WPP Shares Tumble After ‘Walloping’ From Low Ad Spend
WPP chief executive Martin Sorrell acknowledged he was feeling the pressure after the advertising group’s shares fell precipitously on a set of full-year results that reflected a “walloping” from lower spending on advertising by multinational brands.
Shares in the owner of agencies such as J Walter Thompson, Group M and Ogilvy & Mather slumped 13 per cent in morning trading after it said challenging conditions would continue after a “slow start” to 2018. The shares ended the day down 8.2 per cent at £12.60.
Sir Martin said technological upheaval in media, production and distribution, as well as activist investor pressure to cut costs on big consumer goods conglomerates such as Procter & Gamble and Nestlé, was weighing on WPP’s clients.
Sir Martin compared the challenging trading conditions with previous slumps in WPP’s 32-year history, pointing to difficult periods in 1991, 2001 and 2009. “Is it different this time? Sure. The marketplace has changed,” he said.
“You feel under pressure, of course you do,” he added. Asked if he was the right person to take the company forward, he replied: “From a personal point of view, of course. But that’s for others to decide.”
WPP’s shares have fallen more than a third in the past 12 months following two sales warnings. “This started for us at the end of the first quarter last year,” he told the Financial Times. “Up until then we were doing 3 per cent growth on the top line. Then we got walloped.”
The company’s business model, along with other big advertising groups, has been under attack on multiple fronts.
WPP’s multinational clients are cutting costs to bolster their profit margins amid pressure from activist investors. Google and Facebook have also been attracting a dominant share of the money businesses spend on online advertising campaigns, although this has not hit WPP, given that it puts significant client money to work on those platforms. Meanwhile, professional services firms such as Accenture have emerged as able competitors to the big agencies.
In addition, the biggest consumer brands in the world are putting pressure on advertising groups to simplify their complex structures, be more transparent with their billing and deliver more efficient digital campaigns in “brand safe” online environments.
P&G, one of WPP’s biggest clients, has pledged to “reinvent” its relationships with agencies as it seeks to take more control over how its marketing dollars are spent. The maker of Gillette razors and Pampers nappies has slashed the number of agencies it works with by 60 per cent and cut agency and production costs by $750m, a figure it expects to surpass $1bn in the next few years.
“It’s time to disrupt this archaic ‘Mad Men’ model,” Marc Pritchard, P&G’s chief brand officer, told an industry conference on Thursday. Sir Martin pledged to redouble efforts to respond to change in the industry by simplifying WPP’s structure and improving co-ordination of work for individual clients by separate agencies within its stable of businesses.
Client billings at the world’s largest advertising company fell 5.4 per cent during 2017 to £56bn on a like-for-like basis. Revenues from those billings fell 0.3 per cent to £15.3bn.
Pre-tax profits rose 7.7 per cent on a constant currency measure to £2.1bn last year. The group announced a 60p per share divided for 2017, 6 per cent higher than in 2016.
Analysts at Citi noted that WPP’s revenues fell 1.3 per cent on a like-for-like basis in the fourth quarter of 2017, compared with the same period in 2016, which was worse than the market had expected.
That result for the final three months of last year was also “weaker than some of the group’s main peers”, Citi’s Thomas Singlehurst wrote in a research note.
Credit: Financial Times