WPP PLC (LON:WPP) reported a 0.6% fall in like-for-like sales in the first half of the year and a 44% fall in profits as the advertising behemoth continued with slimlining efforts that have seen 44 disposals over the last 15 months.
Yet the performance in the second quarter was slightly ahead of market forecasts, with sales returning to growth, and in line with full-year guidance and medium-term targets.
“Clients are responding well to our new offer, as evidenced by recent wins and expanded assignments including from eBay, Instagram and L'Oréal,” said chief executive Mark Read.
“An encouraging number of our businesses and markets are achieving good growth,” while stressing that WPP was still in the early stages of a three-year turnaround."
Revenues and profits down
Billings in the first six months of the year of £26.5bn were down 0.5% on the same period last year, but with quite a boost from exchange rate swings, with revenue of £7.6bn up 1.6% at the reported level and down 2% on a LFL basis compared to the 2.9% that analysts had forecast.
Most of the revenue decline was from a small number of clients that reviewed their accounts in 2018 or significantly reduced their spending in 2019, while the second quarter saw new assignments won with from Ferring, Merck, Pfizer, Walgreens and Walmart.
Revenues included the Kantar market research arm, a 60% stake of which WPP has agreed to sell to private equity for US$3.1bn, of which approximately $1.2bn will be returned to shareholders.
Underlying earnings (EBITDA) were down 7.7% at the reported level to £875mln but profit before tax slumped to £478mln from £846mln a year ago due to a significant exceptional gain last year that was not repeated and a financial charge.
An interim dividend of 22.7p per share was declared, the same as last year.
Share price rally
Shares in WPP, which had fallen more than 50% between 2017 to 2019, continued their recovery of recent months, rising 8% on Thursday morning to 985.78p.
This is, said analysts at the Share Centre, "giving long suffering investors hopes the company is now firmly on the road to recovery and easing fears after recent sector and market weakness".
UBS agreed that the improved second quarter, with group net sales organic growth down 1.4% as US and China fell but the UK, Brazil and India were up and Western Europe was flat, leading to a strong beat of the analyst consensus that will "de-risk" full-year targets.
With Read indicating that trading has been “slightly ahead” of internal expectations and suggesting “reasons for optimism” on the turnaround strategy, broker Shore Capital was "encouraged by the progress summarised in today’s results release which adds support to our view that the group’s strategy is gaining traction".
"Specifically, we like its focus on simplifying operations; engendering greater internal cooperation; pursuing efficiencies; reducing debt; realising value from non-core operations and; generally enacting a more disciplined capital allocation policy... We believe that this approach is also better suited to the challenges of a changing media landscape and plays to WPP’s strengths.
"We would also cite the resources and impressive track record of its agency brands; its creative capabilities; the strength of its blue-chip client relationships, and; its integrated global offering as key underlying positives."