Sir Martin Sorrell's new age holding company S4 Capital has reported a 15.6 per cent decline to net revenues to £376.1 million (AUD$731.9m) in the first half of 2024, as clients pull back spend amid challenging macroeconomic conditions and high interest rates.

Operational EBITDA was £30.1m, down 17.5 per cent on a reported basis and 8.2 per cent like-for-like, primarily due to operational challenges in specific sectors like Technology Services. Adjusted operating profits were £24.8m, down 19.0 per cent year-on-year, while the company's net debt increased to £182.9 million, up from £109.4 million in the prior year.

S4 Capital cited continued global macroeconomic uncertainty, high interest rates, and client caution, particularly from large technology clients, as contributing factors to the dip in performance. Despite this, digital media spending is forecasted to grow by 15 per cent in 2024, reaching $497 billion, even as the company expects a decrease in net revenue compared to prior years.

The technology sector remains the largest client category for S4 Capital, accounting for 44 per cent of total revenue, with FMCG at 10 per cent and financial services at 7 per cent. However, the average revenue per client has seen a slight decrease among larger clients, indicating a shift in client revenue distribution.

In response to these challenges, S4 Capital said it's focusing on disciplined cost management, leading to a reduction in operational expenses by 14.4 per cent. It's seen head count at flagship digital agency Monks reduced by approximately 12 per cent compared to the same period in 2023. Relatedly, the company's total operating expenses were down 16 per cent on the previous year.

It follows the continued structural overhaul of the Monks brand - formerly Media Monks - which has streamlined its operations into two main practices: Marketing Services and Technology Services., creating a unitary structure that responds to changing client budgets and new ways of working using AI.

"As highlighted previously, trading in the first half reflects the continuing impact of both challenging global macroeconomic conditions and high interest rates. This particularly impacted marketing spend by some technology clients and our Technology Services practice was affected by a reduction in one of our larger relationships," said Sorrell.

"There has been improvement in Content Practice first half margins, reflecting the actions taken on the cost base both last year and this year. We continue to develop our larger, scaled relationships with leading enterprise clients and are maintaining our focus on margin improvement through greater efficiency, utilisation, billability and pricing.

"We maintain our profit target for the full year and, as in prior years, financial performance will be significantly second half weighted. We remain confident in our strategy, business model and talent, which together with scaled client relationships position us well for growth in the longer term, with an emphasis on deploying free cash flow to improve shareowner returns, now all significant combination payments have been made.

"In addition to a very significant new account, we continue to capitalise on our prominent AI positioning and we continue to see multiple initial AI related assignments as clients start to use our MonksFlow tools and our experience to implement applications."