WPP reports "strong interest" in Kantar as group profit falls by 41.5%

Final report from "Marketing Services Financial Intelligence" as it closes after 18 years
By: Fintellect Publishing Ltd
BLOCKLEY, U.K. - March 2, 2019 - PRLog -- WPP claimed yesterday that there has been "strong interest" from parties interested in investing in its Kantar market research division as the group revealed a 41.5% fall in post-tax profit and a 2.6% fall in net revenue (revenue less pass-through costs) in 2018.

WPP told the final edition of Marketing Services Financial Intelligence (www.fintellect.com/MSFI) that Goldman Sachs would be sending out particulars of the Kantar business to interested parties later in March and the company expected to provide an update by the end of June.

Announcing a £1.06 billion profit for 2018, down from £1.81 billion in 2017, WPP said it faced a "challenging" 2019 partly as a result of client losses in 2018. The disappointing result for 2018 was attributed in part to a weaker performance in the United States.   Adverse currency movements also depressed results.  But a series of abnormal items did additional damage.

The biggest abnormal charges in 2018 were £302.3 million spent on restructuring and redundancies and a £148 million impairment charge arising from the merger of Young & Rubicam and digital agency VML.

The restructuring was all part of the new chief executive Mark Read's plan to reposition the group as a "creative transformation company".  The last time a marketing company adopted a similar description was when the disgraced former chairman of the Canadian group MDC Partners labelled his company a "business transformation organisation".   But the label appears not to have helped MDC's profits - it was still making losses last year and at 30 September it was nursing a $244 million deficiency of shareholders' funds.

Offsetting WPP's abnormal charges in 2018 was a £185.3 million gain from the sale of the group's stake in the US based digital technology consultancy.  Also mitigating the group's poor performance was a £117.1 million item of "income" arising from downward revaluations of deferred acquisition and option obligations – suggesting that the group was expecting lower profits streams from those past acquisitions than had been previously estimated. It is the second year in a row when such a credit has been included in WPP's profit, a feature that does not engender much optimism for the future.

The group's operating profit margin on net revenue (revenue less pass-through costs) plummeted from 14.5% to 11.2%.  Even after excluding amortisation and all abnormal items, the margin fell from 16.8% to 15.7%.  Staff costs absorbed a similar proportion of net revenue as in the previous year.

The "headline" operating profit (operating profit before amortisation and abnormal items) dipped by 14%, or £133 million, in the group's biggest market - North America - and by 12.6% in the United Kingdom.  Western Continental Europe was static.

Analysed by business activity, every part of the business saw a fall in operating profit (adjusted to exclude amortisation and abnormal items) apart from public relations which remained almost unchanged. Despite "strong" revenue growth from media buying, the advertising and media buying segment as a whole experienced a 12.3% fall in profit – a worrying feature given that this segment produced 44.7% of the group's revenue. The main difficulties arose in the advertising networks.

WPP took a number of initiatives to strengthen its balance sheet last year.  According to the company, net debt was £4.017 billion at 31 December, against £4.483 billion a year earlier. However, earlier this week the group announced its intention to use its own cash to redeem some £200 million of bonds.

The reduction in net debt last year was helped by the sale of Globant and the company may still be hoping to bank some cash from selling a stake in Kantar. At the end of 2018 WPP's short-term liabilities exceeded readily realisable assets by £666 million, up from £357.7 million a year earlier.

Marketing Services Financial Intelligence has been edited by Robert Willott since its inception in December 2000.   Willott (76) is a chartered accountant who has specialised in advising "people businesses" for most of his working life.

During his career he has been a director of Haymarket Publishing Ltd (where he was the launch editor of Accountancy Age), technical director of The Institute of Chartered Accountants in England and Wales, and a partner in Spicer & Oppenheim and Touche Ross (now Deloitte).  He founded specialist accountants Willott Kingston Smith (now absorbed within Kingston Smith) where he developed the popular annual survey of financial performance of marketing services companies.

For many years he was a special professor at the University of Nottingham Business School where he had been instrumental in sourcing funds for the establishment of a Centre for Management Buyout Research (now located at Imperial College London). He has also acted as a non-executive director of a number of companies.

Willott is a member of the Marketing Society, a life member and former honorary treasurer of the Direct Marketing Association, and a former trustee and honorary treasurer of the Save the Children Fund. He is the author of Current Accounting Law and Practice and various other books.


Robert Willott (editor),
Marketing Services Financial Intelligence
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