CEO Mark Read sets out three-year plan of
“radical evolution” to deliver improved performance
WPP (NYSE: WPP) today announces the results of its strategic
review, setting out a new plan 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% 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.
Mark Read, Chief Executive Officer of WPP, said:
“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. This is at the heart of what we
do.
“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.
“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.”
WPP is hosting a presentation for investors and analysts from
12.30 GMT today at its new headquarters in London. Key points of
the presentation, which will also be webcast, include:
Opportunities in a Changing Industry
Technology is rapidly reshaping our sector, presenting
challenges but also opportunities. We believe the industry is
facing structural change not structural decline. WPP 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 our 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. It
is what makes WPP special and what 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
£15m 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, we will accelerate and promote our
technology and data capabilities as clear sources of competitive
advantage to WPP. We will follow a consistent approach 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 our clients.
Simpler Structure
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 our 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: we will become a more
client-centric organisation in order to deliver the best of
WPP.
- Companies: we will have fewer,
more integrated companies equipped to adapt to a changing
market.
- Countries: we will integrate
further at a country level to leverage our strengths in individual
markets.
Kantar
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 we have 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 we will
review the company’s incentive arrangements to align with the
strategy.
To make WPP the natural home for the best and brightest, and to
attract the next generation of talent, we will champion a culture
across WPP characterized by the values of openness, optimism and a
commitment to extraordinary work.
Progress to Date
Since April this year, we have made consistent progress towards
our goals. This includes the creation of the integrated networks
VMLY&R and Wunderman Thompson; the alignment of our 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% of WPP revenue. We have also
disposed of 16 non-core investments and associates, raising £704m
to reduce our debt.
2018 and 2019 Outlook
We anticipate 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%.
We are beginning a multi-year improvement programme and 2019
will be a year of investment in the business with the execution of
our 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 £300m
over the next three years, reflecting actions to position the
company for growth, address under-performing units and streamline
our operations.
The actions include:
- The integration of VML and Y&R, and
Wunderman and J. Walter Thompson.
- Right-sizing and disposal of
under-performing businesses.
- Closure of unsustainable
operations.
- Further development of Campus
co-locations.
- Establishing a consistent shared
service infrastructure to support 30 countries over the next five
years.
The annual savings from the actions are anticipated to be £275m
by the end of 2021. WPP will reinvest approximately half of these
savings in 2019 to 2021.
Future Capital Allocation Policy
The company has made good progress on its divestment of non-core
assets, raising £704m from 16 disposals to date. We continue to
target a reduction in average net debt to EBITDA ratio to within
our revised target range of 1.50-1.75x by 2021.
Over the next three years we will prioritise the dividend over
share buy-backs and will balance targeted M&A with divestments.
The Board anticipates declaring a final dividend of 37.3p at the
Preliminary Results to deliver a full-year dividend for the current
financial year of 60p which it intends to maintain.
Medium-Term Financial Targets
As part of the strategic review, WPP has set out new medium-term
financial targets that will allow the company to invest in talent
and technology, improve its competitive position and deliver
sustainable long-term growth rates. These are as follows, to be
achieved by the end of 2021:
- Organic growth (defined as
like-for-like revenue less pass-through costs growth) in line with
peers
- Headline operating profit margin
(excluding associates) of at least 15%
- Free cash flow conversion1 of
80%-90%
Notes
A live video webcast of the event and presentations will be
available on the WPP investor website (www.wpp.com/investors) where
it will remain available for replay. The presentations will begin
at 12.30 GMT and are expected to conclude at 18.00.
Forward looking statement
In order to utilize the ‘safe harbour’ provisions of the United
States Private Securities Litigation Reform Act of 1995 (the
‘PSLRA’), WPP plc is providing the following cautionary statement.
This press release contains certain forward-looking statements –
that is, statements related to future, not past events and
circumstances – which may relate to one or more of the financial
condition, results of operations and businesses of WPP plc and
certain of the plans and objectives of WPP with respect to these
items. These statements are generally, but not always, identified
by the use of words such as ‘will’, ‘expects’, ‘is expected to’,
‘aims’, ‘should’, ‘may’, ‘objective’, ‘is likely to’, ‘intends’,
‘believes’, ‘anticipates’, ‘plans’, ‘we see’ or similar
expressions. Actual results may differ from those expressed in such
statements, depending on a variety of factors including the risk
factors set forth in our most recent Annual Report and Form 20-F
under “Risk factors” and in any of our more recent public reports.
Nothing in this press release is intended as a forecast, nor
should it be taken as such.
Our most recent Annual Report and Form 20-F and other period
filings are available on our website at www.wpp.com, or can be
obtained from the SEC by calling 1-800-SEC-0330 or on its website
at www.sec.gov.
___________________________ 1 Free cash flow conversion is ratio of
free cash flow to headline earnings. Free cash flow is after
earnouts and changes in working capital and before new acquisition
spend, disposals and shareholder distributions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181211005378/en/
Mark ReadAndrew ScottPaul RichardsonLisa HauChris Wade+44 20
7282 4600Kevin McCormackFran Butera+1 212 632 2235Juliana Yeh+852
2280 3790Richard Oldworth,Buchanan Communications+44 20 7466 5000 /
+44 7710 130 634
WPP (NYSE:WPP)
Historical Stock Chart
From Sep 2024 to Oct 2024
WPP (NYSE:WPP)
Historical Stock Chart
From Oct 2023 to Oct 2024