WPP Earnings Whacked by Sterling's Strength
Results at WPP, the world's largest agency holding company by revenue, were hit by the strength of the British sterling and CEO Martin Sorrell indicated the company was looking to cut costs through back-office consolidation.
WPP reported revenues climbed 2.7% to $9 billion in the first six months of 2014, with pre-tax profits up 1.5% to $813 million. Profits attributable to shareholders rose 30% from a year earlier to $605 million.
The strength of the pound had a big impact on the British communications giant's results. Billings, for example, were down 3% to $55 billion, but would have increased 5.7% without the effect of exchange rates and revenues would have been up by 11.3%, the group claimed.
Speaking to analysts in London, Mr. Sorrell said the slow growth environment, where clients want more for less -- or more for the same -- would inevitably lead WPP to a focus on procurement and finance.
"We are not running at perfect efficiency," he said. "There are other things we can do. There is no reason in theory why we shouldn't have one back office. We don't have standard processes, we don't offshore much and we don't outsource much. We brought [Group CIO] Robin Dargue in from Alcatel a few months ago and he's driving this back office consolidation and simplification, but there is much more to do."
Mr. Sorrell said it costs $25,000 a year just to have a desk in New York, whereas the full cost of an accountant in Mumbai or Deli is $27,000 annually.
The WPP chief also stirred up speculation about industry consolidation, specifically concerning Havas. "With Havas I heard this morning that there's a possibility of Vincent Bolloré's son [Yannick Bolloré, Havas chairman and CEO] maybe running Canal Plus which is part of Vivendi, or he's eager to do that, which I think raises questions about what's going to happen in Havas," he said. "The question of Vivendi and Havas and whether they'll get together is raised as well."
There has been widespread speculation that Havas, a distant No. 6 in the ranking of global agency companies, is likely to be sold or become part of French media and entertainment group Vivendi, where Vincent Bollore is the largest shareholder and chairman. Yannick Bollore denied Havas was in talks with Vivendi as recently as March.
At WPP, North American revenues were up 2.1% to $3.1 billion for the first half of 2014, but just 0.9% to $1.6 billion in the second quarter. This was due to a decline in the rate of growth in advertising, media and healthcare, which was offset by stronger growth in data investment management and public relations in the region.
In WPP's home market of the U.K., where currency effects don't apply and media growth was strong, revenues were up 21.7% to $706 million in the second quarter, and up 17.2% to $1.3 billion for the first half overall.
The eurozone continues to present challenges, with western continental Europe revenues down 2.1% to $1.08 billion in the second quarter and down 1.1% to $2.06 billion for the full six months.
Faster-growing markets of Asia Pacific, Latin America, Africa and the Middle East, Central and Eastern Europe saw revenues up 4% to $1.42 billion in the second quarter, more than double the first quarter growth rate.
WPP's new business this year includes MEC's $1 billion Vodafone global win, David's $325 million Burger King global win, and Mindshare's $250 million Pepsi win in China. Other brands moving to WPP agencies this year include Miller Lite, eBay, Tiffany & Co, Estee Lauder and Volvo.