WPP unveils new strategy as job cuts loom
WPP has today published its hotly anticipated strategic review, with CEO Mark Read announcing a mission to turn the beleaguered holding company into a “creative transformation” business.
Admitting WPP was “too unwieldy, with too much duplication”, Read said the advertising group would simplify its structure, close unsustainable operations and right-size or dispose of under-performing businesses.
WPP has already announced the integration of VML and Y&R, and Wunderman and J. Walter Thompson as part of the three-year plan, but today’s review added that it would establish a “consistent shared service infrastructure” to support 30 countries over the next five years.
The news means up to 3,500 jobs could face the chop as the business expects to own “fewer, more integrated” companies, but new roles could also be created to match the new creative direction.
WPP also confirmed it is in talks to sell a majority stake in market research business Kantar which, if it goes through, will happen in the second quarter of 2019.[advert position=”left”]
“What we hear from clients is very consistent: they want our creativity, and they want us to help them transform their business in a world reshaped by technology,” said Read ahead of a wider investor meeting on Tuesday. “This is at the heart of what we do.”
Read said he was “fundamentally repositioning WPP as a creative transformation company” with a simpler offer that allows it to meet the present and future needs of clients.
“This more contemporary proposition has already helped us to win new business, including Volkswagen’s creative account in North America.
“The restructuring of our business will enable increased investment in creativity, technology and talent, enhancing our capabilities in the categories with the greatest potential for future growth. As well as improving our offer and creating opportunities for clients, this investment will drive sustainable, profitable growth for our shareholders.”
WPP expects to deliver organic growth in line with its peers at a headline operating profit margin of at least 15% by the end of 2021 as a result of the strategy.
The company will incur cash costs for restructuring of £300m over the next three years to deliver estimated annual savings of £275m by the end of 2021, approximately half of which will be reinvested in the business.
Read described the approach as a “radical evolution”, however many analysts were wary.
“We give a cautious welcome to the new strategy, but feel it could have been more ambitious and wide ranging,” said Ian Whittaker, a media analyst at Liberum.
Whittaker said WPP recognised that its share price will not see much of a recovery in short-term while it focuses on running the business. “Therefore, we do not see much of a catalyst for the shares short-term,” he warned.
Meanwhile, Bloomberg analyst Matthew Bloxam said the new strategy looks more like an evolution than a radical change.
“[The plan] should ease any immediate concerns about a dividend cut, but the goal to return top-line growth to peer levels and deliver £300m of gross cost savings by 2021 might underwhelm even though this would represent substantial progress,” Bloxham said.
WPP’s share price has fallen almost 40% this year and the business reported a 0.8% fall in revenue in its third quarter trading update. After announcing today’s news, the company’s share price increased 5%.