WPP (NYSE:WPP) today reported its Third Quarter Trading Update
2018.
Mark Read, Chief Executive Officer, WPP, stated:
“Turning around WPP requires decisive action and radical
thinking, and our performance in the third quarter of 2018
reinforces our belief in that approach.
“The slowdown primarily reflects a further weakening of the
performance of our businesses in North America and in our creative
agencies, issues that we highlighted in our interim results.
“As previously stated, our industry is facing structural change,
not structural decline, but in the past we have been too slow to
adapt, become too complicated and have under-invested in core parts
of our business. There is much to do and we have taken a number of
critical actions to address these legacy issues and improve our
performance.
“In April, we started immediately to develop the strategy for
the new WPP that would simplify our organisation, better position
our companies, invest more in creative talent, establish a common
data and technology strategy and make it easier for our clients to
access the many great strengths that reside within our company. At
its heart is a new vision for WPP, supported by a strong culture
that binds us together and makes us the most attractive destination
for the best talent, allowing us to lead our industry in the
future.
“We have already begun implementing this strategy, identifying
the investments and restructuring actions that are needed to
simplify the company and putting teams in place in the key areas of
data and technology. We moved quickly to strengthen our balance
sheet, making 16 disposals to date, primarily of non-core
investments, raising £704 million. As a result of this, and a
renewed focus on working capital, our net debt is down £925 million
compared to the same period last year.
“Since my appointment as CEO in September, we have put more of
these plans into action with the creation of VMLY&R, a new
brand experience agency formed by the merger of VML and Y&R;
further simplification with the integration of our healthcare
agencies with Ogilvy, VMLY&R and Wunderman; and key
appointments in operations, clients and technology as we build an
even stronger executive team at the centre of WPP.
“There is a significant opportunity to develop Kantar into the
world’s leading data, insights and consulting company. We
believe in the potential for Kantar but given our many priorities,
we need to make tough choices and we believe that the best way to
unlock this potential is with a strategic or financial partner. The
Board has approved a formal process to review the strategic options
that will maximise share owner value. It is envisaged that WPP will
remain a share owner with strategic links to ensure that the
benefits to clients are realised. Preparations are underway,
involving Kantar management, and unsolicited expressions of
interest have been received.
“This move, together with the actions that we will continue to
take, should further improve our balance sheet. In future, we will
pay greater attention to capital discipline and focus our
acquisition spending only on the most strategic opportunities that
we can tightly integrate into our organisation.
“In April, independent analysts identified WPP as having the
most business at risk from publicly announced client reviews among
our peer group. The Ford review, which began nearly a year ago,
resulted in the loss of the creative business but the retention of
global activation and the majority of our work around the world.
While we have lost pitches (primarily media) in relation to
American Express, GSK, HSBC, Opel and United Airlines, we have
retained significant business with these clients. We have also won
and successfully defended business with Adidas, BP, Hilton, Mars,
Mondelez, Shell, T-Mobile and GSK’s Panadol. Our successes
highlight our strengths, but we need to make it simpler for clients
to get the best talent and expertise seamlessly from across
WPP.
“After 22 years as Group Finance Director,
Paul Richardson has decided to retire from the company.
He will leave during the course of 2019, and work with us to ensure
a smooth transition as we appoint his successor. Paul has
played a central role in building WPP, and on behalf of the Board
and the company as a whole I would like to thank him for his
contribution to our success over many years.
“WPP has grown into a large and complex organisation, with many
strengths, but also challenges. It will take time to improve
our performance and we are realistic about the short-term issues
that we face. Our top 150 leaders met in Brooklyn two weeks ago to
discuss our plans and came away excited by the future, united by a
new sense of common purpose, and committed to work together to
build a new WPP.
“We will provide a strategy update in December. We look forward
to updating our people, clients and share owners on the new vision
for WPP, the substantial growth opportunities that exist for us,
and how we will capture them through a simplified structure,
investments in technology and talent, and a new culture that draws
the best and brightest to WPP.”
Highlights
- Third quarter reported revenue down
0.8% at £3.758 billion, impacted by currency headwinds of 2.0%.
Constant currency revenue up 1.2%, like-for-like revenue up
0.2%
- Third quarter constant currency revenue
less pass-through costs down 0.9%, like-for-like revenue less
pass-through costs down 1.5%
- Nine months reported revenue down 1.6%
at £11.251 billion
- Nine months constant currency revenue
up 2.3%, like-for-like revenue up 1.1%
- Nine months constant currency revenue
less pass-through costs up 0.7%, like-for-like revenue less
pass-through costs down 0.3%
- Net debt at 30 September down £925
million compared with same period last year, following disposal of
certain non-core assets and an improvement in net working
capital
- Net new business of $4.0 billion in
first nine months
Revenue analysis
£ million
2018 ∆
reported
∆ constant1
∆ LFL2
Acquisitions
20173
First quarter 3,555 -4.0%
2.0% 0.8% 1.2%
3,704
Second quarter 3,938
-0.2% 3.7% 2.4%
1.3% 3,946
First half
7,493 -2.1% 2.9%
1.6% 1.3% 7,650
Third quarter
3,758 -0.8% 1.2%
0.2% 1.0% 3,788
First
nine months 11,251 -1.6% 2.3% 1.1%
1.2% 11,438
Revenue less pass-through costs
£ million
2018 ∆ reported ∆ constant
∆ LFL Acquisitions
20173 First quarter 2,948
-5.1% 1.0% -0.1%
1.1% 3,107
Second quarter
3,201 -2.1% 1.8%
0.7% 1.1% 3,269
First half
6,149 -3.6% 1.4%
0.3% 1.1% 6,376
Third
quarter 3,103 -2.9%
-0.9% -1.5% 0.6%
3,195
First nine months 9,252 -3.3%
0.7% -0.3% 1.0% 9,571
Review of quarter three and first nine months
Revenue
As shown in the tables above, in the third quarter of 2018,
reported revenue was down 0.8% at £3.758 billion. Revenue in
constant currency was up 1.2% compared with last year, the
difference to the reported number reflecting the strengthening of
the pound sterling in the first half, primarily against the US
dollar, and other currencies in the third quarter. On a
like-for-like basis, excluding the impact of acquisitions and
currency fluctuations, revenue was up 0.2%, compared with 1.6% in
the first half. Geographically, like-for-like revenue growth in the
third quarter was stronger in Asia Pacific, Latin America, Africa
& the Middle East and Central & Eastern Europe, with all
other regions, particularly North America and the United Kingdom,
slipping back. South East Asia and Latin America were particularly
strong with Africa & the Middle East more difficult.
Functionally, all sectors, except data investment management,
performed less well compared with the first half.
In the third quarter, there was a slowdown in revenue less
pass-through costs, with -0.9% constant currency growth and -1.5%
like-for-like. All regions, except Asia Pacific, Latin America,
Africa & the Middle East and Central & Eastern Europe
showed a deteriorating trend in the third quarter, with all
sectors, except data investment management, slipping back.
Regional review
Revenue analysis – Third
Quarter
£ million
2018 ∆ reported
∆ constant4
∆ LFL5
% group
2017 %
group N. America 1,331 -1.5%
-1.6% -3.5% 35.5%
1,351 35.7% United Kingdom
517 0.6% 0.6%
-0.9% 13.7% 514 13.6% W.
Cont Europe 763 0.5%
2.3% 1.0% 20.3%
759 20.0%
AP, LA, AME, CEE6
1,147 -1.5% 4.2%
4.4% 30.5% 1,164
30.7%
Total Group 3,758 -0.8%
1.2% 0.2% 100.0% 3,788 100.0%
Revenue analysis – First Nine
Months
£ million
2018 ∆ reported ∆
constant ∆ LFL % group
2017 % group N. America
3,930 -5.8% -0.3% -1.6%
34.9% 4,169 36.5% United
Kingdom 1,608 3.0%
3.0% 1.8% 14.3% 1,561
13.6% W. Cont Europe 2,373
3.9% 3.7% 1.5%
21.1% 2,285 20.0% AP, LA, AME,
CEE 3,340 -2.4%
4.1% 3.9% 29.7% 3,423
29.9%
Total Group 11,251 -1.6%
2.3% 1.1% 100.0% 11,438 100.0%
Revenue less pass-through costs
analysis – Third Quarter
£ million
2018 ∆ reported
∆ constant ∆ LFL % group
2017 % group N. America
1,106 -4.3% -4.5%
-5.3% 35.6% 1,156
36.2% United Kingdom 402
-1.0% -1.0% -2.0%
13.0% 406 12.7% W. Cont Europe
630 -0.4% 1.3%
-0.4% 20.3% 632
19.8% AP, LA, AME, CEE 965
-3.6% 2.0% 2.4%
31.1% 1,001 31.3%
Total
Group 3,103 -2.9% -0.9% -1.5%
100.0% 3,195 100.0%
Revenue less pass-through costs
analysis – First Nine Months
£ million
2018 ∆ reported ∆
constant ∆ LFL % group
2017 % group N. America
3,261 -8.5% -3.1% -3.7%
35.3% 3,563 37.2% United
Kingdom 1,235 1.2%
1.2% 0.3% 13.3% 1,221
12.8% W. Cont Europe 1,949
4.3% 4.1% 1.1%
21.1% 1,869 19.5% AP, LA, AME,
CEE 2,807 -3.8%
2.7% 2.5% 30.3% 2,918
30.5%
Total Group 9,252 -3.3%
0.7% -0.3% 100.0% 9,571 100.0%
North America showed further continued pressure in the
third quarter, with like-for-like revenue less pass-through costs
down 5.3%, compared with -3.3% in the second quarter and -2.9% in
the first half, as parts of the Group’s media investment
management, data investment management, health & wellness,
direct, digital & interactive and specialist communications
businesses slipped back, driven partly by client losses, but
largely by spending reductions among the Group’s larger clients.
These reductions were partly offset by improving performance in the
Group’s public relations and public affairs businesses.
The United Kingdom, with like-for-like revenue less
pass-through costs down 2.0% in the third quarter, compared with
+1.4% in the second quarter and +1.5% for the first half, as most
sectors were impacted by the spending cuts and the impact of net
client losses in the quarter, particularly media investment
management, data investment management and direct, digital and
interactive. The Group’s advertising businesses showed a small
relative improvement compared with the first half.
Western Continental Europe, which showed particularly
strong growth in the second quarter, fell back with revenue less
pass-through costs down 0.4% compared with +3.9% in the second
quarter and -0.2% in the first quarter. Austria, Germany, Norway,
Spain, Sweden and Turkey performed less well, partly offset by an
improving trend compared with the first half in Belgium, Ireland,
Greece and Switzerland.
Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe remained relatively stable with
like-for-like revenue less pass-through costs up 2.4% in the third
quarter, compared with 2.9% growth in the second quarter and 2.6%
for the first half. In Asia Pacific, India showed particularly
strong growth, with China and Singapore continuing to perform well.
Australia & New Zealand were down over 5% in the third quarter,
driven largely by the creative agencies and production businesses.
Latin America and Central & Eastern Europe continued their
strong growth in the third quarter, with the Middle East showing a
relative improvement but Africa slipped back compared with the
first half.
Business sector review
Revenue analysis – Third
Quarter
£ million
2018 ∆ reported
∆ constant7
∆ LFL8
% group
2017 %
group
AMIM9
1,669 -3.9% -1.8%
-0.5% 44.4% 1,737
45.9% Data Inv. Mgt. 634
-2.0% 0.5% 0.1% 16.9%
647 17.1%
PR & PA10
298 0.5% 1.7%
2.6% 7.9% 296
7.8%
BC, HW & SC11
1,157 4.5% 6.3%
0.6% 30.8% 1,108
29.2%
Total Group 3,758 -0.8%
1.2% 0.2% 100.0% 3,788 100.0%
Revenue analysis – First Nine
Months
£ million
2018 ∆ reported ∆
constant ∆ LFL % group
2017 % group AMIM 5,110
-3.7% 0.1% 1.3%
45.5% 5,307 46.4% Data Inv. Mgt.
1,870 -4.6% -1.1%
-1.4% 16.6% 1,960
17.1% PR & PA 879
-1.7% 2.6% 3.3% 7.8%
894 7.8% BC, HW & SC
3,392 3.5% 7.9%
1.8% 30.1% 3,277 28.7%
Total Group 11,251 -1.6% 2.3%
1.1% 100.0% 11,438 100.0%
Revenue less pass-through costs
analysis – Third Quarter
£ million
2018 ∆ reported ∆
constant ∆ LFL % group
2017 % group AMIM 1,297
-8.7% -6.5% -4.0%
41.8% 1,420 44.4% Data Inv. Mgt.
477 -3.5% -0.7%
-1.2% 15.4% 494
15.5% PR & PA 282
0.1% 1.4% 2.5% 9.1%
282 8.8% BC, HW & SC
1,047 4.8% 6.5%
0.4% 33.7% 999 31.3%
Total Group 3,103 -2.9% -0.9%
-1.5% 100.0% 3,195 100.0%
Revenue less pass-through costs
analysis – First Nine Months
£ million
2018 ∆ reported ∆
constant ∆ LFL % group
2017 % group AMIM 3,936
-7.8% -4.0% -1.8%
42.5% 4,268 44.6% Data Inv. Mgt.
1,423 -4.6% -0.8%
-1.4% 15.4% 1,491
15.6% PR & PA 833
-2.0% 2.2% 3.1% 9.0%
850 8.9% BC, HW & SC
3,060 3.3% 7.7%
1.4% 33.1% 2,962 30.9%
Total Group 9,252 -3.3% 0.7%
-0.3% 100.0% 9,571 100.0%
In the third quarter of 2018, like-for-like revenue less
pass-through costs in the Group’s advertising and media investment
management businesses showed a significant deterioration compared
with the first half, particularly in North America, the United
Kingdom and Continental Europe, partly offset by double
digit-growth in Asia Pacific and Latin America. The Group’s
advertising businesses remain difficult, particularly in
Continental Europe and Asia Pacific, with all regions, except the
United Kingdom and Latin America, slower.
Data investment management showed a slight improvement in the
third quarter, with like-for-like revenue less pass-through costs
down 1.2% compared with -1.3% in the second quarter and -1.5% for
the first half. There was significant improvement in Asia Pacific,
up over 7%, with Western Continental Europe also showing
improvement. North America remains difficult and the United
Kingdom, following an improvement in the second quarter, slipped
back, as Kantar Insights and Kantar Media came under pressure.
Kantar Public and Kantar Health remain challenged, but both showed
an improvement in the third quarter compared with the first
half.
Public relations and public affairs was the strongest performing
sector in the third quarter as it was in the second quarter, with
like-for-like revenue less pass-through costs up 2.5%. This was
driven by strong growth in both the United Kingdom and Germany
through the Group’s financial public relations businesses and
continued strong growth in Asia Pacific and the Middle East.
In the Group’s specialist communications businesses, direct,
digital & interactive together with health & wellness were
up strongly, but brand consulting remains challenging, particularly
in the United States following some client losses towards the end
of 2017.
Balance sheet highlights
Average net debt in the first nine months of 2018 was £4.991
billion, compared to £4.981 billion in 2017, at 2018 exchange
rates, an increase of £10 million. The small increase in the
average net debt figure, reflects the increase in capital
expenditure and dividends in the 12 months to 30 September,
together with a worsening net working capital position in the
second half of 2017, offset by the impact of the sale proceeds in
relation to the disposal of the Group’s interests in certain
associates and investments as outlined in the Group’s 2018 Interim
Results.
Net debt at 30 September 2018 was £4.884 billion, compared to
£5.809 billion on 30 September 2017, at 2018 exchange rates, a
decrease of £925 million. The decrease in the net debt figure at 30
September 2018 reflects £704 million proceeds in relation to the
disposal of non-core investments, principally Globant S.A. and
AppNexus, with an improvement in net working capital in the third
quarter.
There were no additional share repurchases in the third quarter,
and in the first half of 2018, 15.9 million shares, or 1.3% of the
issued share capital, were purchased at a cost of £201 million and
an average price of £12.63 per share.
Financial guidance
For 2018, reflecting the slowdown in the third quarter and a
more cautious outlook for the rest of the year:
- Like-for-like revenue less pass-through
costs growth is likely to be down 0.5% – 1.0%
- Forecast operating margin to revenue
less pass-through costs is likely to be down in the range of 1.0 –
1.5 margin points
Strategy update
We will update share owners on the Group’s strategy in December.
This update will address the actions that have already been taken
and those we will be taking to better position the business for
growth and to address under-performing units and detail the
restructuring costs that will be necessary, as well as the
associated benefits.
This announcement has been filed at the Company Announcements
Office of the London Stock Exchange and is being distributed to all
owners of Ordinary shares and American Depository Receipts. Copies
are available to the public at the Company’s registered office.
The following cautionary statement is included for safe harbour
purposes in connection with the Private Securities Litigation
Reform Act of 1995 introduced in the United States of America. This
announcement may contain forward-looking statements within the
meaning of the US federal securities laws. These statements are
subject to risks and uncertainties that could cause actual results
to differ materially including adjustments arising from the annual
audit by management and the Company’s independent auditors. For
further information on factors which could impact the Company and
the statements contained herein, please refer to public filings by
the Company with the Securities and Exchange Commission. The
statements in this announcement should be considered in light of
these risks and uncertainties.
1 Percentage change at constant currency exchange rates2
Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals3 Prior year
figures have been restated for the impact of the adoption of IFRS
15: Revenue from Contracts with Customers4 Percentage change at
constant currency exchange rates5 Like-for-like growth at constant
currency exchange rates and excluding the effects of acquisitions
and disposals6 Asia Pacific, Latin America, Africa & Middle
East and Central & Eastern Europe7 Percentage change at
constant currency exchange rates8 Like-for-like growth at constant
currency exchange rates and excluding the effects of acquisitions
and disposals9 Advertising, Media Investment Management10 Public
Relations & Public Affairs11 Brand Consulting, Health &
Wellness and Specialist Communications (including direct, digital
and interactive)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181025005354/en/
WPP+44 20 7408 2204Mark ReadAndrew ScottPaul RichardsonLisa
HauChris WadeorKevin McCormack / Fran Butera, +1
212-632-2235orJuliana Yeh, +852 2280 3790orBuchanan
CommunicationsRichard Oldworth, +44 20 7466 5000 / +44 7710 130
634wpp.com/investors
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