WPP SCANGROUP HY2020 EARNINGS NOTE

Key Highlights

  • Sales from continuing operations decreased by 21% from KES 1.37B in 1H2019 to KES 1.37B in 1H2020.The 21% reduction in sales is attributable to adverse impact on Scangroup advertising business due to cost cutting measures undertaken by a number of its clients in response to Covid 19 pandemic.
  • The company’s operating profit before provision of bad debts declined from KES 50M in the first half of 2019 to a loss of KES 267M in the first half of 2020, attributable to an increase in operating and administrative expenses excluding provision for bad debts by 3%. There was a 520% increase in the provision for bad and doubtful debts due to KES 329M overdue amount owed by a parastatal client.
  • There was a 66% decline in interest income, mainly due to reduction in deposits following the KES 4 special dividend per share paid in 2019. In absolute terms, interest income declined by KES 76M for first half of 2020.
  • Forex exchange gain increased by KES 25M as compared to first half of 2019 due to the depreciation of the Kenya Shilling against major currencies.
  • Profit After Tax increased by 534% from KES 250M in first half of 2019 to KES 1.58B in the first half of 2020. This abnormal rise in net income is mainly attributable to a disposal gain of KES 2.24B realised on the sale of WPP Scangroup interest in Millward Brown East Africa Limited, Millward Brown Nigeria Limited, Millward Brown West Africa Limited and Research and Marketing Group Investment Limited on 30 June 2020.
  • Earnings per share increased from KES 0.51 in 1H2019 to KES 3.77 in 1H2020 mainly due to one-off disposal gains.
  • There was a 41% increase in shareholders’ equity from KES 6.97B in 1H2019 to KES 9.86B in 1H2020. Consequently, this led the Book Value per Share to increase from KES 15.80 in the first half of 2019 to KES 22.63 in the first half of 2020.
  • Fixed assets of the WPP Scangroup declined by 45% mainly driven by a 79% decrease in goodwill from KES 1.59B in 1H2019 to KES 339M in 1H2020.
  • There was a 96% increase in cash, bank balances and deposits from KES 3.78B in 1H2019 to KES 7.44B in 1H2020.This is mainly due to KES 5.59B received from the sale of the discontinued operations.
  • It’s worth noting that WPP Scangroup Plc is debt free. If it were to sell all its current assets and pay all its liabilities, shareholders will still get KES 18.27 per share. This effectively means that shareholders will not pay anything for the fixed assets owned by WPP Scangroup PLC.
  • There was a substantial decline in operating cash flows of WPP Scangroup mainly attributable to the fact that while disposal gain of KES 2.24B was used in computing the company’s PAT, it was deducted when computing the operating cash flows.

                                                                      Future Outlook:

  • Management expects the second half of the year to be better than first half of the year and they expect to operationalize cost control measures to improve their operating efficiency.
  • We expect management still to retain dividend per share at KES 1 since WPP Scangroup Plc is a cash rich firm.
  • We expect Covid 19 vaccine to be officially discovered by December 2020, which may lead to a resumption of business activities and thus recovery of WPP Scangroup Plc from losses due to a decline in advertising revenues.