London (Reuters): WPP will invest to hire new creative staff and reduce costs by cutting offices and jobs under a plan by new boss Mark Read to steer the world’s biggest advertising group back to growth.
A company veteran who replaced founder Martin Sorrell during a period of turmoil earlier this year, Read set out his vision after a loss of key clients lead to several profit warnings and a 40% slump in its market value.
Read said trading had improved slightly in the fourth quarter, clients remained supportive and the dividend would be maintained. WPP will spend 300 million pounds over three years to restructure and cut costs of 275 million pounds a year by 2021.
Up to 3500 jobs will go, while it will hire around 1000 more to improve its senior leadership in its New York agencies on Madison Avenue. The company, which employs 130,000 people, will also roll out its most successful technologies across the whole group to help clients.
“We need a simpler WPP, we need to invest in the future,” Read told Reuters.
“WPP has become too unwieldy, with too much duplication. It is not always as focused or as fleet of foot as it needs to be to satisfy the needs of all our clients around the globe.” WPP shares were up 5% at 1010 GMT, giving it a market value of 10.8 billion pounds.
Analysts largely welcomed the plan but Ian Whittaker at Liberum questioned whether WPP could have gone further by cutting the dividend and slimming down more to protect margins.
A target to return to the low single-digit revenue growth rates of peers Omnicom, Publicis and IPG by 2021 indicated it will not get to those levels before then.
WPP said full-year organic net sales were set to fall 0.5% this year, compared with an October forecast of down 1%, and it warned that recent account losses from the likes of Ford would provide ‘headwinds’ in the first half of 2019.
Whittaker said he understood why WPP maintained the dividend, but added: “There was a case for being bold, reducing or scrapping the dividend and using the near 800 million pounds of cash savings for greater reinvestment.”
Forced to act
Read has been forced to act after the group hit the buffers in recent years. Sorrell quit in April after a complaint of personal misconduct, which he denied.
The world’s most famous advertising boss built WPP from a two-man office in central London into the world’s most powerful advertising company offering creative work, media buying, public relations, consultancy and data analytics.
It outperformed rivals for years, but growth evaporated in 2017 due to competition from consultancies and tech groups Facebook and Google, which enable clients to cut out the middle men and place ads directly.
Clients have also complained that WPP, now in 112 countries, is too complex due to its holding company structure where multiple networks, agencies and businesses all compete with each other to win work, meaning clients have to deal with hundreds of people across the group to get one service.
Read, a company veteran since he wrote to Sorrell asking for a job in 1989, has sought to break down barriers between its multiple agencies, which also include PR groups Finsbury, market research firm Kantar and creative group Grey.
He has merged its famous JWT ad agency with its digital outfit Wunderman, merged the Y&R creative group with digital agency VML and aligned its U.S. healthcare groups with other agencies. Structural changes made so far collectively account for 23% of WPP revenue.
The group will also have an executive committee for the first time, drawn from corporate and company leaders, to provide better oversight of group operations, and it will review incentive schemes to align with the new strategy. ($1 = 0.7857 pounds)