WPP Lifer: Mark Reid joined the company in 1989 after graduating from CambridgeThank you for reading this post, don't forget to subscribe!
WPP CEO Mark Read is under pressure to reverse the struggling firm’s fortunes after the advertising titan reported more disappointing results.
It issued its second consecutive profit warning in as many quarters, attributing it to a decline in customer spending in the US and China.
What is concerning for Reed is that the poor results and decreasing valuations have fueled speculative discussions about a potential takeover, as its share price has declined by 19% this year, with alleged interest from US private equity firms.
Blackstone and Silverlake have been identified as parties that may be interested in the acquisition, but the seriousness of their interest remains uncertain.
Meanwhile, the group is embroiled in an ongoing bribery scandal in China, a market that Reed had identified as having significant growth potential.
Danny Hewson, head of financial analysis at AJ Bell, stated: ‘Mark Read has done an admirable job of stabilizing the company since assuming his position in 2018, but with the declining share price, he is starting to underperform despite the challenging circumstances. There is pressure on him to deliver.’
Reid has devoted his entire career to WPP, joining the company from Cambridge in 1989, and his previous roles included being the CEO of WPP’s digital holdings and the head of strategy.
In its third-quarter trading update yesterday, Reed acknowledged that the company had underperformed, with a 0.6% decrease in revenue. He stated: ‘Our performance has been affected by the cautious spending trends observed in the second quarter, particularly among technology clients.’
The company experienced weakness in its sales from technology customers in the US and China. Although like-for-like sales dropped by 4.2% in both countries, there was some growth in the UK and India.
Sales in Germany were also low. WPP has revised its full-year sales growth expectations to a range of 0.5% to 1%, down from the previous range of 1.5% to 3%.
Susannah Streeter, head of markets at Hargreaves Lansdown, commented: ‘Having to issue a second revenue warning in a year is not a positive development, and Reed now needs to take action and turn things around.
‘However, they are facing a whirlpool of challenges, as technological spending in North America slows down, while China’s sluggish economy proves to be another obstacle.
‘They have plans to continue consolidating and streamlining operations, with a cost-cutting roadmap unveiled in January, but with the global economy projected to further slow down, sustaining growth is likely to be difficult.’ The latest results conclude a disappointing week for Reed.
WPP dismissed an executive from its owned agency on Tuesday after the employee was detained in China by the police on suspicion of bribery. Two other individuals, who are not currently employed by WPP, are also under investigation.
Patrick Xu, the chief executive of GroupM China and the country managing director of WPP China, was questioned by the authorities but was not detained.
WPP has initiated its own investigation but stated that it cannot provide further comments while the police proceedings are ongoing.
These developments are taking place as the company prepares to update shareholders on its growth and cost-cutting strategies at its upcoming Capital Markets Day in January.
Meanwhile, WPP plans to merge its two agencies and streamline GroupM in an effort to save £100m by 2025.
No specific mentions were made about job cuts, although it is not ruling out the possibility of positions being affected.
On January 1, VMLY&R and Wunderman Thompson will merge to form VML, which is expected to contribute around 25% of the overall revenue.
WPP stated that GroupM will continue its simplification plan by merging the finance, IT, and HR services of its four agency brands.
Streeter commented: ‘Considering the significant decline in the share price and the pound’s weakening against the dollar in recent months, there is speculation that WPP could become a target for private equity takeovers.
‘However, with a market capitalization of £7.28 billion, it still remains a major player in the advertising industry, making it a challenging fish to swallow.’