WPP faces testing time as organic growth slows

WPP boss Sir Martin Sorrell (below) reports its half-year results on Wednesday but it seems pretty clear what the headline numbers will show: little or no organic growth (against expectations of 0.5 per cent) although the rather well-informed Sunday Times says revenue will rise a chunky 15.5 per cent to £6.5bn, presumably aided by the weak pound (WPP makes most of its money outside the UK).

Organic growth, or the lack of it, is more or less in line with its big holding company peers although Omnicom did better (MDC much better although it’s a different beast). WPP’s preferred measure of such growth is net sales growth, usually about three per cent. If that falls sharply warning bells will ring.

The usual suspects have been trotted out for current holding company performance: big clients including Procter & Gamble and Unilever cutting back, pressure from the consultancies and tech-only firms and client suspicion of media agency programmatic digital buying which has compounded the cutbacks. Most of which WPP can hardly hope to escape. Among the holding companies it’s probably more reliant on the FMCG sector than the others, FMCG spending accounting for about 30 per cent of its revenue. Both P&G and Unilever are major clients of its various networks.

Some commentators have gone further and predicted that the conventional agency/holding company model is bust as, in a data-fixated world, clients do more of their marketing themselves or with other specialist partners. That may be true. Attracting the kind of talent to compete with tech companies and consultancies may now be beyond the means of most of the holding companies as their margins tighten.

WPP has also been hit hard by recent account losses: notably $4bn plus AT&T media, which has gone to Omnicom’s Hearts & Science, and £2bn Volkswagen lost to Omnicom’s PHD. It has won some biggish integrated accounts including Walgreens Boots Alliance and Sanofi but they’re not on the same scale.

Disappointing results, if such they be, will also turn the focus back on veteran boss Sorrell’s pay and also the issue of succession. Sorrell’s last pay was £48m, down from £70m and, for that, shareholders might expect someone who can walk on water. WPP can’t stall on the question of succession for ever.

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