Ad downturn and bribery probe cast cloud over WPP

WPP lifer: Mark Read joined the company after graduating from Cambridge in 1989

WPP boss Mark Read is under pressure to turn the struggling firm’s fortunes around after the advertising giant reported more downbeat results.

It issued a second consecutive profit warning in as many quarters, blaming a downturn in client spending in the US and China.

Worryingly for Read, the poor results and falling valuation has sparked takeover speculation as its share price is down 19 per cent this year with US private equity firms reportedly interested.

Blackstone and Silverlake have been identified as interested parties but it is not clear how serious they are.

Meanwhile, the group is embroiled in a brewing bribery scandal in China, a market identified by Read as having major growth potential.

Danni Hewson, head of financial analysis at AJ Bell, said: ‘Mark Read did a decent job of steadying the ship since his appointment in 2018 but with the share price faltering, he is under pressure to start delivering despite the difficult backdrop.’

Read has spent his whole career at WPP, joining from Cambridge in 1989, and his previous roles included being chief executive of WPP’s digital holdings and head of strategy.

In a third-quarter trading update yesterday Read admitted it had underperformed, as revenue fell 0.6 per cent. He said: ‘Our performance continued to be impacted by the cautious spending trends we saw in the second quarter, particularly across technology clients.’

Business was hit by weakness from technology clients in the US and in China. Like-for-like sales fell 4.2 per cent in both countries, offsetting growth in the UK and India.

Sales were also down in Germany. WPP downgraded its full-year sales growth expectations from 1.5 per cent to 3 per cent to between 0.5 per cent and 1 per cent.

Susannah Streeter, head of markets at Hargreaves Lansdown, added: ‘Being forced to issue a second revenue warning in a year is not a good look and Read now has to rev up the engines again and turn this ship around.

‘But he’s facing a maelstrom of challenges, as the tech spending slowdown in North America bites, while China’s sluggish economy proves another headwind.

‘The plan is to continue consolidating and streamlining operations, with a cost-cutting blueprint to be unveiled in January, but sustained growth is set to prove elusive given the global economy is expected to slow further.’ The results round off a rotten week for Read.

WPP fired an executive from an agency it owns on Tuesday after police in China detained the employee on suspicion of bribery. Two other people, not currently employed by WPP, are being probed.

GroupM China’s chief executive and country managing director for WPP China, Patrick Xu, was questioned but not detained.

WPP has launched its own probe but said it cannot comment further while police proceedings are ongoing.

It comes as the company is set to update shareholders at a capital markets day in January on its strategy to increase growth and cut costs.

In the meantime, it is to merge two agencies and plans to streamline GroupM, to save it £100m in 2025.

It did not rule out job cuts but would not comment on how many positions could be affected.

It will merge VMLY&R and Wunderman Thompson to create VML, which will launch on January 1. The division is expected to generate around 25 per cent of total revenue.

WPP said that GroupM will continue its simplification plan by merging the finance, IT and HR services of its four agency brands.

Streeter added: ‘Given the sharp move downwards in the share price, and the weakening of the pound against the dollar in recent months, speculation is rife that WPP could become a takeover target by private equity.

‘However, it’s still a giant in the advertising world, with a market capitalisation of £7.28billion, and so it would be a very big fish to swallow.’

This post first appeared on Dailymail.co.uk