WPP net sales in Q3 2018 fell by 1.5 per cent – far worse than the performance of its holding company rivals – after inching ahead in the first half of 2018 by O.6 per cent. It shares dropped below the psychologically important £10 level, hitting £8.40 at one point, a drop of 20 per cent.
Revenue wasn’t quite so grim, up 1.2 per cent in Q3 due mainly to the strengthening pound.
New CEO Mark Read (below) said industry shifts (and WPP’s poor performance) required “decisive action” and “radical thinking” at the company which has been displaced by Omnicom as the world’s biggest agency holding company.
Read says he’s trying to sell a stake in research operation Kantar – Kantar is valued at a somewhat optimistic £3.5bn – and holding off acquisitions, preferring to invest in people. He says WPP’s debt reduced by £925m, just as well with the shares in freefall.
Creative agencies were once again blamed for the problems, most notably in WPP’s biggest market of North America where net sales fell by 3.5 per cent.
This is a full blown crisis for Read and COO Andrew Scott. Being the biggest has clearly ceased to pay off for WPP. In the Sir Martin Sorrell era such scale helped WPP offer all-in-one inclusive deals to the world’s biggest advertisers, often with big discounts. But that doesn’t seem to be working any more.
Its creative agencies, admittedly facing structural problems in a changing world, have suffered from a decade of under-investment and self-inflicted blows like the Gustavo Martinez scandal at once high-flying JWT. For years media has brought home the bacon but margins at its media agencies under GroupM are under pressure in the wake of the ANA investigation into media transparency in the US. WPP has recently lost a string of biggish media accounts, latterly its loss of United Airlines and Amex in the US and Daimler (Mercedes) outside, and Read is now insisting that any pitches involving $20m or more in revenue are notified to HQ so different companies can pitch together.
He has also re-organised its healthcare business in the US out of a separate entity into healthcare units at VMLY&R, Wunderman and Ogilvy which may mean that he sees these three agencies (VMLY&R is a new construct) as the spearheads of the group. Which suggests that JWT and Grey face a likely future together. If they’re not making money then the obvious thing to do is combine them, cut costs and cling on to as many clients as possible.
Would things have been different if founder Sorrell had not been despatched in March? Sorrell had been slow to restructure WPP’s rambling collection of 400 or so companies but he was a new business machine in his own right, cutting deals with client CEOs at Davos and elsewhere. Walgreen Boots Alliance 18 months ago was one such.
Read badly needs some similar wins alongside his restructuring or WPP will face death by a thousand cuts or an opportunistic break-up bid.
He also needs some new talent at the top of the group. Someone to grab hold of the creative agencies and start them winning business again would be more than useful.