Advertising giant WPP has outperformed market expectations in the first half of the year, as its turnaround strategy helped boost business with key clients like Ebay and L’Oreal.
Profit before tax sank 44.1 per cent year on year to £478m, chiefly due to a one-off £117m boon in the first half of 2018 coupled with a £138m one-off tax charge.
Revenue grew 1.6 per cent to £7.6bn, though like-for-like revenue slipped 0.6 per cent. The amount WPP billed its clients fell 0.5 per cent to £26.5bn.
WPP slashed £709m off net debt in coonstant currency as it sold off divisions like Kantar in a bid to simplify, leaving its debt pile at £4.4bn.
Diluted earnings per share dropped 53.6 per cent to 24.8p but the media behemoth matched last year’s interim dividend of 22.7p.
Why it’s interesting
WPP’s share price rose 6.8 per cent to 976.8p after the results came out.
While that is still far off its early 2017 peak of 1,890p investors welcomed signs that CEO Mark Read’s turnaround strategy appears to be progressing well.
Read has overseen a drive to simplify the advertising giant by divesting many of his predecessor Sir Martin Sorrell’s acquisitions.
That includes the sale of WPP’s 60 per cent stake in analytics division Kantar, which it sold to Bain Capital for $4bn (£3.2bn).
“There is clearly progress being made on reducing what had become something of a sprawling empire,” Interactive Investor’s head of markets, Richard Hunter, said.
“These disposals, whilst undoubtedly a distraction, nonetheless allow the focus on growth to be directed to a more manageable company.”
Like-for-like revenue rose 1.3 per cent year on year in the UK for WPP’s second quarter, considerably better than the 0.3 per cent recording in the first quarter.
The US - another key market for the firm - also performed better in the second quarter, trimming like-for-like losses to 5.3 per cent compared to an 8.5 per cent drop in the first quarter.
The company also maintained its full-year expectations that sales will fall by just 1.5 per cent to two per cent.
“Net new billings of nearly $3 billion for the half-year reveal proof that the company can still compete with the best and a number of high-profile clients certainly help to cement the company’s reputation,” Hunter added.
The Share Centre’s investment research analyst, Graham Spooner, questioned whether Read’s caution that US growth may take a while to return could temper shareholders’ enthusiasm.
“The big question is can the group return to consistent revenue growth?” he added. “With so much uncertainty surrounding the company and the sector it operates in, we suggest a medium to higher risk ‘hold’ recommendation for the patient.”
What WPP said
Chief executive Mark Read said:
Clients are responding well to our new offer, as evidenced by recent wins and expanded assignments including from eBay, Instagram and L’Oreal. An encouraging number of our businesses and markets are achieving good growth.
That said, we are still in the early stages of our three-year turnaround plan, and we remain focused on returning the company to sustainable growth over that period. Our guidance for the full year is unchanged.
We continue to simplify WPP, with a more integrated offer for our clients, better, more collaborative working environments for our people, and less complicated management structures.
When the Kantar transaction completes, our disposal programme will have generated proceeds of £3.6bn, allowing us to return significant amounts to shareholders and reduce our leverage to the low end of the target range.
The progress we have made and the positive new business momentum are reasons for optimism. As a creative transformation company with stronger, more tech-enabled agencies, we are well placed for the future as clients look for modern partners to help them navigate an increasingly complex and challenging marketing landscape.
More to follow.
Main image credit: WPP