WPP Makes Progress In 2018, But Creative And CPGs Still Cause Pain

After two years of stock declines, WPP is finally inching toward progress.

The holding company on Friday reported revenue was down 1.3% in 2018 to $2 billion and billings up 0.4% to $7.4 billion, at the upper end of guidance set in October. Shares jumped 8% upon the news.

But work remains to be done at WPP, which is still feeling the pain from losing major accounts last year, including Ford, PepsiCo and American Express.

“2019 will be challenging due to the clients we lost in 2018,” CEO Mark Read told investors on the earnings call. “It takes some time for that to cycle through.”

WPP’s North America business suffered most from client losses, with like-for-like revenue less pass-through costs down 5.7% in Q4 and 4.2% for the year. WPP is underperforming against competition due to problems with its creative agencies and healthcare business, Read said, and is still struggling with spend cuts by CPG clients.

“We have a very broad mix of CPG clients,” he said. “Some continue to put pressure on us and some are a little bit further behind. But the Kraft Heinz news last week is a reminder to all of us of the value of investing in growth.”

Despite struggling on the client side, WPP is about two-thirds of the way through its turnaround plan set out in September 2018, which involves simplifying the organization to make it easier for clients to navigate. Last year, WPP merged VML with Y&R and Wunderman with J. Walter Thompson to bring creative and digital capabilities closer together for clients.

“We need to be easier to manage and provide our clients with a more integrated solutions,” Read said.

WPP also disposed of 30 assets last year totaling $1.1 billion, including its stake in AppNexus and digital experience agency Globant. The group is in the process of selling market research firm Kantar, which has been a drag on growth, and expects to complete the process in Q2 2019, said chief operating officer Andrew Scott. WPP hopes to maintain a minority stake in the business in the 30-40% range, he said.

WPP does not expect to merge any of its other major agencies in 2019. It will instead focus on creating country-level leadership to bring regional teams closer together. The group has completed 70 planned office mergers around the world.

“Our focus outside of Kantar is on our investment portfolio and on subsidiaries, but only to the extent of simplification and tidying up underperforming subsidiaries,” Scott said.

The group will also focus on reviving its creative agencies by putting technology “much more at the heart of what we do,” Read said. He sees opportunities to grow WPP’s business in commerce and creative transformation, two areas where legacy clients increasingly need services.

“We need to help our clients transform their businesses,” Read said.

Clients are responding well to WPP’s strategy, Read said. The group won Volkswagen’s iconic creative account and newly merged VMLY&R has already won $25 million in new business since merging last September. But the impact of client losses will be felt throughout 2019.

“2019 is challenging,” Read said. “There are major headwinds from client losses.”

This post was syndicated from Ad Exchanger.