WPP suffers surprise Q3 decline and plans US$120 million savings drive

WPP suffered a surprise decline in revenues in Q3 and downgraded its annual revenue forecast for the second quarter in a row—with profit margin also expected to be lower.

Revenues less pass-through costs fell 0.6% to US$3.42 billion (£2.83 billion) in the three months to September, which WPP blamed on “declines in North America, with continued weakness from technology clients and in China."

WPP said it will make US$120 million (£100 million) in savings by 2025 through “two significant moves” —through the “simplification of the operating model” at Group M, the media-buying division, and through the recently-announced merger of VMLY&R and Wunderman Thompson to create VML Group.

Mark Read, the chief executive of WPP, said the US$120 million (£100 million) savings will include “structural costs and inefficiencies” across VML and Group M, which together represent about two thirds of the business.

Asked about the impact on jobs at WPP, which employs in the region of 110,000 people, Read told Campaign: “We hope to do it with the minimal job losses possible.”

The Q3 results showed important parts of the business slowing.

Group M, which has previously been a strong performer, grew only 1.6%—a marked slowdown from the first half of the year when revenues were up more than 6%.

The integrated creative agencies declined 1.1%, although that was an improvement on Q2 and Ogilvy “grew well."

North America, WPP’s largest market, representing more than a third of revenues, was the biggest drag on results as revenues declined by 4.1%.

The rest of the world grew about 2%, although the UK saw a slowdown with growth of only 1.1%.

Read admitted: “Our top-line performance in Q3 was below our expectations and continued to be impacted by the cautious spending trends we saw in Q2, particularly across technology clients with more impact from this felt in Group M over the summer than the first half.”

Looking ahead, WPP expects annual revenues to be between 0.5% and 1%. The agency group started the year by forecasting annual growth of between 3% and 5% and cut its guidance to between 1.5% and 3% in August.

Profit margin is also expected to be slightly lower, between 14.8% and 15%, a reduction from its previous forecast of 15%.

Revenues have been worsening during 2023. Growth slowed from 2.9% in Q1 to 1.3% in Q2 and has now gone into reverse with a 0.6% decline in Q3.

WPP’s revenue growth compares unfavourably to some of its rivals. Publicis grew 5.3%, Havas 4.5% and Omnicom 3.3% and IPG declined 0.4%. (Omnicom reports only headline revenues, rather than net revenues, which exclude pass-through costs.)

Analysts at Numis Securities described the results as “disappointing."

WPP’s share price fell about 3% to 668p in early trading and is at a three-year low—a level last seen during the pandemic.

Group M simplification

Read, who has been chief executive since September 2018 and has moved to simplify WPP through a series of internal mergers in the last five years, signalled that the agency group needed to change further.

He said: “In a world being rapidly reshaped, we need to continue to evolve our offer to clients and simplify our business.

“I am excited by the creation of the world's largest creative agency, VML, and the continued evolution of Group M. Both these developments will strengthen our offer to clients, simplify the integration of our services and maximise the returns on our ongoing investments in AI and technology.”

WPP explained the rationale for the changes at its media division, saying: “Group M embarked on a simplification plan in 2020 under new leadership which will now accelerate and move to a second phase.

“The new structure will retain its strong agency brands, EssenceMediacom, Mindshare, Wavemaker and mSix&Partners, but support them with common media products and a single technology platform, with shared services in finance, IT and HR.”
 
Group M has already consolidated its performance media services in Group M Nexus in September when it dropped the Xaxis, Finecast and Sightline brands.

Separately, Group M’s operations in China are facing a probe by the Shanghai Economic Police into allegations of bribery. Read said: “As we said in our statement, we’ve dismissed one of the executives involved and we are taking further action to investigate what’s happened and to strengthen the leadership team in China.”

WPP plans a capital markets day for investors in January 2024 to outline its strategy.

(This article first appeared on CampaignLive.co.uk)

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