder, S4 Capital: Thank you.

Conference Operator: Thank you. Thank you. We’re now taking our next questions from Julian from Barclays. Your line is open. Please go ahead.

Yes, good morning, everybody. I had three questions on our four. The first one is, upper single digit for 2024, which is, I suppose, minus 8% to minus 9%. That would indicate minus 7% to minus 11% in Q4, i.e., worse than Q3 4.4%. I know comps are 9 percentage points tougher versus 2024, but they are actually easier versus 2022 and the years before. Why is Q4 slower than Q3? That’s my first question. The second one is, you’re trying to convey a lot of positivity on clients and products, but organic is still poor. Taking into account wins, new products, and same macro, do you think you will post positive organic next year? Third question for Radhika, you gave financial pointers for everything but depreciation, interest, and tax rates. If you could get some pointers on those three things.

The last one is for Martin and your remark saying that create costs are 15%-20% of media budget, we’re going to 10%. First of all, I find that very high because if an advertiser spends $500 million on media, are they really going to spend $50 million-$100 million on creative? The question is, with the conversation you have, are clients really investing that savings into media, or are they also saying, "We’re going to take some on board to have higher margin," i.e., not 100% is reinvested? Thank you.

Martin Sorrell, CEO/Founder, S4 Capital: Sure. The third question I did not quite catch. Do you want to repeat the third one just for the one you said was for Radhika?

Yes. You’ve given us numbers on everything except three numbers: depreciation, interest, and tax rates.

On the first, on Q4, do you want to say a little bit about Q4, Radhika?

Radhika, CFO, S4 Capital: Q4 is down year on year, but last year it was reversed. I think overall we will be expecting it down year on year because of the client cautiousness and the slower build-up of the new business. I think last year we had a skewed Q4. From the EBITDA guidance, we’re still tracking online.

Martin Sorrell, CEO/Founder, S4 Capital: I mean, organic growth for 2026, we’ll see, Julian. We’re in the midst of, as I said before, of doing our budgets. Given our forecasting abilities. What I would say is we’ll take a cautious approach to next year. And we’ll also be looking, as I said before, very carefully at the staff cost to revenue ratio. The implied margin for this year is around 12% for the full year. Obviously, we want to improve on that. We still believe that 20% is where we need to get to, but we’ll be looking for a significant improvement in margin next year, which again, operational management is on board for and is looking at it very carefully. I’d rather go into the budgets for next year and indeed the guidance next year cautious, and hopefully we can outperform that. That’s on the basis of a historic experience.

Do you want to go through?

Radhika, CFO, S4 Capital: The adjusting items?

Martin Sorrell, CEO/Founder, S4 Capital: The additional items?

Radhika, CFO, S4 Capital: Yes. The adjusting items in total, we are giving a range of GBP 75 million-GBP 88 million on amortization, GBP 45 million-GBP 50 million. Acquisition, restructuring, and other expenses, Julian, GBP 25 million-GBP 30 million, and then share-based payments, GBP 5 million-GBP 8 million. That gives you, it is pretty consistent to what we said at half year.

No, I know that those are the guidance you’ve given in the presentation. What I was asking is the numbers you have then given, which are depreciation, interest, and tax rate.

The actual breakdown.

Martin Sorrell, CEO/Founder, S4 Capital: Depreciation, interest, and tax rate.

Radhika, CFO, S4 Capital: Oh, so the effective tax rate is 32.5%.

Martin Sorrell, CEO/Founder, S4 Capital: And depreciation?

Radhika, CFO, S4 Capital: Depreciation.

Martin Sorrell, CEO/Founder, S4 Capital: Let me just come to your final question, Radhika. Dig out depreciation. On the create costs, I did not say, Julian, everybody was doing it, but there are significant cases, including our own client portfolio, where 15% at least is the case. I can think of one client without name that spends $2 billion and $300 million on create costs, including the cost of an in-house agency. The other interesting thing is that AI, one of the after-effects of AI is it is forcing our clients to look much more carefully at cost. Often, create costs are buried inside operating P&Ls and are not obvious. I would say we have been surprised at the extent to which create costs are above what I would normally regard as being 10%. I mean, going back in time, agencies were paid 15% a long time ago.

10% was allocated to creative and 5% to media. As procurement and efficiency squeezed that. Agency fees probably were around 10%. I can remember allocations of 7.5% to creative and 2.5% to media, with media discounts making up the balance, volume discounts, some of which went back to clients and some of which did not. We run an open book with the exception of Brazil, and we think that is the way the market is going to go, with greater transparency. You will have greater transparency around create costs and for greater focus. Whether I like it, you like it, or not, I think the figure that is in people’s minds is 10%. The most efficient clients are sort of focusing on that. As I said before, the vertical that is driving that inside organization is CFOs in terms of where they are spending the saving.

If you look at the presentation that Norm de Greve did at the ANA, I think it was last week. If you haven’t got it, we can send it to you. He goes through there what he did or has been doing at General Motors. In order to make it more efficient, the model more efficient. And as you may remember, he has sort of upper-funnel, strategic creative agencies, four of them for each brand, each of his four brands. And we’re the foundational agency that drives the creation, production, and distribution of that material. I think that’s not the only model that clients will pursue. There are the end-to-end, all-embracing models too, like we’ve seen at Coca-Cola, etc. That is broadly, I think, where part of the market is going. Do you want to talk about depreciation?

Radhika, CFO, S4 Capital: Yeah. Depreciation year to date is about $6 million. We expect it to be about $7 million. I’m just confirming. I’ll come back to you on the interest cost for the full year.

Martin Sorrell, CEO/Founder, S4 Capital: Anything else?

Very much.

Okay.

No, Radhika, thank you.

Scott, Executive, S4 Capital: Thank you. As a reminder, if you would like to ask a question, please press star one now. We are now taking our next questions from Steve from Oppenheimer. Your line is open. Please go ahead.

Yeah. Morning, everybody. Can I just ask. Julian’s question, maybe some of his questions in a different way? One is for next year. If you added up your new business wins that you’ve announced and you’ve got sight on, if you kind of did a pro forma gross revenue, and then maybe you could do a net revenue of losses. As a percentage of net revenue, can you just give us a feel of the kind of pro forma percentages as we go into 2026 that the new business will give you on a gross basis and maybe on a net basis too?

Martin Sorrell, CEO/Founder, S4 Capital: That’s a disguised question to get us to give you the guidance for 2026. I’m sorry, we’re not going to do it. Other than.

Scott, Executive, S4 Capital: I mean, to be fair, you’re giving us lots of new revenue, lots of new business wins. And it’s a fair question, isn’t it?

Martin Sorrell, CEO/Founder, S4 Capital: It’s a fair question. All your questions are fair. Whether we answer them is another question. Look, we haven’t gone through. We’re in the midst of going through it. I would just, sort of for the second time, say what I said before. When we look at next year, given our record on forecasting, particularly the top line, the bottom line is a little bit stronger, liquidity is a bit stronger. We’re going to take a cautious view to 2026, whatever that number is. You’re right to point out that we’ve had some significant increases in key relationships. We’ve still got a lot of work to do. As I say, we’ll take a cautious view. On the general economic environment next year, I don’t expect it to change very much. It will continue to be volatile. Tariffs have still not, the Chinese tariffs have been.

Postponed, kicked the can down the road for another 12 months. We will have to see how that pans out. Relations do seem to be improving, at least in the short term, between the U.S. and China. That will help. Middle East, we have seen, thankfully, some progress, and we hope it continues. Russia-Ukraine continues to be a problem. As I said before, the tariffs on top of that. The interesting thing about the tariffs is that so far, we have not seen any margin compression, despite the fact it seems to be the case. Companies are not necessarily passing on the cost of tariffs to the consumer. Now, it may be still too early, and tariffs were signaled by Trump 2.0 upfront. It may be that people took precautionary measures on shipping and inventory prior to April 2, 2024.

The forecast for margins next year for the S&P 500, the ones that I’ve seen, indicate margins continuing at current levels, which are record levels. If anything, sort of moving up a bit, which seems to be. It loops back to what we said about agentic and AI improvement. Clients are going to be looking for significant efficiency.

Scott, Executive, S4 Capital: Okay. Thanks. Can I steal one of Julian’s other questions, actually, which I kind of don’t think you answered, which was on these AI project savings that we’re talking about. With what you see and the evidence today, and I know it’s early days. When the CFO gets involved, is the company net spending more or less on marketing in total?

Martin Sorrell, CEO/Founder, S4 Capital: I think.

Scott, Executive, S4 Capital: I.e., is it redistributing their money to other?

Martin Sorrell, CEO/Founder, S4 Capital: I think they’re investing the savings in media. The two verticals where we’ve seen the greatest AI adoption so far have been autos. Why? Because of Chinese EVs and AVs. The other vertical is financial services. Why? Because there are fintech platforms that are extremely agile. The CMOs of those verticals, or in those verticals, know that the CEO at some point in time is going to come and say, "We have to lower our prices or lower our costs in order to combat the AV or the EV, or to combat the fintech platform." In that environment, they’re currently taking those savings, in our experience, and redeploying them into media. Not a reduction in spending. There is some data out there that says clients have reduced their marketing budgets as a percentage of revenue over the last year.

I think it’s some Gartner data to that effect. That’s been used as an explanation for the compression on the holding companies’ net revenue growth. I mean, of the holding companies, there’s only two out of five that have shown any growth. The other three, or four, sorry, the other four of the big six, so-called big six, the other four have not. I think what we see is those savings that we’ve been talking about in the case of AI are being redeployed into media. The CFO hasn’t snaffled the money to improve margins or hold margins as yet. As yet. I would stress also, it’s still quite early days, Steve. There are very few clients that have fully changed their model to a pure AI-driven model.

What you see in the very early days is that they continue doing their marketing in the same way they always have. In addition, they do some proof of concepts with AI. It is actually additional. I think, as I said, it is early days. We see a couple of clients that are really moving in this direction. The two FMCGs that we mentioned, the project or the assignments we have won with them is to fully AI-enable their marketing supply chain. I think this is something we will see over the next couple of years. Certainly, my view, and I think Wes has expressed it pretty bluntly as well, is that over time, you will see variation in how clients do this. Some will reinvest in marketing and spend the same and get more for it.

I’m sure there will be CFOs out there that take some back as well. We are trying—we haven’t touched on this yet in this call. We’ve done it before. We are trying to move the model from a time-based model to an asset use model because we think that’s the best way. That’s not easy to do. Sometimes you find the marketing function’s willing to do it, and the procurement function. It’s like Linus’s safety blanket. They go back to the original way they did things and want to keep it that way. We think over time, it’s sort of inevitable that the model will move more to an asset use model. The other thing I would say is inevitably there’s going to be more transparency on the media planning and buying, which will be an advantage for us because we’re not involved in enterprise, really, in.

Big enterprise. Media. That is going to come under increasing examination for transparency, not just because of AI, but because of blockchain as well.

Scott, Executive, S4 Capital: Great. Thank you. Can I just—one last quick one. I hear what you’re saying on the dividend or potentially increasing the dividend. I just wonder, what’s your take in terms of. Should you be doing share buybacks rather than dividends, given where the share price is?

Martin Sorrell, CEO/Founder, S4 Capital: Our argument both ways. Some people believe that’s the best way. Some people say it just gets absorbed and doesn’t have any long-term effect. We have significant management ownership still in the company. It hasn’t been an easy couple of years. I think we will focus—that doesn’t mean we’re not going to focus on buybacks too. We did a little buyback a year or so ago, similar size to the dividend. We think we will get greater traction from an increase in the dividend from the 1p last year than the buyback at this stage. We’ll look at it. It depends on our liquidity. If we can get the net debt under GBP 100 million, which we should do next year with a fair wind, obviously, that’ll give us more flexibility.

Scott, Executive, S4 Capital: Great. Thank you. Thank you. It appears there are no further questions at this time. I’d like to turn the conference back to Sir Martin Sorrell for any additional or closing remarks. Please go ahead.

Martin Sorrell, CEO/Founder, S4 Capital: Thanks very much, everybody. Thanks for joining us. We’ll come back again next year when we’ve completed Q4 and focused on that dividend we were just talking about. Okay. Thank you very much.

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