WPP Shares Dive As Firm Reveals Weak 2017 Results

Shares of WPP fell 14% on the London stock exchange Thursday after it released full-year 2017 financial results which were the company’s worst since the major recession ten years ago.

WPP reported a slight organic revenue decline (-0.3%) for the full year on total reported revenue of 15.265 billion British pounds (about $21 billion at today’s exchange rate). Reported revenue growth was 6.1%.

By comparison, Omnicom reported 3% organic revenue growth for the full year, Interpublic reported 1.8% and Publicis Groupe reported 0.8. Like WPP, Havas ended in negative territory, at 0.8%.

WPP’s organic revenue growth (which strips out M&A impact and currency fluctuations) in the fourth quarter was a bit better, reaching 1.2%. The holding company reported a net sales decline (revenue less pass-through costs) of -0.9 for the full year and -1.3 for the fourth quarter.



Organic growth in North America was just over 1% for the full year.

Commenting on the results, WPP CEO Martin Sorrell acknowledged that “2017 for us was not a pretty year.” The firm had originally thought it could achieve 2% organic growth for the year.

Major factors, Sorrell added, “were probably the long-term impact of technological disruption and more the short-term focus of zero-based budgeters, activist investors and private equity than, we believe, the suggested disintermediation of agencies by Google and Facebook or digital competition from consultants.”

This year is looking to be a tough slog as well, per the company’s guidance, which currently forecasts flat organic revenues and net sales.  In January organic revenue was flat, while net sales were down 1.2%, against what the company termed “more difficult comparatives in the first quarter of last year.”

To help drive growth, Sorrell said the firm would “accelerate” efforts to “simplify” the company’s structure to further unlock the benefits of “horizontality” for clients. By horizontality, WPP means the ability to quickly and efficiently apply the breadth and depth of the talent and resources across the holding company to service individual client needs.

 In the past year that simplification effort has resulted in the consolidation and merger of a number of the company’s agencies the most recent example occurring earlier this week with the merger of Burson-Marsteller and Cohn & Wolfe. In a bid to boost horizontality further the firm has appointed more than 50 global client leaders who are tasked with ensuring that clients have access to the resources across the group to service their needs and goals.

“In this environment, the most successful agency groups will be those who offer simplicity and flexibility of structure to deliver efficient, effective solutions – and therefore growth – for their clients,” Sorrell said. “With this in mind, we are now accelerating the implementation of our strategy for the Group.”

The company also said that more incentive compensation would be allocated based on group-wide results to foster cooperation among different operating units.

Pivotal Research senior analyst Brian Wieser issued a note to investors commenting that “the results reinforce a negative narrative towards agencies in general and WPP in particular. Marketers still need to cycle through zero-based budgeting exercises and efforts to apply enhanced contract scrutiny to their contracts. Some trends or perceptions of trends are unlikely to go away, including like-for-like fee compression, wider-scale in-housing of programmatic buying and creative production, slowing shifts of spending into digital media and competitive threats – modest as they are – from consulting and IT services firms.”

But Wieser said he believed the market over-reacted in pushing WPP’s stock sharply down. “Current trading levels imply more than 15% of upside, and consequently we are upgrading our recommendation from Hold to Buy.

Wieser said he believes “normal growth trends” will resume but not for another at least. “Over longer time horizons, it should never be all doom and gloom for agencies. They continue to contain vast networks of entrepreneurial individuals, most of whom are capable of continuously finding new ways to generate revenue. They continue to offer unique value by offering best practices, scale where it matters (as with media) and best-in-class expertise on a wide range of marketing disciplines.”


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