WPP defies some of the gloomsters but the jury is still out on CEO Read’s “transformation”

WPP’s share price recovered this morning – up 7.6 per cent in early trading – as CEO Mark Read revealed its 2018 numbers: not as bad as many feared but still showing a fall in net sales (WPP’s measure of organic growth) of 0.4 per cent and predicting a bigger fall of two per cent in 2019 as recent account losses hit home.

Numbers-wise it was down, down, down with the key figure perhaps being a big fall in profit before tax from £2.10bn in 2017 to £1.46bn last year, around 30 per cent. WPP’s operating margin fell to 15.1 per cent.

Public companies are there to make money for shareholders and it’s easy to see the scale of the task faced by Read and his newly-minted executive committee. His position is not dissimilar to that of Dave Lewis when he took over from Phil Clarke at Tesco. The feeling was that Tesco had been run “too hot,” stretching itself too far to produce every penny of profit. That, arguably, seems to have been the case at WPP under founder and CEO Sir Martin Sorrell too.

Read (below), who seems to have acquired the knack of putting a brave face on things with praiseworthy calm, says: “Since September, we have made good progress in implementing the new strategy for WPP.

“We have set out our vision for a more client-centric WPP, simplified our offer through the creation of two new integrated networks, VMLY&R and Wunderman Thompson, realigned our US healthcare agencies with major networks, formed the Company’s first executive committee and begun the process of seeking a financial and strategic partner for Kantar. Through 36 disposals since April 2018, we have strengthened our balance sheet and streamlined our business, raising £849 million of cash proceeds in 2018..

“As we have said previously, 2019 will be challenging – particularly in the first half – due to headwinds from client losses in 2018. However, we start the year with fewer clients under review than we did in 2018, and investments in creativity and technology will further improve the competitiveness of our offer.

“Our business is performing strongly in Western Continental Europe, Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, and we are addressing our performance in the United States. Important wins such as Volkswagen in North America reflect our creative strengths, and we are making significant investments in talent in our largest market.

“We are at the beginning of a three-year turnaround plan, but WPP’s new positioning as a creative transformation company with stronger, more integrated, more tech-enabled agencies is already proving effective, having driven several of our recent new business successes. As we implement our strategy in 2019 we will continue to put creativity, technology and great work for clients at the heart of our own transformation.”

North America is indeed a problem, it accounts for about 40 per cent of WPP’s earnings and its US-based rivals Omnicom and Interpublic are outperforming it by a distance. At some stage Read may have to consider a different structure there with, in effect, a North America CEO.

Read’s housekeeping is having some effect though, even he had no firm news here about a disposal of research business Kantar.

The besetting issue is: does WPP, with its new entities Wunderman Thompson and VMLY&R – plus its bevy of competing media agencies under GroupM – have the firepower to get back on track in its biggest market?

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