A report in UK newspaper City AM claims that WPP, where growth has dried up this year, is deliberately delaying payments to creditors at its vast Kantar research subsidiary.
An email purportedly reads: “Cash balances are one of the most important indicators there are of the health of a business and so every year WPP looks to maximise its cash position reported in the year-end accounts.”
Berenberg senior analyst Sarah Simon says: “We have previously highlighted WPP’s balance sheet is quite stretched relative to the group’s targets. The fourth quarter in the advertising sector is key and these claims suggest things are not going as well as hoped at this critical time.”
One factor supposedly weighing on WPP is earn-out payments. Rival Omnicom has just coughed up £80m or so in final earn-out payments to the founders and staff of adam&eveDDB, so these can be substantial.
WPP founder Sir Martin Sorrell was finance director of Saatchi and Saatchi in its rush to intended world domination, characterised by generous earn-outs which later (after Sorrell had left to set up WPP) it found it couldn’t afford. In recent years WPP has been the busiest acquirer in the marcoms sector although most of the deals have been relatively small.