WPP executives didn’t sugar coat the firm’s disappointing third-quarter performance during a call with analysts this morning. But CEO Mark Read did note that the company’s struggles have been going on for two years now, pointing out that the second quarter of 2017 was worse from an organic growth perspective.
The company now expects no organic growth for full-year 2018 but instead is bracing for a decline of up to 1%. The fourth quarter of this year will also be down.
Read and outgoing Group Finance Director Paul Richardson noted that getting back on track could take a while and suggested that the company may not return to organic growth mode in 2019, which Richardson said would be “a challenging year for WPP, to be honest.”
Read acknowledged that WPP has been slow to adapt to industry changes, calling the company’s structure “too complex” for many clients to take full advantage.
One major challenge: getting the company’s creative agencies and capabilities back on track. Read’s predecessor Martin Sorrell frequently dismissed the creative shops in the company’s stable as less important to the company’s future than media agencies.
But Read’s take is that creative is vitally important and an area that is core to WPP going forward but a segment where the company has “under invested” in recent years. In the third quarter, that weakness was particularly visible in North America, where business was down 5.3%.
The same problem exists in some technology areas within the company, Read added. “We need a common technology and data strategy for the group,” he said.
The recent merger of VML and Y&R should be seen as a template for more to come, said Read. That merger, he added combined complementary skills resulting in a “stronger offer.” Clients still believe creative is critical, Read said, “But there is reduced demand for creative assets in traditional media.”
The growing client trend of bringing agency capabilities in house had “marginal impact” on the company’s results, said Read.
And despite all the talk of horizontality during the Sorrell years, siloes still exist that need to be eliminated. Read and the leadership team have been working on a strategy for the “new WPP” over the past six months, which hopefully will result in a “simplified organization” where “collaborating around clients” becomes the norm.
Read also hopes to create a culture that is less divisive — Sorrell was known for pitting entities and executives against one another. The firm needs a culture “that brings us together,” he said.
Some progress has been made on the balance sheet. Debt has been reduced by over $1 billion this year, thanks in large part to the sale of 16 companies in the asset portfolio that brought in more than $900 million.
The firm’s performance in the health care sector weakened in Q3. The rejiggering of the company’s U.S. health care agencies earlier this week was designed in part to address that.
While losing the Ford creative business was disappointing, WPP hung on to the auto giant’s global media and activation assignment and thus Ford still remains WPP’s largest client. And Read also pointed out that the firm has had some big wins this year including Mars, Hilton and Mondelez.
On the decision to sell Kantar, Read said the firm concluded that new ownership would be better positioned to lead the research arm to reach its full potential. “We’ve received a lot of inbound interest,” he said, stressing that WPP “envisions” retaining a “significant” stake. But that process is just getting started.