WPP expects a challenging year

In the event, the latest figures revealed a 0.4 per cent dip in like-for-like revenues (less pass-through costs) – at the upper end of management’s forecast range. And while pre-tax profits suffered a serious blow, this reflected the effects of restructuring and transformation costs, and goodwill impairment charges.

Indeed, the company noted that it is “at the beginning of a three-year turnaround plan”. In the fourth quarter alone, it incurred £234m of costs tied to this plan – comprising £171m of actions with “a cash impact in 2018 and beyond”. This forms part of a pre-disclosed £300m cash injection, with the remainder to be spread across 2019, 2020 and 2021.

Still, the balance sheet was bolstered by £849m in cash proceeds stemming from the disposal of 36 businesses since last April, reducing net debt from £4.5bn to £4bn. And the company maintained the dividend rate; good news for income-seekers, although some may question the sustainability of such a payout, given a significant reduction in EPS partly linked to a 19 per cent rise in admin costs.

That said, it was the future – not the past – that ostensibly drove the shares’ considerable mark-up on results day. True, management expects a “challenging” 2019, with “headwinds” particularly affecting the first half, after client losses in 2018. But it also started the year with fewer clients under review than 12 months earlier. And while guidance of a 1.5-2 per cent dip in like-for-like revenues (less pass-through costs) was in line with expectations, broker Liberum said “margins should hold up better than we would have thought”. WPP will focus on addressing problems within its North America business in the coming months.

Prior to these numbers, Liberum had been forecasting adjusted EPS of 100.1p in 2019 (down from adjusted EPS of 108p in 2018).