The world’s biggest marcoms company WPP disappointed analysts with its half-year performance, failing to hit its growth target of four per cent, ending up at 3.6 per cent or ‘thereabouts.’
WPP is the only big marcoms company to own a research business, Kantar, the second-biggest in the world after Neilsen.
But Kantar, headed by Eric Salama (left), just can’t come up with the goodies. In the second quarter its revenues slipped back by 0.4 per cent while everything else inched forward, good old advertising performing the best, in the UK of all places.
Here’s what WPP says about Kantar.
On a constant currency basis, consumer insight revenues grew 3.1% in the second quarter, very similar to the first quarter, with like-for-like revenues up 0.8% compared with 1.3% in the first quarter. Like-for-like revenues in the faster growing markets of Asia Pacific, Latin America, Africa and the Middle East were up strongly and ahead of the first quarter, but the USA, the UK and Western Continental Europe softened in the second quarter, but less so than indicated by competitors’ comparative data. In the US, the custom research business in TNS and Millward Brown, together with Added Value and the call centre operation were the most affected. Reported operating margins slipped 0.5 margin points to 7.0%, partly due to client pricing pressure and additional re-structuring severance in the USA, the UK and Western Continental Europe and significant technology investments.
Well reading between the lines, this isn’t very good. Don’t forget that WPP’s biggest recent investment was the £1.lbn purchase of Anglo-French research giant TNS in 2008 and that clearly has still to pay off.
Research margins are being stuffed by the internet, which is why Aegis decided to sell its research business Synovate to Ipsos last year for £520m. Aegis boss Jerry Buhlmann probably couldn’t be seen for dust as he headed off to the pub (or maybe a run, given what CEOs are like these days).
Everybody moans about the results you get from internet research; most people can’t be bothered to participate, some saddos do. So the results are skewed. But they’re still cheaper.
So a shareholder might say, WPP should sell Kantar and concentrate on what it’s best at.
But that’s not Sorrell’s style. He clearly sees ‘customer insight’ as right strategically, maybe a defensive measure against the data-gathering might of Google.
But they can’t make any money out of it. And it keeps landing them in trouble, the current spat with NDTV in India being a potentially explosive case in point.
Could someone else do a better job than Salama? Hard to say, but Salama is a Sorrell intimate, being the clever young chap on the main WPP board before he went to Kantar and that role went to current digital boss Mark Read.
If some private equity outfit would pay £2bn or so for Kantar that would more or less wipe out WPP’s debt (£2.9bn) and, arguably, leave a better-balanced company. But that would relegate WPP to second place behind Omnicom in the worldwide marcoms stakes.
Research, or consumer insight as WPP prefers, remains its own ‘elephant in the living room.’