Creativity at the core of WPPâ€™s Â£300 mn restructure to deliver growth
WPP has announced the results of its strategic review, setting out a three-year plan of “radical evolution” to return the business to growth. The strategy reflects a new vision for WPP as a leader in creativity and technology. It incorporates a simpler, improved offer designed to capture the opportunities of a changing marketplace, and a streamlined structure built around the needs of clients. It also includes additional investments in creativity, technology and talent to enhance WPP’s proposition to clients and drive top-line growth.
WPP expects to deliver organic growth (defined as like-for-like revenue less pass-through costs growth) in line with its peers at a headline operating profit margin (excluding associates) of at least 15 per cent by the end of 2021 as a result of the strategy. The company will incur cash costs for restructuring of £300 million over the next three years to deliver estimated annual savings of £275 million by the end of 2021, approximately half of which will be reinvested in the business.
Mark Read, Chief Executive Officer, WPP, commented, “We are fundamentally repositioning WPP as a creative transformation company with a simpler offer that allows us 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.”
He further said, “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.”
“We describe our approach as ‘radical evolution’: radical because we are taking decisive action and implementing major change; evolution because we will achieve this while respecting the things that make WPP the great company it is today,” Read added.
The key points of this restructure include:
Opportunities in a Changing Industry
Technology is rapidly reshaping the advertising sector, presenting challenges but also opportunities. WPP believes that the industry is facing structural change not structural decline, and is adapting at speed to capture these opportunities and to become even more client-centric than it is today.
Vision, Purpose and Identity
WPP’s vision is to be a creative transformation company, bringing together creativity and expertise in technology and data – with the purpose of building better futures for its people and clients. This competitive positioning was developed in consultation with its people and clients, and is supported by a refreshed brand identity created by WPP agencies – Superunion and Landor.
Simpler, Improved Offer
WPP’s future offer will cover four areas – communications, experience, commerce and technology. Each of these areas is critical to success for modern clients, and by bringing them together the company will better serve clients’ needs as they react to the changing marketplace, and expand WPP’s own business in high-growth sectors.
Communications focuses on advertising, content, media, public relations and public affairs, and healthcare.
Experience reflects the growing need of clients to create new brand, product and service experiences.
Commerce allows WPP to expand its growing omni-channel commerce business and its work with brands to help them succeed in marketplaces such as Alibaba and Amazon.
Technology underpins WPP’s work with both CMOs and CIOs to build and operate marketing technology that supports their consumer- and customer-facing activities.
The areas of experience, commerce and technology already represent approximately one quarter of WPP’s revenue.
A Renewed Commitment to Creativity
WPP’s most important competitive advantage is its creativity, which differentiates it from other professional services firms. WPP has significant creative strengths, having won the “Holding Company of the Year” award at the Cannes Lions International Festival of Creativity for seven consecutive years between 2011 and 2017 – but the business must invest more in this area. As part of this strategic review, WPP is making a renewed commitment to creativity, investing an incremental £15 million a year for the next three years in creative leadership, with a particular focus on the United States.
Technology, Data, Partners and Platforms
Alongside creativity, WPP will accelerate and promote its technology and data capabilities as clear sources of competitive advantage to WPP. A consistent approach will be followed across WPP by adopting a common technology strategy, leveraging the strengths of our unique technology partnerships, and making our significant existing capabilities in marketing and advertising technology available to all WPP companies for the benefit of its clients.
It was felt that WPP has become too unwieldy, with too much duplication. As a result it is not always as focused or as fleet of foot as it needs to be to satisfy the needs of all its clients around the globe. Therefore, central to the new strategy is a simpler structure, built around the needs of clients, to allow easier access to WPP’s many resources. The structure is based on three principles:
Clients: WPP will become a more client-centric organisation.
Companies: WPP will have fewer, more integrated companies equipped to adapt to a changing market.
Countries: WPP will integrate further at a country level to leverage our strengths in individual markets.
As previously announced, the Board of WPP has decided to develop Kantar with a potential strategic or financial partner, with WPP retaining a significant minority interest and strategic links with Kantar. Proposals will be evaluated on their financial and strategic benefits and if a transaction is agreed it is likely to be announced in the second quarter of 2019. Preparations are well underway and WPP has received numerous unsolicited expressions of interest.
Leadership, Talent and Culture
For the first time, WPP has established an Executive Committee drawn from both corporate and company leadership. This Executive Committee will work together to implement the new plan, and will review the company’s incentive arrangements to align with the strategy.
Progress to Date
Since April this year, WPP has made consistent progress towards its goals. This includes the creation of the integrated networks VMLY&R and Wunderman Thompson; the alignment of the company’s US healthcare agencies with integrated agency partners; and the elimination of the sub-holding company WPP Health & Wellness. VML, Y&R, Wunderman, J. Walter Thompson and WPP Health & Wellness collectively account for 23 per cent of WPP revenue. WPP has also disposed of 16 non-core investments and associates, raising £704 million to reduce its debt.
2018 and 2019 Outlook
WPP anticipates reporting full-year results in line with consensus expectations, with full-year like-for-like revenue less pass-through costs growth now expected to be closer to -0.5 per cent.
WPP is beginning a multi-year improvement programme and 2019 will be a year of investment in the business with the execution of its cost-savings programme and further actions taken to return the company to long-term sustainable growth. Previously announced account losses will create the anticipated headwind, particularly in the first half of the year.
Restructuring and Investment
The company will incur cash costs for restructuring of £300 million over the next three years, reflecting actions to position the company for growth, address under-performing units and streamline our operations.