Whether you are a fan of him or not, WPP boss Martin Sorrell is always worth listening to, especially in his commentaries on the network's quarterly financial statements, which unlike his competitors' are not as dry as dust.
WPP released its Q2 and H1 2013 interims today and it is particularly significant given it is the first set of financials since Omnicom and Publicis announced their mega-merger that, if completed successfully, would propel Omnipub to be the largest global marketing services agency network.
Sorrell's holding company reported consistent revenue growth in all regions and business segments in Q2 except, unfortunately, in its PR and public affairs division, which continues to disappoint.
Overall organic revenue (or like-for-like as WPP calls it) was up 2.7% in Q2, 2.4% in H1. But PR and PA organic revenues were down 3.1% in Q2, slightly better than the 3.6% drop in the first half. This is better than the 4.1% Q1 fall posted by the division, which includes Burson-Marsteller, Hill+Knowlton Strategies, Ogilvy Public Relations, Cohn & Wolfe, and RLM Finsbury, but is still in stark contrast to performance across the rest of the business.
PR and PA operating margins dropped a shade to 13%, although Sorrell noted that H+K, C&W, Penn Schoen Berland, and RLM “showed improved margins in the first half.” There was “some improvement” in the US, Western Continental Europe, Africa and the Middle East, and Asia-Pacific – but the UK was “slower.” There was no specific mention of B-M or Ogilvy PR in the statement.
Sorrell attributed the poor PR and PA performance to “continuing client examination of discretionary spending, particularly in mature markets.” However, I'm sure it won't have escaped his notice that competing network Interpublic Group grew its organic PR revenues 9.3% in Q2 and Omnicom was up 3.8% in the same period (Publicis and Havas do not break out PR.)
And independent PR giant Edelman posted 11.6% organic growth in its full-year 2012/13 financials, which run from July to June. Clearly the “examination of discretionary spending” is not affecting them as much as it is the WPP holding company agencies.
Other trends highlighted in the release also bear close examination. One of Sorrell's favorite buzzwords is “horizontality,” which he expounded upon when I spoke to him in Cannes earlier this year and which is epitomized by the Team WPP approach utilized by clients such as Ford and Bank of America.
WPP now works with 427 national or multinational clients in four or more disciplines, and these clients make up over 56% of group revenues – it also works with 344 clients in six or more countries. Sorrell notes that over one in three new assignments in H1 were generated through joint developments across two or more group companies.
Sorrell also noted that pitch results from recent pharmaceutical client consolidations have benefited the group's healthcare businesses significantly, and that a clutch of advertising, media, and digital wins will flow through to the financials later in 2013 and in 2014. A number of these were “Team” account wins in the US.
Sorrell has often made big play of the importance of maxi- and mini-quadrennial events such as major sporting events and elections, but he conceded that last year's European soccer championships, the summer Olympics in London, and the US presidential election did not underpin growth as much as anticipated. It seems that clients switched money from existing budgets rather than allocating new funds to these events. This year is a fallow year for such occasions, but 2014 features the soccer World Cup in Brazil, Winter Olympics in Sochi, and the mid-term congressional elections in the US.
Finally, on the impact of the “big, bold, surprising” Omnipub announcement, Sorrell has raised five-year targets for WPP in terms of fast-growth markets and digital media, from 35-40% of total revenues to 40-45% each. He cheekily suggested one of the drivers of the merger was to topple WPP's dominance in the holding company of the year competition at the Cannes Lions Festival of Creativity.
One wonders whether he is eyeing up a similar big and bold acquisition of his own, maybe of IPG, which would certainly help him raise revenue growth in his PR division, which continues to lag in comparison to the rest of WPP.
Some of Sorrell's competitors will say he gives away too much of his strategic vision in these releases; others will simply pooh-pooh the statements he makes, especially on things such as the impact of quadrennials.
But for those of us starved of information in this Sarbanes-Oxley age of “transparency,” it is at least refreshing to get an insight into the thoughts of one of the most powerful people in the marketing services industry – even if not everyone subscribes to the gospel of Sir Martin.