S4 Capital Chief Sorrell on Its 'Unacceptable' Audit Delay and Ukraine War's Economic Impact

"We are starting again” admitted S4 Capital chair Sir Martin Sorrell, who has described the month long delay of its full year 2021 financial results, which saw its share price fall by over a third in March when announced by PwC, as “embarrassing” and “unacceptable." The agency network, which owns creative businesses including Media.Monks, revealed a 44% growth in gross net profit of $692 million (560.3 million pounds) for the year, with a 52% increase in revenue of $848 million (686.6 million pounds). Upon releasing the delayed results on May 6, the share price also rose by over 15%. The first quarter results for 2022 are set to be released by the end of the month. Speaking on an analyst call, Sorrell spoke about the delay and the need to rebuild confidence as a consequence. It would be naïve to say there hasn’t been any impact and we have to settle that down as we move forward.Sir Martin Sorrell, chair of S4 Capital “We now have to rebuild confidence and trust in what we’ve done," he told investors. "In a way we’re starting again. Not from where we were at the beginning, which was zero, but we’re starting again to build that trust and confidence having gone through was is an ‘unacceptable event.’" He added that the external effect on clients was “impossible to say with certainty” and that “it would be naïve to say there hasn’t been any impact and we have to settle that down as we move forward.” Sorrell also acknowledged that there had been an impact for shareholders on their net worth in terms of the company's market valuation. Reasons behind the delay and the remedies Outlining the issues that led to the delay, Mary Basterfield, Group CFO, S4Capital, who joined the business last November, claimed that the audit had been “a challenge.” The early process was delayed due to resources and Covid-19 restrictions in the Netherlands, where Media.Monks is headquartered and where the issues were focused. “These included control weaknesses, inadequate documentation and a lack of application in the accounting standards, particularly IFRS15, relating to revenue and to cost of sales recognition, issues which were isolated to the legacy MediaMonks business,” explained Basterfield who also cited the speed of growth of the business. She continued to outline work going into preventing a repeat of the situation. This included new hires in February across the company and its content teams, a new group financial controller, a new chief financial officer for the content practice and a new global finance transformation lead, group treasurer and global compliance lead. “With this senior management in place, we will be making further hires to strengthen their teams in due course,” she added, later denying that the delay was down to any irregularity from any of the company’s 11 merger deals that were completed in 2021, including Racoon and Jam3. Basterfield also revealed that a full de-brief with PwC has also been requested during May. The potential economic impact from war in Ukraine Sorrell also addressed the potential long term economic impact of the war in Ukraine, should it prove to be prolonged, or a “bad peace” deal agreed between the country and Russia. He explained that it was likely that Eastern European “tensions” would continue. The importance of strong tech companies and a strong tech infrastructure or ecosystem ... becomes really important.Sir Martin Sorrell, chairman of S4 Capital “What we are seeing is significant changes in regional patterns," he said. "You would see risk-off in central eastern Europe. You would see risk-on in Asia, maybe, with some variation in terms of the attitude with China over the question mark over its approach to Taiwan. But you would certainly see risk-on in India, Indonesia, Malaysia, Vietnam and other countries. You’d probably see risk-on in the Middle East because of the transfer of energy and oil prices—and maybe in some part of Africa— … and heavy risk-on in terms of North and South America. I think North America will continue to grow significantly.” S4 Capital Increases Revenue Forecast for 2021 as Advertising Demand Grows He also claimed that technology companies would become “more important” due to the war, highlighting that defence budgets meant an investment in technology as well as weaponry—with cyber being one element. “The importance of strong tech companies and a strong tech infrastructure or ecosystem both in the west and the east becomes really important. So I think we’re going to see some changes in the demand for labor, depending on where you are talking about.” In April, the company revealed that it had won its seventh ‘Whopper’ client (a term given to a client valued at over $20 million), with Estee Lauder naming the company’s Decoded business as its digital media agency.