Poor fourth quarters in the US and UK drag down WPP

WPP went backwards in Q4 2019, after a brief Q3 uptick of 0.5 per cent in its favoured measure of organic growth, with the US and UK driving down organic growth for the year to minus 1.6 per cent, just within its guidance of up to minus two per cent. Q4 organic growth across the piece was minus 1.9 per cent.

North America, its biggest and most problematic market, was down 4.4 per cent in Q4, with media operation GroupM taking some of the blame. The UK was down 3.3 per cent, a surprise after a better performance in the rest of 2019.

Profits attributable to shareholders fell 33 per cent to £628m from £937m, reflecting £153 million of restructuring and so-called transformation costs and £48m of goodwill impairment. In constant currencies, profits attributable to shareholders fell by 33.8 per cent. Headline operating margin fell from 15.6 per cent in 2018 to 14.4 per cent.

Billings fell 1.4 per cent to just over £53bn. You get the message…if there is any good news it’s that WPP’s net debt is down from about £4bn to £1.5bn, chiefly thanks to the disposal of 60 per cent of Kantar to Bain. WPP CEO Mark Read is sticking with his forecast of no growth in 2020 and growth in line with industry peers by 2021, although said industry peers are performing at markedly different rates.

US rivals Omnicom and Interpublic are up while Publicis is forecasting no growth in 2020 from minus 2.3 per cent in 2019 while Japan’s Dentsu is currently making a loss.

WPP’s shares plummeted nearly 15 per cent in early trading this morning, although most shares are heading south because of the Coronavirus outbreak. Omnicom’s OMD media operation in the UK closed today because of a feared victim.

Read (above), as ever, struck a moderately optimistic note saying: “We said that we would make progress in the journey to return WPP to growth, simplifying our business and reducing our debt, and we have delivered against each of these goals – having met our guidance for 2019, achieved our restructuring targets and completed the sale of a majority stake in Kantar.

“The second half of 2019 was stronger than the first, with performance improving globally and in the United States, our largest market. Our new offer of creativity powered by technology has resonated with clients, as we’ve seen in good retention rates and important wins. New creative assignments include Instagram and Mondelez, and AXA, eBay and Hasbro were among the media wins.

“Perhaps most importantly, our clients and our people tell us that WPP has a clear new sense of purpose and is successfully instilling a culture of creativity, collaboration and openness. As we enter the second year of our three-year turnaround plan, our ability to attract and retain the best people is key to long-term growth.”

He may be right and Read, for the most part, is proving a popular leader at WPP. But the pretty dramatic fall-off in the US and UK in Q4 is alarming (prompting most of the share price drop) and it’s hard to see how he can get all the parts of this still vast operation (it employs over 100,000 people, with 50,000 or so involved in GroupM) moving forwards at the same time.

The Coronovirus will make life even tougher in the first quarter of 2020. WPP’s market capitalisation is now “just” £9.58bn compared to a one-time high of around £20bn. In dollars Omnicom’s is 15.7bn.

Will shareholders and private equity companies, always hunting for deals, give his strategy of steady improvement while keeping the company together, the time it needs?

This is a corrected version of an earlier story.

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