LONDON (Alliance News) - WPP PLC on Thursday posted a disappointing third quarter performance and said it plans to sell a stake in its wholly-owned market research unit Kantar Group as part of an ongoing business simplification and restructuring programme.
Shares in the advertising company were down 19% at 861.00 pence each in morning trade, the worst performer in the FTSE100 index. WPP's stock has seen a 34% drop in the 12 months to date.
The company reported 0.8% fall in revenue for the three months to the end of September to GBP3.76 billion from GBP3.79 billion for the same period the year before. On a constant currency basis, revenue rose by 1.2% and like-for-like revenue by 0.2%, with acquisitions providing 1.0% growth.
Revenue less pass-through costs, or net sales, saw a 2.9% drop to GBP3.10 billion from GBP3.20 billion the year before. On a constant currency basis, net sales declined by 0.9%, and like-for-like revenue down by 1.5%, with acquisitions contributing 0.6% in growth.
Revenue for the first nine months of 2018 declined by 1.6% to GBP11.25 billion from GBP11.44 billion. At constant currency, however, revenue rose by 2.3% and 1.1% on a like-for-like basis. Acquisitions contributed 1.2% growth in the period.
WPP said its results reflected the stronger pound in the first half, mainly against the US dollar, and then against other currencies in the third quarter.
Revenue for the third quarter particularly declined in the company's North America businesses, down 1.5% on a reported basis, as client losses and spending reductions led to a slip in WPP's media and data investment, health & wellness and communications businesses.
Also, collectively the Asia-Pacific, Latin America, Africa & Middle East and Central & Eastern Europe regions saw a revenue drop of 1.5%, mainly through declines in Australia & New Zealand, and Africa.
Due to the slow down in the third quarter, WPP has adopted a more cautious stance for the full year. It estimates like-for-like net revenue growth to be down by 0.5% to 1.0% and operating margin to be down 1.0 to 1.5 margin points.
To offset the revenue and margin decline, WPP is looking to simplify its business by selling non-core businesses, including the potential sale of an undisclosed amount of stake in Kantar. The company has already "received unsolicited expressions of interest for the unit".
"There is a significant opportunity to develop Kantar into the world's leading data, insights and consulting company. We believe in the potential for Kantar but given our many priorities, we need to make tough choices and we believe that the best way to unlock this potential is with a strategic or financial partner. The board has approved a formal process to review the strategic options that will maximise share owner value," said Chief Executive Officer Mark Read.
WPP has been in a state of restructuring since April, with 16 disposals made to date, mainly of non-core investments, raising GBP704 million and bringing net debt down to GBP4.88 billion as at September 30 from GBP5.81 billion for the same date the year before.
Since September, WPP has gone further by merging advertising agencies VML and Y&R, integrating healthcare agencies and making key appointments in operations, clients and technology divisions.
"We're yet to get the full details, but it looks like the over-riding theme of his restructure will be a simplification of the business. It's easy to see why. Taking over at a group where success depends so much on having an in-depth knowledge of all the various agencies and divisions was always going to be a serious challenge," said George Salmon, equity analyst at Hargreaves Lansdown.
"16 non-core disposals mean this journey has already started, and the decision to sell a stake in Kantar is the next step. We can see the rationale here, but one can't help but notice the division was the only one not to see like-for-like net revenue trends weaken this quarter," Salmon added.
"This move, together with the actions that we will continue to take, should further improve our balance sheet. In future, we will pay greater attention to capital discipline and focus our acquisition spending only on the most strategic opportunities that we can tightly integrate into our organisation," Read added.