WPP Plc, world’s biggest advertising and communications group, said it will spend £300 million (around $377 million) over the next three years to restructure existing businesses, address under-performing units and streamline operations to drive growth. The group recently merged digital agency VML and creative firm Y&R to create a new entity VMLY&R apart from integrating Wunderman and J. Walter Thompson.
It has aligned US healthcare agencies with integrated agency partners; and eliminated 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. The company said that it has disposed of 16 non-core investments and associates, raising £704million to reduce debt.
WPP said that right-sizing and disposal of under-performing businesses, closure of unsustainable operations and establishing a shared service infrastructure to support 30 countries over the next five years is on its priority list. The annual savings from these actions are anticipated to be £275million by the end of 2021. The company said it will reinvest approximately half of these savings in 2019 to 2021.
“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’ 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,” said Mark Read, chief executive officer of WPP in a statement.
Noting that WPP has become too unwieldy, with too much duplication the company said its new strategy is to create a simpler structure based on three principles – clients, few but more integrated companies and integration at country level to leverage group’s strengths in the individual markets. The company 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.
As part of this strategic review, WPP will invest an incremental £15 million a year for the next three years in creative leadership, with a focus on the United States market. Alongside creativity, the group will accelerate and promote technology and data capabilities to give WPP a competitive advantage.
“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,” Read added.
Source: Mint