WPP market value plunges
Advertising group cuts sales and profit forecasts as shares slide 17% on weak sales in US and UK
WPP lost a fifth of its market value on Thursday after problems at its New York and London creative agencies forced it to cut sales and profit forecasts, showing the scale of the task facing its new boss after the acrimonious exit of founder Martin Sorrell.
WPP lost a fifth of its market value on Thursday after problems at its New York and London creative agencies forced it to cut sales and profit forecasts, showing the scale of the task facing its new boss after the acrimonious exit of founder Martin Sorrell.
Mark Read, a veteran of the world’s biggest advertising group, said turning around WPP would take time as he sells assets, halts acquisitions and brings in new talent at its storied agencies such as JWT, Ogilvy and Y&R.
The third-quarter results wiped £2.8bn off WPP’s market value, and were all the more startling as they came after solid updates from peers Omnicom, IPG and Publicis, showing that the problems are specific to the British group. The results showed the high-margin and previously strong media units that buy ad space and plan campaigns are struggling.
“We need to have stronger creative agencies,” Read told Reuters. “We do have good people, we need more of them. This isn’t going to happen overnight. We need to be realistic about the speed at which the business is going to turn around.”
Sorrell, the world’s most famous advertising boss, built WPP from a two-man office in central London into the world’s most powerful advertising company offering creative work, media buying, public relations, consultancy and data analytics.
The group outperformed for years, helped by Sorrell’s ability to buy companies and win pitches, but growth disappeared at the start of 2017 due to competition from consultancies and tech groups Facebook and Google, which enable clients to cut out the middle men and place ads directly.
Clients have also complained that WPP, in 112 countries, is too unwieldy, forcing them to deal with multiple agencies within the group. Some clients are also taking marketing work inhouse to save costs.
Analysts said it was impossible to say if Sorrell’s departure had an effect on recent contract losses, but they noted the pressures had been building before he left in April over an allegation of personal misconduct, which he denied.
“The challenges we’ve seen in the third quarter reinforce our determination to take more radical action and to move more decisively,” Read said.
He will set out a new strategy in December. WPP will for now start by selling a stake in its underperforming data analytics group Kantar, valued as a whole at about £3.5bn by analysts.
That will help lift overall growth and add to the 16 noncore assets it has sold, raising £704m. The efforts will help to lower its almost £5bn of debt.
Sales were particularly weak in the US and Britain, and a very poor September forced WPP to lower its full-year guidance, saying net sales could fall as much as 1% versus a target of 0.3% growth just three months ago. The operating margin is likely to fall by 1.0 to 1.5 percentage points, compared with a prediction before of 0.4 down.
WPP shares were 17% lower in morning trade, taking them down 35% in the year to date and giving the group a market value of £11.1bn.
Analysts say the stock is now inexpensive compared with peers, trading at nine times 2019 forecast earnings compared with IPG on 13.6, but it has little momentum after account losses from groups such as Ford.
“WPP has delivered a proper profit warning,” analysts at Citi said. “Third quarter organic growth is below expectations and having raised guidance at the beginning of September the group has cut it hard today.”
WPP said FD Paul Richardson would step down after 22 years in the role.