WPP chief Mark Read sets turnaround plan in motion
CEO plans to cut jobs, simplify structure and increase investments over next three years
WPP PLC 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 better-positioned to contend with the rapidly changing marketing landscape.
The company plans to simplify its structure and increase investments in creativity and technology as it aims to deliver organic growth—a key industry measure—in line with its peers by the end of 2021.
“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 also said the company plans to reduce its 134,000 workforce by 3,500, or around 2.5%, as it pursues annual savings of £275 million ($348.1million (U.S.)) by the end of 2021.
The company said it would incur £300 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 increasingly are asking for more digital and data services from their advertising partners. Meanwhile, new entrants, such as consulting firms, are encroaching on the traditional turf of advertising companies.
WPP’s agencies have lost several key client accounts to competitors, including American Express Co., PepsiCo Inc. and Daimler AG’s Mercedes-Benz. The company also has blamed weakness in its North American business and its creative agencies for dragging down the group’s performance.
WPP, which owns Ogilvy and Grey, said it plans to invest £15 million a year until 2021 in creative leadership, focusing on the U.S. That will mean the net job losses, after the reinvestment of cost savings, are likely to be closer to 2,500 range, a WPP spokesman said.
Mr. Read, who took the helm in September, must convince investors he is well-positioned to chart a new course for WPP following the abrupt exit of longtime CEO and founder Martin Sorrell in April.
Investor patience had waned recently after the company underperformed compared with competitors and cut key guidance metrics.
WPP shares, which have more than halved in value over the past two years, rose 5% in early trading in London.
WPP said Tuesday it anticipates full-year results to meet expectations, with like-for-like net sales set to fall 0.5%. In October, WPP predicted like-forlike net sales will fall between 0.5% and 1.0% in 2018 and operating margin to decline by 1% to 1.5%.
Mr. Read has already started to simplify WPP’s unwieldy collection of agencies. 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 euros and 4 billion euros($3.4 billion and $4.6 billion). The company said 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 £704 million to reduce its debt.
Mr. Read also plans to streamline executive reporting lines and plans to implement “a more coherent management structure” that will mean he has fewer direct reports than his predecessor.
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 micromanagement of everything from client relationships to identifying deal targets.
“Overall, the plan looks cautious,” Conor O’Shea, an analyst at broker Kepler Cheuvreux, said in a note, adding that this reflected “the scale of the task” to simplify WPP after more than three decades of empirebuilding by its founder.
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. Omnicom Group Inc. also has sold businesses and reduced head count.
France’s Publicis Group SA has simplified its operations around a strategy it calls “The Power of One”.