Ciesco: WPP turns a corner in post Sorrell era, Publicis is worst performer during H1 2018

By James Harries, analyst

WPP, the world’s largest marketing group, shares hit a five-year low in July amidst continued uncertainty following the departure of long-term chief executive Sir Martin Sorrell, as well as the uncertainty of GDPR. Former COO Mark Read was appointed as new CEO in September, tasked with driving a new era of growth at WPP following Sir Martin Sorrell’s 33-year tenure.

Net revenue was down 2.1 per cent for H1 of 2018, despite steady organic growth of 1.6 per cent and growth in revenue from acquisitions of 1.3 per cent. This growth was negated due to significant adverse currency headwinds of 5.0 percent compared with the same period last year. Q2 however saw the first like-for-like quarterly growth since Q1 2017. Among core disciplines, brand consulting and health & wellness showed the biggest gains of 4.7 per cent

Shares fell as much as eight per cent following the announcement that WPP had lowered its profit margin guidance for the remainder of year, after reported profit before tax for H1 was down seven per cent.

WPP has carried out 15 disposals and divestments in H1 in a push to focus their portfolio, including Globant and AppNexus, which has generated £676m so far, improving their average net debt to EBITDA ratio. Analysts predict that WPP will also sell ‘at least significant parts’ of under-performing Kantar, after an approach by CVC Capital Partners.

Interpublic Group is the strongest performing holding company so far in 2018, with organic growth of 4.7 per cent. Helped further by forex movements, industry leading net growth of 6.0 per cent over the period has seen IPG raise its growth target for 2018 to 4-4.5 per cent above an initial 2-3 per cent. Acquisition revenue declined 0.8 per cent versus last year, with revenue from the $2.3bn purchase of data management business Acxiom Marketing Solutions in Q2 yet to affect group revenue.

In terms of divisions, exceptional growth in media and creatively-led integrated agencies, digital services, public relations, events and sports marketing helped drive strong group revenue growth – with Mediabrands the strongest performing agency during the period.

Despite strong interim results, markets reacted somewhat ambiguously, with IPG shares rising seven per cent in pre-market trading but flattening out by late-morning following results. This could perhaps be linked to investors’ concerns over the future of agency giants following poor earnings from Omnicom and Publicis the previous week

New York-based Omnicom Group’s share price fell by over nine per cent following the announcement that they had missed Q2 sales forecasts largely due to under-performance in North America. Steady net revenue growth of 1.5 per cent derived from organic growth of 2.2 per cent, which together with favourable currency headwinds of 3.1 per cent were able to negate the effect of a fall in acquisition revenue of 2.6 per cent versus last year.

However, despite revenue growth, EBITDA margin in H1 fell to 14.1 per cent compared to 14.2 per cent for the same period in 2017.

In terms of divisional performance, among core disciplines, CRM Consumer Experience, showed the highest growth at 7.0 per cent with Healthcare also growing at 4.8 per cent, while CRM Execution & Support fell by 1.7 per cent.

This year Omnicom has made a number of acquisitions including US-based Snow Companies, Japan-based Elsevier and German-based Brain Group, representing strong growth ambitions across a range of geographies. Omnicom has also entered into a definitive agreement to divest Sellbytel Group, a provider of outsourced sales and support, to global business process outsourcer Webhelp Group.

Publicis was the worst performing holding company of the four in H1 both in terms of net and organic revenue growth. Small declines in organic growth (0.4 per cent) and acquisition revenue (0.1 per cent) were combined with significant currency declines of 7.8 per cent to result in decline in net revenue of 8.2 per cent. Adverse foreign exchange rates outweighed what would have been 2.6 per cent revenue growth in terms of USD due to a high proportion of US revenue.

Publicis saw an unprecedented number of new business wins during Q1, with global account wins for Mercedes Benz, Carrefour, Campbell’s and Marriott. However poor second quarter sales performance contributed to a fall in share price of almost nine per cent.

The fall in net acquisition revenue was partly due to the de-consolidation of Genedigi, which coincided with the beginning of the Publicis strategy and execution plan “Sprint to the Future” for 2018-2020, looking to streamline the group’s operations.

Ciesco Group connects entrepreneurs and financial and strategic investors worldwide.

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