WPP’s first-half net revenue fell 1% on a like-for-like basis to £5.6bn, missing market expectations. All business segments posted declines, and growth in Europe was more than offset by declines in all other regions.
Underlying operating profit was broadly flat at £646mn, as lower revenue was offset by cost cuts and restructuring initiatives.
Underlying free cash flow worsened from an outflow of £755mn to an outflow of £845mn. At the half-year mark, underlying net debt was £3.4bn.
Full-year guidance has been lowered, with like-for-like net revenue growth of -1% to 0% now expected (previously 0% to 1%).
WPP announced the sale of its 50% stake in FGS Global, a public relations firm. The sale will bring in around £0.6bn of cash, which will be used to reduce debt levels. The sale will have “no impact on WPP’s current year or medium-term guidance.”
An interim dividend of 15.0p per share has been announced, in line with last year.
The shares fell 2.0% following the announcement.
Our view
WPP’s half-year revenue growth fell short of expectations, as weakness continued across most regions, leading the company to lower full-year guidance.
The group has also confirmed the sale of its stake in PR firm FGS Global. This deal should bring in around £0.6bn of cash after taxes, which WPP plans to use to bring its debt levels back within its target range.
WPP’s media agencies boast many of the world’s biggest companies as its customers, with products and services spanning all parts of the advertising and communication spectrum. It offers services including analytics, paid advertising campaigns and PR. As an idea of scale, WPP boasts a global workforce of 115,000. That’s a lot of mouths to feed and can amplify the downside to profits when revenue dries up.
WPP has had a laser-like focus on boosting its digital marketing offerings. The new company plan involves focusing on faster-growing end markets (like how to help clients succeed online) and technology. Hundreds of millions will be spent over the next few years, most of which will go on new staff, technology, including AI, and incentives.
Before it can reach a home stretch, it's worth remembering that WPP's agency business is still being nibbled away at, and it's turning to acquisitions to keep growth coming. The group's doing what it can to combat these challenges, including consolidating and streamlining its offering.
Looking further ahead it's important not to understate the challenge. There are cracks appearing in some of WPP's larger markets and margins are coming under pressure. In the wider market, growth in online advertising spend is slowing. And with rising competition from more nimble providers, a threat that's only likely to grow, there are arguably limits to the market's mood where WPP is concerned.
We’re also mindful of AI. This offers enormous opportunity for WPP, but also risk. There’s a chance the advertising and analytics landscape changes so fast that WPP is left behind if it doesn’t peddle fast enough.
WPP is moving at a significant pace to try to future-proof the business. Streamlining efforts mean the company that emerges from these challenges could be stronger than when it started. But there’s plenty of execution risk. WPP is floundering whilst others in the advertising world are flourishing, particularly those that have a direct channel to consumers. There are serious questions here about the viability of its agency model that investors will want to see answered sooner rather than later.
WPP key facts
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