Think BR: Research is dragging down WPP's performance

By Bob Willott, brandrepublic.com, Wednesday, 05 September 2012 09:00AM

Bob Willott examines WPP's half year results and questions whether its investment in research is paying off.

Bob Willott, editor, Marketing Services Financial Intelligence

Bob Willott, editor, Marketing Services Financial Intelligence

It is with considerable trepidation that one even contemplates questioning the wisdom of WPP’s investment in research businesses - what it calls consumer insight.

But against the backcloth of Aegis Group’s investment in such activities and the less than exciting rewards earned therefrom that eventually lead the group to dispose of the entire research business, it is hard not to turn the spotlight onto WPP and ask the simple question: has the investment paid off?

Let’s look at a few figures.

In the first half of 2012, research revenue grew by 1.2% while the rest of the group revenue grew by 6.9%.

In the first half of 2012, headline operating profit from research (as measured by WPP) was £84m while the operating profit from the rest of the group was £486m - in other words research contributed 15% of group operating profit while employing 24% of the group’s net assets at 31 December.

In the first half of 2012, the operating profit margin on research activities was 7.1% while the operating margin on the rest of the group’s activities was 13.2%.

What we don’t know is precisely how much WPP has invested in its research businesses over time and what return on that outlay it is currently generating. 

Be that as it may, in operating profit terms the pre-tax return on net assets employed in research at 31 December 2011 was just 3.4% while the return on net assets employed in the rest of the business was 6.1%.

Unless the group can improve the return on its research assets, the time may come when observers will ponder whether those resources could earn more elsewhere.

It may be that the group obtains synergistic benefits by being able to offer a research capability to augment its other marketing services? If so, do such benefits justify the poor return?

Doubtless WPP knows more about the background to these figures than any outsider can, and may seek to put them into a more informed context. But the general message is hard to contest, namely that the group’s investment in research businesses needs to generate a better return.

Bob Willott is editor of Marketing Services Financial Intelligence


This article was first published on brandrepublic.com

X

You must log in to use Clip & Save

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Additional Information

Campaign Jobs

  • Campaign Marketing Manager EMAP Competitive + Bonus, London (Greater) / London (East), London (Greater)
  • Exhibition Designers WRG Live Competitive salary and benefits package dependant upon experience, Manchester, Greater Manchester
  • Producer WRG Live Competitve salary and benefits package dependent upon experience, London (Central), London (Greater) / Manchester, Greater Manchester
  • Content Manager WRG Live Competitive salary and benefits package, Manchester, Greater Manchester
  • Senior Account Manager Source £35000 - £38000 per annum, London