Guidance for 2019 unchanged
WPP (NYSE: WPP) today reported its 2019 First Quarter Trading
Update.
Mark Read, Chief Executive Officer, WPP, stated:
“We continue to make good progress in implementing our
three-year strategy to return WPP to sustainable growth.
“As anticipated, our first quarter trading update reflects the
impact of certain significant client losses in 2018, in particular
in the United States. Although we face a challenging year,
especially in the first half, I am encouraged by how well our
people, agencies and clients are responding to our new strategic
direction. Our expectations for the full year are unchanged.
“Our newly formed agencies are showing initial signs of success
in new business pitches. The most recent merger, Wunderman
Thompson, has followed VMLY&R’s strong start by winning
Duracell’s international creative account. BCW has brought in
nearly $70 million in new business in its first year.
“In March, five of our companies were recognised in Gartner’s
influential Magic Quadrant study of the world’s leading and most
forward-looking agencies, while WPP topped the WARC Effectiveness
and Media 100 lists. This month, the Effie Index ranked us as the
world’s most effective communications company for the eighth
successive year, demonstrating our enduring ability to deliver
tangible business results for our clients.
“LinkedIn named WPP as one of the top 50 companies people want
to work for in the United States, and we continue to attract top
talent to the business. A key priority in 2019 is to invest further
in senior creative talent in the United States.
“As we have said before, it will take time to address the
company’s legacy issues, but we are committed to taking all the
actions necessary to position WPP for future success.”
- Reported revenue up 0.9%
- Like-for-like revenue less
pass-through costs -2.8%, reflecting anticipated headwinds
following client assignment losses in 2018
- Decrease in average net debt from
£4.875 billion in the first quarter of 2018 to £4.163 billion in
the first quarter of 2019 (at 2019 exchange rates). Improvement of
£712 million follows disposal of non-core associates and
subsidiaries
- Continued progress in implementing
three-year turnaround plan
- Financial guidance for 2019
unchanged
Revenue and revenue less pass-through costs
Revenue in the first quarter of 2019 was £3.588 billion, up 0.9%
compared with the same period last year on a reported basis and
-0.6% on a constant currency basis. Like-for-like revenue was -1.3%
compared with last year. Revenue less pass-through costs was £2.926
billion, down 0.7% on a reported basis, -2.3% in constant currency
and -2.8% like-for-like.
Regional review
Revenue analysis
£ million
2019 ∆ reported
∆ constant1
∆ LFL2
% group
2018 % group N. America
1,242 -0.8 % -7.0 % -8.2 % 34.6 %
1,252 35.2 % United Kingdom 528 -0.8 %
-0.8 % -0.9 % 14.7 % 532 15.0 %
W. Cont. Europe 765 0.7 % 2.7 % 1.2 %
21.3 % 760 21.4 %
AP, LA, AME, CEE3
1,053 4.1 % 5.4 % 5.8 % 29.4 %
1,011 28.4 %
Total Group 3,588
0.9 % -0.6 % -1.3 %
100.0 % 3,555 100.0 %
Revenue less pass-through costs analysis
£ million
2019 ∆ reported ∆ constant ∆ LFL
% group
2018 % group N. America 1,043
-1.2 % -7.3 % -8.5 % 35.6 % 1,055
35.9 % United Kingdom 400 -1.1 % -1.1 %
-0.9 % 13.7 % 405 13.7 % W. Cont.
Europe 616 -1.6 % 0.2 % -0.3 %
21.1 % 626 21.2 % AP, LA, AME, CEE 867
0.6 % 2.0 % 2.3 % 29.6 % 862
29.2 %
Total Group 2,926 -0.7 %
-2.3 % -2.8 % 100.0 %
2,948 100.0 %
North America, with like-for-like revenue less
pass-through costs down 8.5%, was the weakest performing region,
due to continued pressure and the impact of assignment losses among
automotive, pharmaceutical and FMCG clients in 2018. This
performance, whilst disappointing, was in line with our budgets.
The actions we have taken since September with our creative and
healthcare agencies, alongside leadership changes, are intended to
address the Group’s performance in the United States.
In the United Kingdom, like-for-like revenue less
pass-through costs was down 0.9%, a slight decline on 2018’s
full-year performance.
Western Continental Europe like-for-like revenue less
pass-through costs was down slightly at -0.3%. Belgium, Denmark,
Finland, Netherlands and Turkey were up strongly, with Austria,
Italy and Spain more challenging. Germany, the Group’s largest
market in the region, was up slightly.
Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe was the strongest performing
region, with like-for-like revenue less pass-through costs up 2.3%.
There was strong growth in Latin America, Central & Eastern
Europe and South East Asia, with Australia and New Zealand more
difficult. In Asia Pacific, Greater China and India, which account
for almost half of the region, grew strongly, with Malaysia,
Thailand and Vietnam more challenging. In Latin America, four of
the Group’s top five markets showed particularly strong growth. In
Central & Eastern Europe, all markets, with the exception of
Russia and Hungary, were up.
Business sector review
The tables below analyse the Group’s revenue and revenue less
pass-through costs by business sector. While we have prepared this
analysis for the first quarter, the restructuring actions that we
are implementing, including the mergers of VMLY&R and Wunderman
Thompson, the One Ogilvy strategy and the reorganisation of our
specialist healthcare agencies, mean that certain units have been
reclassified between sectors and going forward it is likely to be
less meaningful to report these sectors as we have in the
past. We will review the appropriateness of this sectoral
breakdown during 2019.
Revenue analysis
£ million
2019 ∆ reported
∆ constant4
∆ LFL5
% group
2018 % group
AMIM6
1,646 0.0 % -1.3 % -2.6 % 45.9 %
1,6457
46.3 % Data Inv. Mgt. 598 0.4 % 0.2 %
0.1 % 16.7 % 596 16.8 %
PR & PA8
289 4.7 % 1.6 % 0.8 % 8.0 %
275 7.7 %
BC, HW & SC9
1,055 1.6 % -0.7 % -0.7 % 29.4 %
1,0397
29.2 %
Total Group 3,588 0.9 %
-0.6 % -1.3 % 100.0 %
3,555 100.0 %
Revenue less pass-through costs analysis
£ million
2019 ∆ reported ∆ constant ∆ LFL
% group
2018 % group AMIM 1,244
-3.6 % -4.7 % -4.8 % 42.5 %
1,2907
43.8 % Data Inv. Mgt. 456 0.3 % 0.3 %
0.1 % 15.6 % 455 15.4 % PR &
PA 270 2.7 % -0.2 % -0.3 % 9.2 %
263 8.9 % BC, HW & SC 956
1.7 % -0.7 % -2.1 % 32.7 %
9407
31.9 %
Total Group 2,926 -0.7 %
-2.3 % -2.8 % 100.0 %
2,948 100.0 %
In the first quarter of 2019, like-for-like revenue less
pass-through costs in the Group’s advertising and media investment
management sector was down 4.8%, with the USA down significantly,
primarily due to the underlying legacy issues in the creative
businesses and client losses in 2018. Media investment management
showed strong growth in the United Kingdom, Asia Pacific and Latin
America. Data investment management was up slightly in the first
quarter, with particularly strong growth in Asia Pacific, Latin
America and the Middle East. The Group’s public relations and
public affairs businesses were down 0.3%, with strong growth in
Western Continental Europe and the Middle East. Brand consulting,
health & wellness and specialist communications was down 2.1%,
with health & wellness, in particular, under considerable
pressure in the USA following client losses in 2018.
Kantar update
The previously announced sale process of Kantar is progressing
well, in line with our expectations. We are pleased with the level
of interest in the business from high-quality potential
partners.
Balance sheet highlights
Average net debt in the first quarter of 2019 was £4.163
billion, compared to £4.875 billion in 2018 (at 2019 exchange
rates), a decrease of £712 million. Net debt at 31 March 2019 was
£4.624 billion, compared to £5.500 billion in 2018 (at 2019
exchange rates), a decrease of £876 million. This improvement is
largely explained by the disposal of various non-core associates
and subsidiaries in 2018 and the first quarter of 2019 (and one
property disposal), which in aggregate realised £1.028 billion. No
shares were repurchased in the first quarter of 2019.
In March 2019, the Group refinanced its $2.5 billion revolving
credit facility, extending maturity to March 2024. The Group also
repaid the £200 million 6.375% bonds due in 2020 following a tender
offer.
Outlook
Financial guidance
Our 2019 targets remain as:
- Like-for-like revenue less pass-through
costs down 1.5% to 2.0%, with stronger headwinds in the first half,
due to client assignment losses in the latter part of 2018
- Headline operating margin to revenue
less pass-through costs down around 1.0 margin point on a constant
currency basis (excluding the impact of IFRS 16: Leases)
Medium-term financial targets
As outlined at the Investor Day in December 2018, our
medium-term financial targets, to be achieved by the end of 2021,
are:
- Organic growth (defined as
like-for-like revenue less pass-through costs growth) in line with
peers
- Headline operating margin (excluding
the impact of IFRS 16: Leases) of at least 15%
- Free cash flow conversion of
80%-90%
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.
1Percentage change at constant currency exchange
rates2Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals3Asia Pacific,
Latin America, Africa & Middle East and Central & Eastern
Europe4Percentage change at constant currency exchange
rates5Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals6Advertising,
Media Investment Management7In 2019 certain business units have
been reclassified between AMIM and BC, HW & SC. As a result,
the comparative data for 2018, together with the reported and
constant currency growth rates and the % of the Group have been
restated8Public Relations & Public Affairs9Brand Consulting,
Health & Wellness and Specialist Communications (including
direct, interactive & eCommerce)
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version on businesswire.com: https://www.businesswire.com/news/home/20190426005172/en/
Mark ReadAndrew ScottPaul RichardsonLisa HauChris Wade+44 20
7282 4600
Kevin McCormackFran Butera+1 212 632 2235
Juliana Yeh+852 2280 3790
Richard Oldworth,Buchanan Communications+44 20 7466 5000 +44
7710 130 634
wpp.com/investors
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