WPP to Spend GBP300 Million Simplifying Structure in Pursuit of Growth
December 11 2018 - 3:15AM
Dow Jones News
By Lara O'Reilly
WPP PLC (WPP.LN) Chief Executive Mark Read set out his vision
for a turnaround on Tuesday, a strategy he hopes will make the
world's largest advertising company easier for clients to work with
and better-positioned to contend with the rapidly-changing
marketing landscape.
The company said it plans to simplify its structure and increase
its investments in the areas of creativity and technology as it
aims to deliver organic growth--a key industry measure that strips
out currency effects, acquisitions and disposals--in line with its
peers by the end of 2021.
Mr. Read said in an interview that the company plans to reduce
its 134,000 workforce by 3,500, or around 2.5%, as it pursues
annual savings of 275 million pounds ($348.1 million) in annual
costs by the end of 2021.
The London-based company said it would incur GBP300 million in
restructuring costs over the next three years, a period in which it
will prioritize dividends over buybacks.
WPP, like much of Madison Avenue, is facing a multitude of
challenges. Cost-cutting clients are asking for more digital and
data services from their advertising partners. Meanwhile, new
entrants, such as consulting firms, are encroaching on traditional
advertising companies' turf.
Some of the company's issues are more specific to WPP itself.
WPP's agencies have lost several key client accounts, including
American Express Co. (AXP), PepsiCo Inc. (PEP) and Daimler AG's
(DAI.XE) Mercedes-Benz. The company has also blamed a weakening a
weakening of its businesses in North America and its creative
agencies for dragging down the group's performance.
WPP, which owns agencies including Ogilvy and Grey, said it will
invest an incremental GBP15 million a year over the next three
years on its creative leadership, focusing particularly on the
United States.
Mr. Read, who took the helm in September, must now convince
investors he is well positioned to set a new course for WPP
following the abrupt exit of longtime CEO and founder Martin
Sorrell, who left the firm in April.
Still, investor patience has waned and analysts have predicted
the turnaround will take years. WPP PLC shares, which have more
than halved in value over the past two years, rose 5% in early
trading in London. In the third quarter, WPP underperformed versus
its competitors, lowered its full-year net sales and profit
guidance and warned of a tough 2019.
WPP said Tuesday that it anticipates full-year results in line
with expectations, with net sales set to fall 0.5%. In October, WPP
guided net sales to fall between 0.5% and 1.0% in 2018 and
operating margin to decline by 1.0% to 1.5%.
"In three years' time we will look back and see a very different
company, but we will get there at the right pace," Mr. Read said in
an interview.
Mr. Read had already kick-started a movement to simplify WPP's
unwieldy collection of agencies that had been built largely through
acquisitions. Last month, WPP combined its iconic creative agency
J. Walter Thompson with digital agency Wunderman to create a new
shop called Wunderman Thompson. In September, the company made a
similar move by merging Young & Rubicam, a creative agency,
with digital ad firm VML to form VMLY&R.
WPP is also planning to unload a stake in its underperforming
market-research unit Kantar Group, valued by analysts at between 3
billion and 4 billion euros ($3.4 billion-$4.6 billion). The
company said that if a transaction is agreed, it will likely be
announced in the second quarter of 2019. So far, WPP has disposed
of 16 "noncore" investments, raising GBP704 million to reduce its
debt.
Mr. Read also plans to neaten the advertising firm's executive
reporting lines. Previously, many of the heads of WPP's agencies
reported straight to the chief executive, a legacy from Mr.
Sorrell, who was known for his meticulous micromanagement of
everything from client relationships to identifying deal
targets.
Now Mr. Read has established an executive committee for the
first time as part of his efforts to implement "a more coherent
management structure" that will mean he has fewer direct reports
than his predecessor.
Other companies in the space have already undergone
reorganizations in an attempt to stay ahead of the shifts affecting
the advertising sector and make themselves more efficient for
marketers to do business with.
Omnicom Group Inc. (OMC) has also sold businesses and reduced
head count. France-based Publicis Groupe SA (PUB.FR) has simplified
its operations around a strategy it calls "The Power of One."
A fundamental issue affecting the advertising agency sector is
that "marketing spending is increasingly becoming blurred with
tech-related spending and that marketers are shifting more of the
emphasis onto the latter from the traditional style work," analysts
at Liberum Capital said in a note on Monday ahead of WPP's strategy
update.
Write to Lara O'Reilly at lara.oreilly@wsj.com
(END) Dow Jones Newswires
December 11, 2018 04:00 ET (09:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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