WPP’s market value plunges on weak quarterly results
CEO Mark Read says the ad agency needs to sell assets, hold off acquisitions and bring in new talent
London — WPP lost a fifth of its market value after downturns at its New York and London creative agencies forced it to cut sales and profit forecasts, showing the scale of the task facing its new boss after founder Martin Sorrell’s acrimonious exit.
Mark Read, a softly spoken veteran of the world’s biggest advertising group, said WPP needed to sell assets, hold off acquisitions and bring in new talent at its storied agencies such as JWT, Ogilvy and Y&R, in order to recover.
WPP’s third-quarter downturn, which wiped £2.8bn off its market value, was all the more startling as it came after decent updates from peers Omnicom, IPG and Publicis.
The results indicated that the high-margin and previously strong media units that buy ad space and plan campaigns were also struggling.
“We need to have stronger creative agencies,” Read said. “We do have good people, we need more of them. This isn’t going to happen overnight. We need to be realistic about the speed at which the business is going to turn around.”
Sorrell, the world’s most famous advertising boss, built WPP from a two-man office in central London into the world’s most powerful advertising company offering creative work, media buying, PR, consultancy and data analytics.
The group outperformed for years, helped by Sorrell’s ability to buy companies and win pitches, but growth disappeared at the start of 2017 due to competition from consultancies and tech groups Facebook and Google which enable clients to cut out the middle men and place ads directly.
Sorrell left in April after a complaint about personal misconduct which he denied. He remains a top 10 shareholder and has since set up a new challenger group, S4C.
“The challenges we’ve seen in the third quarter reinforce our determination to take more radical action and to move more decisively,” Read said.
The British group will start by selling a stake in its underperforming data analytics group Kantar, which has been valued at around £3.5bn by analysts.
That will help to lift overall growth and add to the 16 noncore assets it has already sold, raising £704m.
The efforts will help lower debt from almost £5bn.
Sales were particularly weak in North America and the UK for WPP, which lowered its net sales full-year guidance, saying it could fall as much as 1% compared with a target of 0.3% growth just three months ago.
The operating margin is likely to be down between 1 and 1.5 margin points, compared with a previous prediction of down 0.4.
The shares were down 16% before midday, taking them down 34% in the year to date and giving WPP a market value of £11.1bn.
“WPP has delivered a proper profit warning,” analysts at Citi said. “Third-quarter organic growth is materially below expectations and having raised guidance at the beginning of September the group has cut it hard today.”
Major WPP clients such as Unilever are facing their own pressures, forcing them to question everything they spend and taking some marketing work in-house.
In recent months WPP has also lost some major pitches, most notably the creative account for Ford to Omnicom’s BBDO, which it had previously held for 75 years.
WPP also said that Finance Director Paul Richardson would step down after 22 years in the role.