WPP delivered blow by ratings agency – Sorrell's departure "introduces uncertainty going forwards"

Oliver Gill
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Advertising Week Europe 2016 - Day 2
Sir Martin Sorrell (left) took over at WPP in 1985 (Source: Getty)

WPP was today delivered a blow by a leading credit ratings agency, which published a gloomy outlook for the under-siege advertising behemoth.

Moody's revised its outlook on WPP to negative. The move follows the sudden departure of Sir Martin Sorrell, who quit as CEO over the weekend after 33 years at the helm.

Sorrell stepped down following a probe into alleged misconduct, one which has been concluded but the findings remain secret. WPP has insisted "the allegation did not involve amounts that are material".

Today, Moody's said Sorrell's exit "combined with the company's recent operational weakness relative to peers, result[ed] in credit metrics which continue to be weak for the rating category".

WPP delivered a string of revenue downgrades over the last year. The firm has been hit by companies cutting advertising budgets and the disruption of tech giants such as Google and Facebook.

Read more: Exclusive: WPP stalling payments as Christmas looms

Weakly positioned

Moody's said WPP was "weakly positioned" prior to Sorrell quitting. It added client retention risk has been increased with the 73-year-old's exit that "could hence hinder WPP's ability to meet its 2018 guidance".

"Sir Martin Sorrell's resignation comes at a time when the company is already facing a number of operational challenges and introduces uncertainty over the strategy and ultimately the structure of the group going forward," said Moody's assistant vice president Christian Azzi.

The outlook publication comes amid calls for WPP to publish details of Sorrell's misconduct probe. Former business secretary Vince Cable said there had been a "lack of transparency" over what had actually gone on. And leading proxy adviser Glass Lewis said yesterday it would "prefer" WPP to make the findings public.

The rating agency went onto say WPP's performance "is significantly below that of its agency peers" such as Omnicom, Interpublic and Publicis

This is partly due to the company's [WPP's] higher exposure to consumer packaged goods advertisers, some large account losses in the year (AT&T, Volkswagen) and weaker than expected demand in China.

Current pressures are likely to persist through 2018 and, given the currently low visibility on advertising budgets as well as the second-half weighted revenue profile, WPP's guidance of flat organic growth in 2018 is uncertain and highly reliant on many factors outside of the company's control.

After shedding six per cent yesterday, shares were comparatively quiet today, up 1.4 per cent.

Read more: Proxy giant wants details of WPP Sorrell probe to be made public

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