WPP revenues plunge 1.5% as Read warns: 'We have been slow to adapt'

WPP revenues plunge 1.5% as Read warns: 'We have been slow to adapt'

The holding group announces plans to sell research arm Kantar.

WPP chief executive Mark Read has warned of "deteriorating" revenues with a 1.5% fall in the third quarter, saying: "We have been too slow to adapt."

WPP shares plunged 15% to around £9, which means the stock has halved since its £19 peak in March 2017 and the company's value has dropped from £24bn to £11.5bn.

The holding group's third quarter results were significant because it had previously seen sales growth for the first time in five quarters, at a modest 0.1%, in the three months to June.

Rival groups such as Omnicom and Interpublic had a good third quarter in the three months to September.

The 1.5% decline in like-for-like revenues less pass-through costs was WPP's worst performance in five quarters since the second quarter of 2017. 

Many key regions suffered "deteriorating" revenues in the third quarter of this year, including the already-weak North America with a 5.3% slump, the previously strong UK with a 2.0% drop and western continental Europe down by 0.4%.

The rest of the world, including Asia-Pacific and Latin America, was up 2.4%.

WPP plans to sell research arm Kantar, while retaining a stake. Meanwhile, Paul Richardson, the long-serving finance director under Read’s predecessor, Sir Martin Sorrell, will exit in 2019.

Read, who became interim boss in April and chief executive in September, offered a brutal assessment of the state of WPP.

"Turning around WPP requires decisive action and radical thinking, and our performance in the third quarter of 2018 reinforces our belief in that approach," Read said in an unusually long statement to shareholders.

"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 underinvested in core parts of our business."

Read admitted that WPP had lost significant business from American Express, GlaxoSmithKline, HSBC, Opel and United Airlines, but pointed out that it had won and retained business from Adidas, BP, Hilton Hotels & Resorts, Mars, Mondelez International, Shell, T-Mobile and GSK's Panadol.

"WPP has grown into a large and complex organisation, with many strengths, but also challenges," Read, who first joined in 1989, said. "It will take time to improve our performance and we are realistic about the short-term issues that we face." 

He claimed that when WPP’s top 150 leaders met in Brooklyn, New York, two weeks ago for a strategy meeting, they "came away excited by the future, united by a new sense of common purpose and committed to work together to build a new WPP".

Read plans to announce the results of a strategic review in December that is likely to involve more internal agency mergers.

Ian Whittaker, analyst at Liberum Capital, described the results as "quite worrying", noting a "sharp decline" in the profit margin guidance.

"Company-specific issues look to be the main factor," he warned, comparing WPP with Omnicom, Interpublic and Publicis. "We think the issue here is not creative, which is quite low-margin, but media, which is high-margin." 

Steve Liechti, analyst at Numis Securities, said plans to sell Kantar and other assets are "directionally right, in our view" but he was revising his expectations for WPP’s share price "in the context of further poor trading".

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