WPP turnaround signals survival more than revival
BREAKINGVIEWS-WPP turnaround signals survival more than revival The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Johnson
LONDON, Aug 6 (Reuters Breakingviews) - WPP WPP.L is at least now facing the right way. In the last five years, shares in the £4 billion UK-listed group’s big European rival Publicis PUBP.PA have doubled, while its own have fallen by 60% to leave its market capitalisation uncomfortably close to its net debt. A 25% bump in the opposite direction on Thursday reflects a fading of investors’ existential concerns – but not yet a guarantee that WPP can return to where it was.
Chief Executive Cindy Rose’s main achievement thus far is to steady the ship. This time last year, WPP was reeling from a wave of high-profile client defections and grappling with a heavy debt load. Rose, who took over from Mark Read last September, has yet to restore growth. But the revenue decline is now slowing: the group’s key sales metric – revenue minus the pass-through costs that the group pays on to third parties – fell by 6.7% year-on-year in the first quarter but only 2.8% in the second. As a result, total first-half sales were a touch better than analyst expectations.
That top-line progress reflects that after the high-profile loss of clients like Mars and Paramount to Publicis, WPP has picked up at least some new ones. Meanwhile, the group’s headline operating margin improved by 20 basis points to 8.4%, thanks largely to Rose’s cost-cutting drive. She is hence largely on track to meet the initial goals of her three-year turnaround plan.
However, falling headcounts and office reductions aren’t the engines of longer-term growth, which hinges on WPP winning over new clients and converting those into sustained revenue expansion. That in turn rests on building a compelling pitch that can rival Publicis, which has invested heavily in proprietary data and analytics. That trove of information, largely acquired through M&A, also leaves Arthur Sadoun’s company in a better position to make use of AI tools – it recently announced plans to acquire data platform LiveRamp to give AI agents a deeper store of information to draw on.
The catch is Publicis also has greater balance sheet capacity for continued investment and M&A. Its net debt will be equal to around 1.2 times its EBITDA when the LiveRamp deal closes, while WPP's leverage ratio was almost 2.2 times at the end of June. Sadoun’s company trades at 13 times last year’s earnings, while WPP is on 6 times by the same metric. That means major upside if Rose can do more than mend the roof – but that will be tough.
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CONTEXT NEWS
Shares in WPP surged by more than 26% after it reported interim results on August 6, after the advertising group reported revenue less pass-through costs of nearly £4.8 billion – down 4.7% on a like-for-like basis, but ahead of analysts’ expectations.
Meanwhile, headline operating profit fell 2.7% on the same basis to £398 million.
As of 0930 GMT the shares were trading at 380 pence – up almost 24% on their opening level.
(Editing by George Hay; Production by Oliver Taslic)
((For previous columns by the author, Reuters customers can click on JOHNSON/Jennifer.Johnson@thomsonreuters.com))