WPP – a firm building for the digital age
WPP ISN’T A household name, but as the world’s largest advertising group, you probably see its work every day.
Clients range from Adidas to Shell, and services stretch through print and social media to PR and market research.
This year’s dramatic departure of founder Sir Martin Sorrell, even as profits slid, means the future is uncertain.
The problem is in North America – WPP’s highest margin, highest revenue market – where sales have been falling.
Advertising is cyclical, but we worry it’s more than just normal ups and downs.
The industry’s increasingly digital, where companies such as Google allow advertisers to go direct to customers, potentially cutting WPP out of the loop. WPP has played down the threat, blaming spending cuts at companies like Unilever instead, but it’s hard to imagine tech groups aren’t having an effect.
Last week’s half-year results saw former Chief Operating Officer Mark Read appointed CEO. It’s far too early for him to have set out his plans; but debt targets have already tightened after borrowing climbed around 60 per cent in five years.
Those new targets are likely to see some companies sold, potentially including market research arm Kantar.
With dividends above the target payout ratio, dividend growth could be low in the near future as well. They might even be cut (from a current prospective yield of 5.2 per cent), with a steady flow of share buybacks and acquisitions drying up too.
That all sounds pretty bleak, but Sorrell put the bare bones of a turnaround strategy in place before his departure.
WPP plans to simplify itself, increasing co-operation between various agencies, and focusing on digital media and faster growing economies. Early results have landed new clients and broader mandates.
Selling multiple services to global giants is lucrative, makes the most of WPP’s scale and is beyond internet rivals. We’d expect it to be a key plank of new strategy.
WPP may not be the steady growth engine of a couple of years ago, but nor is it in dire straits. The sprawling media empire needs taming, but has the raw materials to build a successful company for the digital age if all goes well.
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