WPP exceed forecasts, the company’s shares back to normal
WPP was the top riser on the FTSE 100 on Friday as it beat City forecasts, sparking investor hopes that a three-year plan to rejuvenate the beleaguered advertising giant is starting to pay off.
The company, which has been struggling to recover from a string of client losses after the sudden departure of Sir Martin Sorrell last year, limited its revenue decline to 1.4% in the second quarter. This was less than half the fall expected by City, and the rare bit of good news for investors sent WPP’s shares up more than 7%, outperforming the wider FTSE, which was down 0.3%.
WPP’s pre-tax profits slumped 44% to £478m in the first six months, mainly the result of an exceptional gain in the first half of last year and a one-off charge this year, but analysts focused on revenue performance as the key indicator of whether the business is able to recover from its malaise. WPP’s share price hit a six-year low in February.
The firm’s chief executive, Mark Read, who took over officially in September after running the business jointly since Sorrell’s departure last April, said the company had a long way to go, having failed to report a positive quarter of revenue growth since the start of 2016.
“We set out a three-year plan, we are eight months in. We have made good progress,” he said. “I am sure there will be twists and turns on the way. The initial signs are positive, and of course we have more work to do.”
Read pointed to wins from brands including Instagram, eBay, Vodafone and L’Oreal as signs that its new business machine is getting back to competing on an equal footing with its peers.
“We always said this year would be challenging with the client losses that started at the beginning of last year,” he said. “While they persist we have had steady success in new business and done very well retaining business from existing clients.”
WPP reported improvement in North America, its biggest market accounting for 35% of its £6.1bn global revenues, where its performance has been dire. Revenues fell 5.3% in the second quarter, compared with 8.5% in the first three months of the year.
Read said he still expected WPP to continue to contract this year, reiterating guidance of a 1.5% to 2% fall in net sales.
The company sold 60% of the market research group Kantar to the US private equity group Bain Capital for £2.5bn last month. It plans to use the proceeds to pay down £1.5bn of debt and return £1bn to shareholders. Net debt stands at £4.2bn.