Ad Group WPP’s New Strategy Targets Growth in Line With Rivals

(Bloomberg) -- WPP Plc plans to cut 2,500 jobs in a bid to grow sales in line with peers and keep its dividend payout stable, under a strategy overhaul by new Chief Executive Officer Mark Read.

Shares in the advertising group rose the most since April after the company announced the plan, including job reductions that represent about 1.9 percent of total headcount.

Read is trying to win over investors with a promise to make the world’s biggest ad group a sector leader in technology and creativity and will present the strategy to investors in London starting at 12:30 p.m. local time.

The company is seen as too complex and too slow to adapt to the rise of digital advertising, but offered investors some relief on 2018 sales and the dividend, saying it intends to maintain a full-year payout of 60 pence per share and forecasting an organic decline in full-year revenue excluding costs of close to 0.5 percent. That’s at the upper end of a previous guidance for a decline of 0.5 percent to 1 percent.

“We give a cautious welcome to the new strategy announced this morning but feel it could have been more ambitious and wide ranging,” Ian Whittaker, an analyst at Liberum, said in a note to clients.

The stock rose as much as 7.3 percent, the most since April 30, and was trading up 5.3 percent to 847.4 pence at 8:29 a.m. in London. The shares were down 40 percent this year through Monday, compared with a 15 percent decline for Publicis Groupe SA and a 4.1 percent gain for Omnicom Group Inc. That decline caused WPP’s market value to drop below Omnicom’s and, briefly, that of Publicis.

WPP said it will restructure its operations for a cost of 300 million pounds ($378 million) over the next three years, making annual savings of 275 million pounds by the end of 2021. Those numbers are broadly in line with investor expectations. The company pledged to keep pace with its rivals in terms of growth and achieve operating profit representing at least 15 percent of sales by the end of 2021.

“We’re really focusing on returning WPP to growth,” Read told Bloomberg in an interview. “We need to have a simpler company, that’s easier for our clients to navigate and easier for us to manage.

Read said WPP will save costs but also re-invest around half of that back into the business with a focus on creativity and technology, the two key drivers of the ad industry.

The new strategy looks more like an evolution than a radical change, Bloomberg Intelligence analyst Matthew Bloxham wrote in a note. The new three-year plan “should ease any immediate concerns about a dividend cut, but the goal to return top-line growth to peer levels and deliver 300 million pounds of gross cost savings by 2021 might underwhelm even though this would represent substantial progress,” Bloxham said.

WPP said it had received “numerous unsolicited expressions of interest” for a stake in its Kantar unit and if a deal is agreed it is likely to be announced in the second quarter of 2019.

To contact the reporter on this story: Angelina Rascouet in London at arascouet1@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Kim Robert McLaughlin, Thomas Pfeiffer

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