It’s not often that a CEO strikes an upbeat note after losing the not inconsiderable sum of nearly £2.8 billion but that seems to be the message from WPP CEO Mark Read (below.)
As with many companies that have grown chiefly by acquisition, there comes the awful moment when you need to acknowledge that the business that’s left isn’t worth what you paid for it and WPP’s full year results for 2020 include a further £3.1bn of impairments including £2.8bn of goodwill. It’s worth recalling that WPP paid $4.7bn for Y&R (now a part of VML Y&R) 20 years ago.
Analysts look at organic growth to try to measure a company’s prospects and, on an operating basis, WPP’s equivalent of this (like-for-like revenue less pass-through costs) was down 8.2% in 2020, behind Interpublic and Publicis but ahead of Omnicom. Since lockdown the quarterly figures were -15.1%, -7.6% and -6.4% in Q4.
By major markets: US -6.2%, UK -7.4%, Germany -0.8%, Greater China -12.1% (a surprise as the China market seems to have mostly recovered) and India -8.9%.
Net debt is now down to £0.7bn, which is moderately reassuring. WPP is forecasting 2021 organic growth of “mid-single-digits” with improved operating margins.
Read says: “In December 2020, we outlined our plans to continue to transform our business, to accelerate our growth and to put purpose at the heart of what we do. We see many areas of attractive growth for WPP, from the permanent shift to ecommerce, the digitisation of media and the need from our clients to convert brand purpose into action. The past 12 months have demonstrated the importance and impact of communications.
“The demand from clients for simple, integrated solutions that combine outstanding creativity with sophisticated data and technology capability is only set to grow and, while uncertainties remain around the impact of the vaccine roll-out and economic growth, we continue to expect 2021 to be a year of solid recovery.”
Leaving the red ink aside, these numbers are in line with what Read promised investors. Read has largely re-organised WPP, in particular by merging his creative agencies into VMLY&R, Wunderman Thompson and AKQA Group (now including Grey.) Ogilvy remains standalone. 2022 may see some similar moves among the media agencies grouped in GroupM.
We wait to see how the share price reacts and, indeed, the reaction of company founder and former CEO Sir Martin Sorrell – now ensconced at digital-first S4 Capital.
If Read can deliver the growth he’s promising in 2021 (without any more horrible impairments) then it may be a case of job done.
Update: WPP shares rose to a year high in early trading, valuing the company at over £11bn – almost twice what it was in the post-Sorrell doldrums.