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WPP confirmed the sale of its controlling stake in financial communications firm FGS Global but was forced to downgrade its revenue forecast for the rest of the year given a steep fall in sales in China and an uncertain macroeconomic environment.
The sale of FGS, which has close to 30 offices around the world serving more than 1,600 clients, will value the business at about $1.7bn. WPP said the sale was at an “attractive valuation”, with the cash proceeds of $767mn for its 50.5 per cent stake used to reduce debt.
However, WPP warned revenues would be lower this year than previously expected. Like-for-like revenue, when removing fees paid to external suppliers, was forecast between 1 per cent lower and flat, rather than the slight growth forecast previously.
Shares in the group fell more than 2 per cent on Wednesday morning.
WPP said like-for-like revenues had fallen 0.5 per cent in the second quarter. Growth in the US, India and Europe was outweighed by a drop of almost a quarter in China and more than 5 per cent in the UK. Profit before tax rose to £338mn from £204mn, reflecting cost cutting and lower restructuring costs.
Mark Read, chief executive of WPP, told the Financial Times that smaller clients were cutting back on “discretionary” projects given signs of consumer weakness in countries such as the US.
As a result, Read said “we are a little bit more cautious for the rest of the year”, pointing to weaknesses in parts of the luxury goods sector and other consumer facing industries. However, he predicted a return to growth among its tech clients in the second half of the year.
Read said the sale of FGS marked the next stage in the broader restructuring of WPP, which has merged various parts of its network to create a more simplified structure.
He added that WPP could consider the sale of its 40 per cent stake in Kantar, the market research firm, but said that any move would depend on any exit plans by Bain, the private equity fund, which holds the remainder of the equity in the business.
The sale of FGS is the one of the last acts of outgoing WPP chair Roberto Quarta, who has been with the group since 2015. But the downbeat results will be the first indication of the job facing Philip Jansen, the former BT chief executive with a record of corporate restructuring and M&A who was appointed as Quarta’s replacement last week.
WPP is underperforming compared with some of its rival global advertising agencies such as Publicis, which struck a series of M&A deals over the past decade to boost its technology services.
Read said: “We need to get our core offer growing more strongly. We now have a tighter, more integrated offer.”
WPP is also investing more in AI tools, as well as services to clients based on data and technology to deliver advertising campaigns that are cheaper, faster and more targeted towards individual consumers. The group is committing an investment of £250mn every year in AI-driven technology.
In its results on Wednesday, WPP said “it’s clear that AI is going to fundamentally change the way in which our clients reach consumers, the way in which we deliver and produce work and the way in which we operate as a company”.
