Campaign India Team
Mar 01, 2019

WPP warns revenue slump will worsen in 2019 with fall of up to 2%

Shares rise since forecast is not as bad as investors feared.

WPP warns revenue slump will worsen in 2019 with fall of up to 2%
WPP has warned its revenue slump is going to get worse in 2019, with net sales forecast to be down between 1.5 per cent and 2 per cent.
 
The British advertising group is facing its third consecutive year of revenue decline in 2019 as it reported annual results today that showed net sales – which WPP calls like-for-like revenues less pass-through costs – ended 2018 down 0.4 per cent.
 
Net sales previously dropped 0.9 percent in 2017 – the last full year when Sir Martin Sorrell was chief executive.
 
Mark Read, who officially took over as chief executive in September 2018 after Sorrell's exit in April, admitted: "2019 will be challenging – particularly in the first half – due to headwinds from client losses in 2018."
 
Those losses included Ford’s creative and GlaxoSmithKline’s media accounts.
 
"However, we start the year with fewer clients under review than we did in 2018, and investments in creativity and technology will further improve the competitiveness of our offer," he insisted.
 
Read faces challenges on multiple fronts as he reported that pre-tax profits fell 30 percent to £1.5bn and operating margin fell 1.1 per cent in 2018.
 
Most rival ad groups only report a single revenue number, including pass-through costs. On that basis, WPP's revenues rose 0.8 per cent, although the company prefers to focus on net sales.
 
Fourth-quarter net sales fell 0.7 per cent – an improvement on the 1.5 per cent fall in the third quarter but worse than the first two quarters of 2018.
 
However, the decline in North America, the weakest region, worsened in the final quarter of 2018 and ended the year down 4.2 per cent.
 
The UK also saw a fall in the run-up to Christmas amid economic uncertainty over Brexit, with annual net sales falling 0.5 per cent.
 
Western Europe was up 2 per cent and the rest of the world, including Asia and Latin America, was up 2.5 per cent.
 
WPP shares rose in early trading, climbing about 6% towards £9, on relief that the results and forecast were not worse.
 
Steve Liechti, analyst at Numis Securities, said a net sales decline of up to 2% in 2019 was "expected". 
 
Read had braced shareholders to expect a "headwind" when he held an investor day in December and outlined his strategy for "radical evolution" – a mixture of investment in creativity, experiences, commerce and technology, as well as cost-cutting and assets sales.
 
He said in today’s results statement: "We are at the beginning of a three-year turnaround plan, but WPP’s new positioning as a creative transformation company with stronger, more integrated, more tech-enabled agencies is already proving effective, having driven several of our recent new-business successes."
 
Read said WPP had made "good progress" since September, pointing to a focus on making the group more "client-centric", internal mergers to create VMLY&R and Wunderman Thompson, and the planned sale of a stake in data arm Kantar.
 
The weak performance of WPP’s creative agencies led to those mergers and Read said they "remain under pressure".
 
But he said some of its creative work has been "exceptional" and pointed out that six WPP ad spots featured at the US Super Bowl in February.
 
WPP’s shares have had a brutal time since its annual results two years ago, when it first warned of a slowdown, and dropped from £19 in March 2017 to £11 in April 2018 at the time of Sorrell’s departure.
 
The stock sank as low as £8 in February after Publicis Groupe warned of a slowdown at the start of 2019.
 
Read promised in December to hold the annual dividend at 60p.
 
(This article first appeared in Campaign UK.)
Source:
Campaign India

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