Sorrell-free WPP takes 'fresh look' after tough first quarter

WPP left its guidance for 2018 unchanged amid a “fresh look” at strategy and potential for growth, after a first quarter that saw the departure of longstanding boss Martin Sorrell in controversial circumstances.

The FTSE 100 advertising giant said reported revenue was down 4.0% at £3.56bn, with currency headwinds of 6.0% resulting in a constant currency revenue rise of 2.0%, while like-for-like revenue improved 0.8%. North American sales fell 12.3% due to a 10.6% currency drag.

Reported revenue, less pass-through costs, was down 5.1% at £2.95bn, while currency headwinds of 6.1% resulted in that measure being up 1.0% in constant currency, while LFL revenue after pass-through costs was down 0.1%.

Constant currency net debt as at 31 March was £354m higher on the same date in 2017, with average net debt in the first quarter of 2018 up by £357m over the same period in 2017.

WPP, which made share buy-backs of £145m during the quarter, won net new business of $1.74bn in billings in the quarter.

Over the weekend reports there were reports that private equity group CVC Capital had approached WPP about acquiring the advertising giant's Kantar market research division, following the collapse of merger talks with peer Neilson that had valued the unit at roughly £4bn.

Chairman Roberto Quarta did not touch on the topic of potential deals and said guidance for 2018 remains unchanged. "WPP has high-quality management teams throughout the business, and they continue to deliver for our clients.”

Quarta said joint chief operating officers Mark Read and Andrew Scott were providing the stability and leadership WPP required, but there was “no standing still”.

“They have my and the board's full backing to review the strategy, to come back to us with recommendations, and to move forward decisively to implement our vision for the group.”

Read and Scott said in a joint statement that in the last two weeks they had focused on spending time with clients and people, and the response had been “very encouraging” and "expressed their continued support for and confidence in WPP".

“This should not come as a surprise. As we said to our people across the group, our companies and client teams are exceptionally good at what they do.”

Read and Scott added: “WPP has unrivalled assets and capabilities - the world's most-awarded creative agencies; the number one media buying and planning business; many of the world's leading research, data and insight companies; leading positions in fast-growth markets; world-class digital brands; and strong mutual relationships with technology companies such as Adobe, Amazon, Facebook, Google, IBM, Microsoft and Salesforce - to name but a few.

“We intend to build on these strengths by taking a fresh look at our strategy, developing a vision for the group that recognises the challenges and opportunities presented by the structural shifts in our industry, and executing resolutely against it.”

The pair’s priority was to focus on growth, they explained.

“We will proactively address the under-performing parts of our business and we need to ensure that our capital is deployed to those areas that will grow fastest and maximise shareholder value.

“Looking ahead, we will get even closer to our clients, and provide faster, more agile, more integrated solutions with data and technology at their heart - making it simpler to access the wealth of talent, creativity and capabilities we have within WPP.

“Concentrating our efforts on stimulating growth for our clients, and organising the group to make that possible, is the best way to restore growth for WPP and all its stakeholders.”

Shares in WPP were up 8% to 1,238p by 1030 BST on Monday.

The positive reaction likely derives from a combination of factors, says Mike van Dulken at Accendo Markets, including Q1 not being quite as weak as expected and not enough to jeopardise 2018 guidance, with management expecting a slightly stronger second half.

Van Dulken also noted the potential for a disposal of Kantar: "This could be a first step towards simplifying the media/advertising giant in the post-Sorrell era, allowing it address underperforming businesses and focus on growth, something we will hear more on from a pending strategic review.

"If such a transaction goes ahead, might it be the opening scene of the break-up that many have been calling for after the group (or rather its CEO) got too big (for his boots)? Or just careful pruning?"