New WPP boss Mark Read announces strategy review as North American revenues drag
WPP revenues fell in the first half after a poor performance in North America as newly appointed chief executive Mark Read today announced a strategy review.
Shares in the advertising giant fell by six per cent at the time of writing.
Reported revenues fell by 2.1 per cent in the first half compared to the same period last year to £7.5bn, as currency headwinds provided a five per cent drag. However, on a constant currency basis revenues rose by 2.9 per cent, with like-for-like revenues up by 1.6 per cent.
Revenues in North America, the largest region for WPP, fell by 7.8 per cent to £2.6bn, with like-for-like sales down by 0.7 per cent. Meanwhile revenues outside of North America and Western Europe fell by 2.9 per cent to £2.2bn. The UK and Western Europe were brighter, with revenue rises of 4.2 per cent and 5.5 per cent respectively.
Reported profit before tax rose by 8.6 per cent to £846m.
Why it's interesting
WPP has endured the worst year of its history, with slowing sales and the departure of its totemic leader, Sir Martin Sorrell. Sorrell left amid misconduct allegations, which he denies, after growing the firm from a small manufacturer of wire and plastic products like shopping baskets into a global advertising giant through a steady stream of bold acquisitions.
New boss Mark Read yesterday told City A.M. he will focus on boosting organic growth rather than pursuing expansion through new purchases.
Investors today focused on the firm's worsening margins. Read acknowledged the "slight decline" in margins, but blamed the fall on a change in the geographical make-up of earnings and said the firm had shown cost discipline.
"We've kept our staff costs in line with revenues," he said. "We've done a good job of controlling costs."
The underperforming North American division is likely to be a main focus for the firm's strategy review, with an update due before the end of the year. It will include the company's plan to boost growth and work out restructuring costs. A sale of WPP's market research division is understood to be planned.
Read has also highlighted the need to reduce the duplication of work and costs among WPP's various companies as it tries to contend with a squeeze from integrated consultants such as Deloitte and Accenture at one end and the disruptive influence of digital giants such as Facebook and Google at the other.
He added that the outlook on the UK, one of WPP's better performing regions, was "cautious" ahead of the departure from the EU, although there has not yet been any sign of firms reining back their advertising spending.
"Any uncertainty is not helpful", he said, with this year "a bit tougher than last year".
What WPP said
Chief executive Read said: "The second quarter of 2018 was WPP's first quarter of like-for-like growth since the first quarter of 2017, and the company has performed strongly in terms of winning and retaining business over the period."
He highlighted recent client wins, divestments and the opening of co-locations to simplify the conglomerate's sprawling basket of often competing brands.
"As chief executive, my focus will be on invigorating our company and returning the business to stronger, sustainable growth.
"Our review of strategy is underway, addressing our structure, our underperforming operations, particularly in the United States, and how we position the company for the future. We will provide an update by the year end."