- First-half operating profit down 3% to £646 million
- Offloads communications firm for £611 million
- Interim dividend per share unchanged at 15.0p
Shares in WPP (WPP) were down over 2% to 700p in morning trading as the advertising giant reported disappointing interim results and lowered full year like-for-like guidance reflecting macro pressures and weakness in China.
The advertising giant reported a marginal rise of 0.1% in first-half revenue to £7.2 billion and a loss of 3,000 jobs compared to last June.
The total number of people in its workforce as at 30 June 2024 was 111,000 compared to 114,000 as at 30 June 2023.
The interim dividend per share remains unchanged at 15.0p
More positively, top 10 clients grew 2.5% in the first half with the technology client sector stabilising with a fall of 1% like-for-like in the second quarter – an improvement from a 9% fall in the first quarter. The healthcare and retail sectors are still impacted by 2023 client losses.
FGS GLOBAL SALE
Separately WPP announced the sale of its 50% stake in strategic communications and advisory firm FGS Global to private equity firm KKR (Kohlberg Kravis Roberts) for £611 million (£557 million after tax) payable in cash upon completion before the end of 2024.
The majority stake in FGS Global is valued at £1.3 billion.
WPP aims to manage its debt within the targeted range of 1.5-1.75 times average net debt to EBITDA (earnings before interest taxation depreciation and amortisation), enabling it to invest in the growth of its businesses, pay dividends and return surplus capital to investors over time.
The transaction has no impact on WPP's current year or medium-term guidance and is expected to be broadly earnings neutral in 2025.
WHAT DO ANALYSTS THINK?
Roddy Davidson analyst at Shore Capital said: ‘Although today’s headline results are broadly as suggested by consensus estimates, they highlight WPP’s continued short-term underperformance versus other players – not something that investors have been used to seeing historically.
‘A reduction (albeit slight) in full year expectations is also disappointing at a time when expectations around a better advertising spend backdrop have been building. On a more positive tack, the group does appear to be making good progress in pursuing its growth strategy and the sale of FSG Global will further strengthen its financial position and simplify its structure.’
Russ Mould, investment director at AJ Bell said: ‘Advertising agency WPP has significant scale, breadth and geographic reach, therefore its decision to downgrade forecasts for the remainder of the year should have wider resonance beyond direct followers of the stock. Like a number of businesses in the West, the company is facing difficulties in China but also sees an uncertain picture elsewhere – notably in the tech sector.
‘Part of the strategy under current CEO Mark Read has been around simplifying the business and in this context the sale of FGS Global to its minority shareholder KKR makes sense. The proceeds can be used to pay down debt and will allow the company to focus on its strengths in creative advertising.’
Disclaimer: AJ Bell, referenced in this article, owns Shares magazine. The author (Sabuhi Gard) and editor (Tom Sieber) own shares in AJ Bell.
