WPP’s slump in year of turmoil
Big-name clients defecting to rivals First sales fall in 16 years predicted Share price is down by a quarter
NEW WPP boss Mark Read’s baptism of fire is set to continue this week as he unveils disappointing figures to the City.
Analysts fear the advertising behemoth is in need of ‘radical surgery’ and are forecasting an annual revenue fall of 4 per cent.
A sales drop, at the end of a tumultuous year in which its founder and chief executive Sir Martin Sorrell, 73, departed in controversial circumstances, would represent the FTSE100 firm’s first yearly fall in turnover since 2002.
Read, 51, who formerly led WPP’s digital agency Wunderman, was appointed as Sorrell’s successor early last month. Sorrell, who founded WPP in 1985, left the business following the conclusion of a board investigation into mysterious allegations made against him. It was later reported that Sorrell had been accused of paying for a prostitute on company expenses – an allegation he strenuously denied.
Read’s early weeks have been plagued by a series of high-profile contract losses, including from US car giant Ford earlier this month. Sources said these losses would not be felt until next year.
But WPP’s share price has already fallen by around a quarter over the past year, closing at £10.34 on Friday. Under Sorrell, the company was known for buying up large numbers of small businesses in the advertising industry. However, according to Refinitiv data, it has made just 11 acquisitions this year, down from 25 last year. In July, WPP lost out to S4 Capital, a new investment vehicle led by Sorrell, in a bidding war for Dutch agency Media Monks. Analysts expect third-quarter turnover, which will be reported on Thursday, to be flat on last year’s figures, thanks in part to the lower value of sterling.
The company is expecting likefor-like growth to be near-flat at 0.3 per cent for the year as a whole. But, according to a Bloomberg compilation of analyst expectations, the City is anticipating a 4 per cent drop in total turnover, from £15.3billion in 2017 to £14.7billion. Earnings, meanwhile, are forecast to drop 4 per cent to £2.4billion.
Sources said the fall of sterling, which has been prompted by Brexit uncertainty, would be a major factor, because WPP is a global business and most of its revenues are paid in foreign currencies and then exchanged into pounds.
Like-for-like revenues fell 0.3 per cent last year – WPP’s worst turnover performance since 2009. But its total revenue figure, which includes the impact of currency changes, has not dropped in 16 years.
Steve Liechti, an analyst at City broker Numis, said: ‘We fear WPP might need more radical surgery than currently communicated.’
In a note to investors, he added that his team at Numis are ‘worried over the scale of US problems’ the business is facing, citing Ford’s decision this month to drop WPP as its lead creative agency in favour of its rival, Omnicom.
Ian Whittaker, a media analyst at City broker Liberum, said Ford’s decision was a ‘blow to prestige’ for WPP, but he suggested it would not have a major economic impact on the business. He added that some would question whether Sorrell’s departure was a factor in WPP losing Ford.
When Read was introduced as the new chief executive last month he admitted the company was ‘underperforming’ in the US, which is by far its biggest market.
As well as Ford, the company has also lost high-profile contracts including American Express, GlaxoSmithKline and car firm Opel in Germany in recent weeks.
Read is expected to launch a new strategy for the business in December or early next year.