S&P Global Ratings Downgrades S4 Capital PLC Due to Weak Recovery
S&P Downgrades S4 Capital to ‘B’ Amid Slower-than-Expected Recovery
S&P Global Ratings has revised S4 Capital’s long-term credit rating from ‘B+’ to ‘B’, citing continued underperformance and weaker financial forecasts.
Credit Downgrade Reflects Lagging Recovery and Weaker Earnings Outlook
S&P Global Ratings has downgraded the long-term issuer credit rating of digital advertising and marketing services company S4 Capital PLC from ‘B+’ to ‘B’. The downgrade reflects the company’s slower-than-expected recovery and a weaker revenue and earnings outlook for 2025 and 2026.
S4 Capital’s senior secured debt rating was also lowered to ‘B’. However, the issue rating recovery estimate remains unchanged at ‘3’, suggesting a recovery rate of approximately 60% in a default scenario.
Lower Growth and Persistent Leverage Pressure Outlook
S&P projects that S4 Capital’s leverage ratio—measured as adjusted debt to EBITDA—will remain elevated at or above 4.0x through 2025 and 2026. The firm expects a low single-digit decline in organic revenue in 2025, mainly due to macroeconomic headwinds impacting client advertising budgets, with delays or cuts in spending likely.
Heavy Reliance on Tech Clients and U.S. Market
With roughly 78% of its revenue generated in North America, S4 Capital continues to face pressure from its technology-focused clients, who have significantly reduced advertising budgets over the past two years. Recovery in tech sector spending is anticipated to be slow. Despite new contract wins, meaningful revenue and earnings contributions from these are expected only in the second half of 2025.
Limited Scale and Diversification Compared to Peers
S4 Capital remains smaller and less diversified than major advertising holding companies. This makes it more vulnerable to economic slowdowns and results in higher volatility in operating and credit metrics. The company’s adjusted debt/EBITDA is expected to stay within the 4.0x–5.0x range over the next two years.
Tech clients—who represent around 45% of S4 Capital’s revenue—have tightened budgets since 2022. In addition, the company faced client losses in 2024. While new contracts may help offset these setbacks, the gains are expected to materialize gradually starting in late 2025.
Positive Free Cash Flow and Cost Management Offer Some Support
Despite ongoing challenges, S4 Capital is expected to generate positive free operating cash flow (FOCF) and maintain a degree of cost flexibility. The company implemented cost-cutting measures in 2024, including reducing its workforce from 7,700 in 2023 to approximately 7,150 by year-end. In 2025, S4 is projected to continue exercising tight cost controls and align expenses with its revenue trends.
Stable Outlook Based on Long-Term Recovery Hopes
S&P’s stable outlook on S4 Capital assumes a return to organic revenue growth by 2026, supported by prudent cost management. However, a further downgrade could occur if top-line revenue continues to fall or contract losses raise uncertainty about long-term growth. Conversely, the rating could improve if the company achieves robust organic revenue and EBITDA growth, supported by increased client spending and successful new business wins.
