By Kate Holton
LONDON (Reuters) - WPP (L:WPP), the world's biggest advertising group, vowed to break down the barriers between its agencies to support clients better after its worst results since the financial crisis and a disappointing outlook sent its shares plunging.
The news capped a rough year for one of Britain's biggest companies which cut its sales outlook three times after major consumer goods clients such as Unilever (LON:ULVR) cut spending and as Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and consultants Accenture encroached on to its territory.
Its shares dropped 14 percent in early trading, putting it on track for its worst day in 20 years and wiping 2.3 billion pounds off its market value. Investors had expected it to echo peers Omnicom (N:OMC), IPG (N:IPG) and Publicis (PA:PUBP) in sounding more upbeat about 2018.
"2017 for us was not a pretty year," the company's founder and Chief Executive Martin Sorrell said.
To counter the pressures WPP plans to accelerate a programme to simplify the business by aligning digital systems, platforms and capabilities to provide bespoke teams for its clients as opposed to the different agencies that currently compete with each other to win contracts.
WPP employs more than 200,000 people in 112 countries through major agencies such as JWT, Ogilvy & Mather and Finsbury that provide advertising services, research, public relations and data analysis.
A strategy it currently uses for its biggest clients such as Ford and Colgate-Palmolive, where it creates a single team to provide all the services required by that company, rather than through its multiple agencies, could be rolled out more widely.
"Clients want things to be much more agile, simplified, better and cheaper and that is what we have to respond to," Sorrell told Reuters. "We have been going in that direction but we have to go faster."
WPP reported a 0.9 percent drop in 2017 underlying net sales, after predicting a broadly flat outcome in October, with demand particularly weak in North America where net sales fell 3.2 percent. Britain was one of the strongest performers.
For 2018 it said the group's budgets were being set on the basis it would see flat growth for revenue and net sales, with the headline operating margin also flat in constant currency.
That looks particularly cautious because 2018 will include the soccer World Cup, the Winter Olympics, mid-term U.S. elections and a generally more buoyant global economy, factors that would normally boost its sales.
However net sales were down 1.2 percent in January, showing little sign of improvement.
Richard Hunter, head of Markets at Interactive Investor, said cost conscious companies were taking a shorter-term view while there were red flags around the North American region.
"Competition is increasingly fierce within the sector, and the jury is still out as to whether WPP has suffered due to a cyclical change, or whether the landscape is actually structurally different," he said.
"The general view of the shares as a buy has been in place for some time, although this will come under increasing pressure in the absence of some rather more positive prospects."
