• by Sean Hargrave , Staff Writer, October 26, 2018

WPP was once best described to me as a train set Sir Martin Sorrell put together that only he could appear to make run. Whoever would take over the network that had been pieced together through acquisitions would have a heck of a job matching the different pieces of line and getting the engines pulling together.

It seemed a good prediction at the time and it seems even better now that the new Chief Executive Mark Read is talking about not "sugar coating" the group's underperformance. Although he could point to a recent period under Sorrell's leadership where growth was similarly unimpressive, it doesn't hide the fact that Read was a lot more upbeat about WPP's figures as recently as a month or so ago. 

For this reason, The Times is calling him out for "not having a handle" on the numbers today, claiming that 2019's full-year results could show a contraction in revenue similar to the 1% lost during the third quarter of 2018. 

In Read's defence, he has only been in the role a short few months and in terms of falling share price, the wheels had begun to look a little shaky on WPP's wagon for the past couple of years.

So the direction of travel was already evident when Read took over and before yesterday nosedived on poor third-quarter figures. The big issue now will obviously be how to turn it around.

One route is to simplify the train set and sell off an asset like Kantar. That one's already ticked off and apparently the money will be rolling in from the disposal in December. Similarly agencies are being brought together, such as Y&R and VML, offering more services under one roof, making life easier and more streamlined for customers.

The trouble is, how does this raise the bottom line? Read is obviously taking a gamble that more business comes out of two being together than apart and joint costs will be shared. That beggars the question, then, of why it wasn't done before.

Presumably Sorrell saw two agencies focussing on growth separately as more likely to bring in more cash. Time will tell who was right.

The even bigger question, however, is how you make up for the loss, on the media side, of Ford, American Express, GSK, HSBC, Opel, United Airlines and Pepsi.

As The Times points out today, the new wins -- such as Mondelez, Adidas, Hilton and Mars -- only make up about a third of the revenue the holding group has lost. 

Advertisers are becoming more savvy and demanding more transparency on where their ad dollars going, how the margins are made and what happens to kickbacks. It's probably fair to say the old days of media being the cash cow that just kept on giving are coming to a close. Selling an asset like Kantar will help keep the balance sheet in the black, but will do little to alleviate the gradual decline in media margins.

As a new age of transparency beckons, it's fair to say that most people -- in the UK at least -- will not look upon WPP as being the shining light that brought this new era in but rather the old megalith that reform was brought in to counter.

It may not be fair, but it's certainly the general feeling out there regarding the large media agencies, and they don't come bigger than WPP.

It will be an interesting year or so ahead of Mark Read. The cash cow of media is producing less milk than before and so WPP is talking up creativity, which was always the less touted parted of the business under Sorrell.

For me, I can only see a gradual decline in margins carrying on for WPP.

To be honest, it's a trend that all the holding companies are going to have to deal with. I'm just not sure the train set Sorrell built will bring the joy to shareholders it once did and consolidation and selloffs might be the way of the future.

Editor's Note: This article was corrected on October 28th to remove a reference to Sir Martin's conduct at WPP before he resigned, following an investigation that found no evidence of wrongdoing. A new column has been published apologizing to Sir Martin for the oversight.