WPP CEO Starts Well, But Needs More, Better, Faster
(Bloomberg Opinion) -- Credit where it’s due: new WPP Plc Chief Executive Officer Mark Read is taking a step in the right direction. It's just a smaller one than investors might reasonably have expected.
Read announced a plan on Tuesday to realize 275 million pounds ($347 million) of annual savings by the end of 2021. Based on predicted earnings, a brief analysis suggests that would boost the 2022 operating profit margin from the 13 percent that analysts currently expect to closer to 15 percent.
Compare that with archrival Publicis Groupe SA, which announced its own savings plan in March that is both bigger and faster. The French firm expects to reduce costs by 450 million euros ($512 million) by the end of 2020. Analysts predict the operating margin will hit 18 percent of sales in 2022.
Which makes WPP's effort look a little disappointing. There are undoubtedly positives. For one, Read has pulled together the strategy remarkably quickly, presenting it some three months after he took on the job full time. He's accelerated efforts to fix some of the biggest problem children: the North American creative and health-care units, which collectively account for 23 percent of sales, have become a drain on earnings, so he's combining the divisions.
His strategy with creative, which has been sluggish at best, seems sensible. He’s combining two digitally focused agencies, VML and Wunderman, with two creative agencies, Y&R and J. Walter Thompson, to form new entities which can foster the close collaboration that’s been sorely missing from WPP. They'll operate as VMLY&R and Wunderman Thompson.
The sale of a majority stake in data arm Kantar, which represents 15 percent of revenue, should be completed in the second quarter. That hives off another slow-growing division and leaves the company greater scope to focus on more lucrative digital offerings.
But Read needs to take bolder steps to streamline the operations he is intent on retaining. He seems unwilling to divest a major agency. While doing so would raise a big chunk of cash, it would also risk strengthening a consultancy at the likes of Deloitte or PwC, both of whom would be prospective buyers. He needs to look elsewhere: the public relations industry has become increasingly commodified, for instance, and warrants a keener examination.
The stock climbed more than 5 percent after the announcement, which Read will present to investors in greater detail later on Tuesday. It’s a muted reaction to his big strategic change.
Let's hope that Read is intentionally tempering expectations in the hope of outperforming them. Otherwise he's asking for more patience than investors might be willing to stomach.
--With assistance from Elaine He and Chris Hughes.
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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