LONDON (Reuters) - WPP’s (WPP.L) new boss Mark Read vowed to invest in creative talent in the United States to strengthen its position on Madison Avenue, as he seeks to rebuild the ad group by prioritizing sustainable growth over short-term profits.
Presenting the group’s first-half results after being confirmed on Monday as CEO, Read said WPP had returned to top line growth for the first time in more than a year and nudged the 2018 net sales target higher, but margin concerns set the tone.
Shares in WPP, the world’s largest advertising company, fell 8 percent, the biggest loser on the FTSE 100 blue chip index, after it said the cost of returning to sustainable growth would lead to a cut in its 2018 margin outlook.
The results showed the challenges facing Read as he seeks to reposition the British company in the face of cautious client spending and increased competition from Google, Facebook and consultants such as Deloitte.
The group is also still recovering from the acrimonious departure of its founder and veteran CEO Martin Sorrell who left in April following a complaint of personal misconduct, which he denied.
“We took a view to get the investments in now to deliver sustained growth rather than hold back on everything to make the number,” Read said of the group margin of 13.3 percent, down 0.4 points.
WPP owns some of the most storied names in advertising, such as JWT, Ogilvy, Grey and Y&R. It combines these with data analytics, media planning, public relations and consultancy and had outperformed peers for several years until 2017.
But the market leader has been hit particularly hard in the last year as the broader industry goes through a period of unprecedented change, with clients using the giant online platforms of Google and Facebook to reach consumers.
WPP clients such as Unilever and Ford have also called for WPP to simplify its offering, to provide an integrated service via fewer people, while some clients are taking their digital media buying inhouse to save money.
All of these trends are applying pressure.
The greatest pain is being felt in the United States where a fall in net sales accelerated in the second quarter, down 3.3 percent compared with the 2.4 percent fall recorded in the first four months of the year.
Read said the traditional advertising agencies and data analysis groups in the United States were particularly struggling as big companies such as packaged goods group P&G reviewed how much they spend.
“We have to reposition our networks and strengthen the creative agencies,” he told Reuters.
“We need to invest more in creative talent there and strategic talent. Sometimes when you’re faced with cost cuts you take the wrong people out. So we need to make sure we have the best businesses in those areas.”
Read has promised to update the market on his broader strategy for the group by the end of the year, after he started selling some joint venture holdings to pay down debt.
Analysts described the results as a mixed bag, with the return to first-half net sales growth of 0.3 percent overshadowed by the warning that the full-year profit margin would be in line with the first half, down 0.4 points.
“Despite the shifting sands, WPP has delivered a robust first-half performance,” said Richard Hunter, head of markets at Interactive Investor.
“Nonetheless, there are concerns for the group, some of which have been inherited. There is something of a struggle within parts of the brand consulting unit, and the United States in particular, which is slightly alarming given the strong current growth being seen in the world’s largest economy.”
At 0915 GMT, the shares were down 6 percent, valuing WPP at 15.2 billion pounds and putting it on track for its worst day since 2011. They have now lost 15 percent in the last year as investors were discouraged by weak financial results and, until recently, uncertainty about the group’s leadership after Sorrell.
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Reporting by Kate Holton; Editing by Keith Weir and Susan Fenton