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Rising costs hammer former WPP boss Sorrell’s S4 Capital

The share price isn’t the only measure of a company’s health – M&C Saatchi suitor Next15’s have tanked this year, without any obvious evidence of trouble at mill – but it matters a lot to Sir Martin Sorrell’s invention S4 Capital.

S4 shares fell sharply again this morning when it announced it was lopping £30m or so off this year’s expected profit because of an unexpected rise in “hiring and staff costs” at its content practice, MediaMonks, which is now the operating name for the whole company. It also includes media and data businesses.

This follows a double postponing of its last results and the admission that it needed to strengthen its financial controls. All of which is guaranteed to make shareholders run for cover. S4 is now valued at £700m (still pretty substantial for a relative newbie admittedly) compared to a high of over £2bn.

It still expects EBITDA (profit before a number of so-called “growth” costs) to hit £120m but profit warnings have a habit of following each other.

It matters especially to S4 because a booming share price is crucial to the whole construct: it’s the reason why Sorrell was able able to round up substantial investors in the first place (at 77 time is a little short) and MediaMonks’ many acquisitions have been funded by shares as well as cash. Those indies who joined S4/MediaMonks won’t be expecting such big pay days. They also face a cost-cutting regime as Sorrell tries to steady the ship.

S4 grew like topsy as it added new companies, people and accounts. It now employs about 7,000 people around the world.

At some stage any such company it going to have to prove itself by producing outstanding work for its newly-acquired clients. One such is BMW.

At the moment there’s little evidence of that. It’s too early to write off Sorrell and S4. But six years after he left WPP, the giant marcoms company he founded (in controversial circumstances) he’s now facing another stiff fight in the very public domain of public companies.

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