WPP’s full 2017 financial results released today confirm that last year was a difficult one for the agency holding group. The company also produced data which it says illustrates that consultancies aren’t to blame for the holding group’s struggles. The results show flat like-for-like top-line growth and stagnant operating profits, with WPP CEO Sir Martin Sorrell acknowledging that 2017 “was not a pretty year”. The group plans to continue consolidating its subsidiaries into a more streamlined offering, and expects better economic conditions to produce better results this year.
Commenting on the results, Sorrell said that other factors beyond ‘the duopoly’ or competion from consultancies were responsible for WPP’s woes. “The major factors influencing this performance were probably the long-term impact of technological disruption and more the short-term focus of zero-based budgeters, activist investors and private equity than, we believe, the suggested disintermediation of agencies by Google and Facebook or digital competition from consultants,” he said.
In an analysts presentation, Sorrell also provided some interesting data on whether consultancies are eating ad agencies’ “digital lunch”. He argued that there had been an element of “fake news” around the extent to which consultancies have been stealing ad spend from agencies, and laid out the significant cases in which WPP had competed with consultancies.
The data shows that for accounts worth more than $2.5 million, WPP beat out consultancies nine times out of twelve, winning £53 million worth of business and losing out on £11 million.
Sorrell also took aim at the idea that the big tech companies, namely Google, Facebook, Amazon, Alibaba and Tencent, are going direct and cutting out agencies. Google and Facebook were the two media owners who WPP spent most with last year, compared to 2012 when Google ranked fourth and Facebook ranked 28th. Sorrell cited a range of partnerships WPP is working on with tech companies as demonstrations that his company is not being squeezed out by the tech giants.
Instead, Sorrell maintains that short term zero-based budgeting, which requires all expenses to be justified in each new period, is bringing down ad spending. He believes that brands aren’t properly appreciating the long-term value of advertising, focussing instead on the short term costs.
The company will accelerate its “horizontality” strategy of simplifying the structure of the group itself. ““As we build an increasingly unified WPP, we are focusing on a number of areas that will allow us to deploy our deep expertise with greater flexibility, efficiency and speed,” said Sorrell.
“These include: further simplification of our structure; stronger client co-ordination across the whole of WPP, including greater responsibility and authority for global client teams and country managers; the development of key cross-Group capabilities in digital marketing, digital production, eCommerce and shopper marketing; further sharing of functions, systems and platforms across the Group; and the development and implementation of senior executive incentives to align them even more closely to Group performance,” he added.
Regardless of WPP’s confidence in this strategy, investors might take some convincing. The market reacted very negatively to the results, with WPP’s share price falling 15 percent, its largest single-day drop in 20 years.