Moody’s downgrades WPP outlook to negative following Sorrell exit

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WPP has suffered another blow after Moody’s downgraded its outlook for the group from stable to negative following the shock departure of boss Sir Martin Sorrell.

The credit ratings agency said that Sir Martin’s exit, which saw the long time chief executive step down over the weekend in the wake of allegations of personal misconduct, introduces “uncertainty over the strategy and ultimately the structure of the group going forward”.

It also cited “recent operational weakness” at WPP relative to its peers, such as Omnicom and Publicis, as speculation mounts that the firm will be broken up.

Shares in the firm tanked on Monday following news of Sir Martin’s departure, which marks the end of a 33-year stint at the head of the advertising giant.

Christian Azzi, Moody’s assistant vice president and lead analyst for WPP, said: “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.”

It maintained the company’s credit rating at Baa2, two levels above junk, but added that Sir Martin’s departure raised concerns over future strategy and the shape of the group.

This increases “client-retention risk and could hence hinder WPP’s ability to meet its 2018 guidance”, it said.

WPP’s higher exposure to consumer packaged goods advertisers and large account losses, including AT&T and Volkswagen, are also a cause for concern, Moody’s claimed.

“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.”

WPP carried out an inquiry into allegations that Sir Martin misused company funds, but said the amounts involved were not material.

Sir Martin, who has denied any wrongdoing, resigned on Saturday evening, saying the allegations were “putting too much unnecessary pressure on the business”.