WPP reveals more grim tidings from the US, Sorrell’s S4 announces two timely buys

Timing is all, as they say, and just as WPP has announced some pretty grim first quarter trading numbers former CEO Sir Martin Sorrell’s S4 Capital has chosen to announce two new acquisitions: “food and liquids studio” Caramel Pictures and São Paulo-based programmatic consultancy ProgMedia.

WPP first though. Revenue less pass-through costs in Q1 2019 was down a hefty 2.8 per cent against the same period of 2018. This is the nearest metric to organic growth. North America, the company’s biggest market, was down a near-disastrous 8.5 per cent which CEO Mark Read blamed on under-performance by its creative agencies. These now mainly consist of newly-merged VMLY&R and Wunderman Thomson plus Ogilvy and Grey although there are others dotted around the place.

CEO Read (below) says: “As anticipated, our first quarter trading update reflects the impact of certain significant client losses in 2018, in particular in the United States. Although we face a challenging year, especially in the first half, I am encouraged by how well our people, agencies and clients are responding to our new strategic direction. Our expectations for the full year are unchanged (organic revenue down 1.5-2 per cent.).

“Our newly formed agencies are showing initial signs of success in new business pitches. The most recent merger, Wunderman Thompson, has followed VMLY&R’s strong start by winning Duracell’s international creative account. BCW (PR company Burson Cohn Wolfe) has brought in nearly $70 million in new business in its first year.”

WPP’s biggest creative loss was Ford which was handled by its bespoke GTB agency. Ford went to Omnicom’s BBDO and independent Wieden+Kennedy.

The good news, such as it is, is that net debt has fallen to £4.163bn (billion), compared to £4.875bn in 2018 (at 2019 exchange rates), a decrease of £712 million.

Read also says the sale of some or all of research arm Kantar is proceeding well with interest from a number of companies. Kantar, which performed reasonably well in the quarter, is valued at around £3bn. WPP would be almost debt free if a sale realised this amount.

WPP shares rose slightly in early trading as the overall numbers are roughly what the market expected and Read stuck to his previously announced guidance for the year.

Meanwhile, back at Sorrell’s S4, MediaMonks, the Netherlands-based digital production company it bought last year, has bought Amsterdam’s well-established Caramel Pictures which works for big name clients including Coca-Cola, Danone, Nestlé and Unilever. S4 says such clients are increasingly exploring “in-house, co-location and fit-for-format creative content models.”

S4’s MightyHive US programmatic media business is in the process of buying Brazil’s ProgMedia, founded two years ago by ex-Googlers Bruno Rebouças and Natalia Fernandes. This will become MightyHive’s Latin America base.

Sorrell says: “Client interest in our purely digital, first party data, always-on 24/7 programmatic model is frenetic. These two further strategic moves in the premium quality, digital content area and programmatic in Latam deepen and broaden that powerfully attractive offer.”

So take that, Read and WPP.

Read says: “We continue to make good progress in implementing our three-year strategy to return WPP to sustainable growth.” Lots of people, including shareholders, will hope he’s right and we wait to see if actions like the VMLY&R and Wunderman Thomson mergers can turn things round.

These will take time to bed down and there’ll be losses of clients and key people along the way. North America, in particular, may require more drastic surgery. More disposals, maybe even of a creative network, are surely on the cards and, sooner or later, Read may have to consider appointing a North America boss to try to get a grip on what’s turning into a drama – possibly even a crisis..

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