WPP shares crash as fourth quarter revenue stalls
Shares in WPP crashed 15 per cent in early trading after the advertising giant failed to deliver growth in the fourth quarter.
The figures
Like-for-like revenue less pass through costs fell 1.6 per cent to £10.8bn for the full year.
Profit before tax dropped 21.9 per cent to £982m.
Net debt was slimmed down from £4bn to 1.5bn.
Dividends per share was unchanged at 60p.
Why it’s interesting
The figures mark the first set of full-year results since new chief executive Mark Read set out a three-year transformation plan following the acrimonious departure of founder Sir Martin Sorrell.
The ad giant surprised the market in the third quarter when it delivered a return to growth following a challenging few years.
However, it was unable to maintain its momentum in the final three months of the year, as a downturn in its major markets meant like-for-like revenue was flat.
For the full year, revenue slipped 1.6 per cent, excluding Kantar. WPP sold its majority stake in the market research firm to Kantar in a $4bn (£3.2bn) deal.
Pre-tax profit plunged almost 22 per cent on the year, which the company said was driven largely by a one-off gain in the first half of 2018 that had not been repeated and a £238m charge on the revaluation of financial instruments.
Shares in WPP crashed as much as 15.6 per cent, their biggest daily fall since March 1992.
Boss Mark Read acknowledged that the business was “volatile”, and that the final three months of the year had been tougher that the previous quarter.
However, he hailed a “successful” first year of the transformation plan, saying the results had come in ahead of guidance.
“From the perspective of delivering on our plan to return WPP to growth we had a good first year, notwithstanding pressures in the industry,” Read told City PM
Read’s principal strategy has been slimming down WPP’s “unwieldy” corporate structure. In addition to the Kantar sale, the firm has offloaded a string of non-core businesses.
It has also merged several of its internal agencies to create VMLY&R and Wunderman Thompson.
The move has had a positive impact on WPP’s debt pile, which was slashed from £4bn to £1.5bn over the year.
The FTSE 100 boss said the key structural changes in the business are complete, but said there could be some “tidying up around the edges”.
The company has also entered discussions about potential takeovers as it looks to double down on marketing technology — the fastest growing part of its business.
WPP said its renewed focus on technology had resonated with clients, citing business wins from Instagram, Mondelez, Axa, Ebay and Hasbro.
“The opportunity for WPP is significant, particularly given that marketing budgets have increased for the first times since January 2019, according to the latest IPA Bellwether Report,” said Chris Daly, chief executive of the Chartered Institute of Marketing.
“However, to take advantage of this, the agency must do better to convince investors of its ability to keep pace with dynamic shifts in the industry.”
But Russ Mould, investment director at AJ Mould, slammed a “rubbish” fourth quarter for the advertising behemoth, adding that Read was “off to a ropey start”.
“Read will hope he’s afforded more time to turn things around with his plan likely to involve more simplification of a fragmented business, investment in technology and innovation, further cost savings, reductions in debt and potentially selling off more non-core assets in the wake of the sale of a majority stake in the Kantar market research business,” he said.
“The fear will be that this is insufficient to keep up with changes in a dynamic market which is increasingly digital. More businesses are bringing online marketing expertise in-house and consultancy firms are also muscling in on the traditional advertising agencies’ turf.”
The holding group is still facing a tough challenge in North America, where it has not delivered growth since early 2016.
A string of major client losses including AT&T and Volkswagen, as well as the loss of major assignments from Ford, have taken their toll on the business.
Read said the company’s overhaul of leadership in North America had helped, but said “it does take time in our business for the losses to cycle through”.
WPP forecast flat like-for-like revenue and operating margin in the coming year, excluding any potential impact from the coronavirus outbreak.
What WPP said
Chief executive Mark Read said: “2019 was the foundational year for the new WPP strategy, and thanks to the hard work of all our colleagues we have made substantial progress in a short period of time.
“We said that we would make progress in the journey to return WPP to growth, simplifying our business and reducing our debt, and we have delivered against each of these goals – having met our guidance for 2019, achieved our restructuring targets and completed the sale of a majority stake in Kantar. The second half of 2019 was stronger than the first, with performance improving globally and in the United States, our largest market.
“I am optimistic about the future of our industry and WPP’s position within it, although there is still much more work to do. The marketing landscape has never been more dynamic and complex: clients need our help and expertise more than ever. With our market-leading scale and global footprint, allied to the creativity of our agencies and our technology leadership, we are confident of further progress against our 2021 targets.”