WPP’s financial performance “will pick up” during the rest of 2024 after a 1.6% revenue decline in Q1 and it has a “good” new business pipeline “overall”.
However, “client decisions are taking longer to happen”, particularly for project-related work – a trend that has been seen across the services sector, according to Mark Read, the chief executive of WPP, who spoke to Campaign in an interview after its Q1 results.
He cited the loss of Pfizer and ongoing cuts by technology clients for WPP’s revenue decline, which contrasted with its three main agency rivals, Publicis Groupe, Omnicom and IPG, which all grew.
Read, who faces shareholders at WPP’s annual general meeting in London tomorrow (Wednesday 8 May), has forecast annual growth of between zero and 1%, which suggests revenues should turn positive later in the remaining three quarters of 2024.
The WPP CEO also discussed plans for the Cannes Lions festival in June and why the 114,000-strong agency group is sticking with its net zero commitments, despite some leading clients such as Unilever putting some sustainability efforts on pause.
Campaign: You say Q1 was in line with expectations, but it looks like a pretty tough quarter.
Read: We always expected the first quarter of the year to be the slowest quarter of the year. We have the impact of our technology budget cuts weighing on us and there’s the impact of Pfizer – it’s the first real quarterly impact of [losing] Pfizer on our business.
We do expect momentum to pick up as the year goes on, particularly as technology clients revert to and continue to invest behind products and brands. We have a strong new business pipeline and lots of opportunities ahead.
When you look at the global integrated agencies [the flagship creative and media agencies] and, in your investor presentation, it doesn’t look very pretty as a whole unit. Media is growing slower and there’s a persistent decline now across the creative agencies [which declined for the last four quarters]. In fact, all three of your big revenue lines – global integrated agencies, public relations and specialist agencies – were declining.
If you look at the underlying performance of the businesses, we now talk about six strong businesses making up WPP: Group M grew in the quarter. Hogarth grew high/mid single digits, Ogilvy grew well. VML had a more challenging time, largely as a result of both the Pfizer cuts and the impact of technology clients. AKQA has also suffered somewhat from being at the forefront of digital transformation and some delays and project spend there has added some time [when it comes to client decision-making] but [AKQA] remains a very strong business. And Burson after three very, very strong years of public relations growth has also had its challenges but FGS Global did grow in the quarter.
We’ve got good patterns of growth, some strong [agency] franchises, we’re taking action [through internal mergers and other efficiencies] and we expect the year to improve.
In terms of the regional breakdown, you’ve got the world’s two biggest ad markets where you’ve got a 5% decline in North America and 15% in China, where you talk about a challenging client environment.
We have a significant business in China. We work a lot in the automotive and luxury sectors and China’s economy, while it has recovered somewhat, a lot of the growth has been export-led. The Chinese domestic consumer is still under pressure. And the automotive business in China has become cut-throat and we’ve seen a lot of pullback in budgets in the automotive sector. So I’d say it has been a challenging client environment for that reason.
The US has really suffered the brunt of the impact of the loss we had in healthcare [of Pfizer] and also cuts by technology companies tend to be centred there. If you saw Meta’s results, they said in the first quarter of the year, their category spend that includes sales and marketing was down 16% year on year, while their overall costs and overall investments were up. So I do think that there has been a shift in approach by technology companies [when it comes to their investments in marketing], but I think it’s largely a reset and that will improve as the year goes on. We do expect technology companies to contribute positively to growth, certainly in the second half of the year.
It would appear that your best way back to growth is to win new business. Yet your own figures suggest you won less new business versus a year ago [$800m in net new billings versus $1.5bn in Q1 2023]. How would you describe the new business pipeline? There are a couple of very big media pitches, but overall, what is the new business market like? Because we’re hearing some suggestions it’s quite quiet.
We have a good new business pipeline if we look at it overall. But I would say client decisions are taking longer to happen, particularly as it relates to project-related businesses, which is why you see some of our more project-related client companies be more impacted by the macro environment.
If you look across professional services firms, there are a lot of pressures on services spend by large organisations. You look at the cutbacks in the consulting businesses like McKinsey. You see Accenture and the tech services companies under pressure. You see Deloitte and the accounting firms under pressure. So it’s no surprise that those businesses that maybe have more project-related spend or things that may be seen as discretionary are finding it tougher to find revenue. So I think some of those parts of the new business pipeline are a bit more under pressure.
What I would say is that in my conversations with clients, I see a consistent trend towards fewer, stronger, better agency relationships and a desire by clients willing to simplify the way they work with their agency partners and leverage them to get more value from them, in a much more integrated way. And that can only be driven by further complexity in the media landscape as well as by the importance of deploying technology and AI across those organisations, which is going to be much more challenging to do in a fragmented agency landscape.
With AI, you have been talking about your internal technology platform, WPP Open, now being used by 50,000 staff. Is the role of AI already changing the way you’re operating?
We describe WPP Open as our intelligent marketing operating system and we’re using it to deliver work to our clients and as it rolls out; it has AI services embedded within. Not all of it is AI-enabled, but increasing parts of it will become AI-enabled.
So WPP Open is important in the sense that as our people start to use it, the platform becomes smarter as we embed more AI into it. Today, we see the most uses around some of the creative work, some of the content production, a lot of work around media targeting and optimisation.
Some of the more advanced uses are what I would describe as advanced “proofs of concept” to be demo-ed at [industry events such as] Google Cloud Next… [For example, WPP has developed] the first release of our “Performance Brain” that looks at the performance of campaigns before we run media on them. It’s a predictive model for campaign performance.
Those products will start to be embedded inside WPP Open as they become more mature. So I’d say it’s being used in many parts of the business but there’s a long, long way to go before we could really see the full potential of the platform, which is only going to get more powerful over time.
I think you see the power of what we’re doing in terms of the integration that we’re doing with the various models, because what WPP Open is allowing our clients to do is partner with us on AI but in a model-agnostic way. So they’re able to work with us and we will build [artificial] intelligence on top of many of the foundational models. And it gives clients flexibility to work with a partner to make sure that they’re really always up to date and using the best model for the best task.
Two questions not directly related to your financial results. First, what are your plans for the Cannes Lions festival in June and is it going to be any different from previous years for WPP?
No. We have a lot of people on the [awards] jury, so we’re excited to support the jury process. Our agencies have some some great work to enter across all of our clients, and we are expecting to be there to support the creative teams doing the work as well as many of the clients that will be there. We don’t see a great change this year versus previous years.
And that includes attendance levels?
I don’t think we want to predict attendance levels. It’s an important event and the right people will be there.
A final question about sustainability: WPP has said it is on track to hit net zero for Scope 1 [greenhouse gas emissions generated directly by the company] by 2025. How hard is that when you see leading clients such as Unilever pause their own sustainability drives [such as reducing use of plastic]?
I think Unilever are focusing on the areas that are most important to them, and so are we. We’re on track to hit our Scope 1 targets. And we’re working towards hitting our Scope 2 and 3 targets by 2030 [respectively, to reduce the emissions generated indirectly when the energy a company buys is being produced and the emissions generated by clients and suppliers in the value chain].
A lot of what we want to do is going to be dependent on broader changes in the energy market. Is there enough renewable energy to meet these demands [to become net zero]? I think we’re doing our bit to create the conditions where that can happen. Every company realises that the ability to hit these targets is not totally within its own control. But we’re absolutely committed to do our utmost to achieve that on Scope 1, 2 and 3 emissions within the time we set.
I think there is a balance. We’ve tried to put purpose at the heart of what we do because it is important to our people and it’s important to clients, and we’ve done it in a way that’s relevant to our business.
And when it comes to clients, is there a bit of a retreat from sustainability? When you talk to your clients, has it dropped down the priority list?
I don’t know that it’s dropped down the priority list but I’d say that clients are much more focused on the most relevant parts of sustainability for their business. Whereas sustainability initiatives may have been quite broad, I think they’re now becoming more focused on the business-critical elements of what they’re doing and the areas that matter most to their customers and to society.
What you’re hinting at is a broader change in society [to attitudes] around purpose and it’s important. But I don’t think that changes necessarily what we do [as WPP] because we’ve always really been focused on the things that matter to us: we’re still absolutely committed to building a diverse workforce that represents the societies in which we live and we’re not changing our commitment to that. We’re absolutely committed to making progress on our environmental commitments in line with what we said before. And we need to do work that represents society as a whole. I don’t think in any way we’re changing our commitments.
But you’re saying there has been a broader change [in corporate attitudes towards social purpose]?
In some companies, some shareholders have felt purpose has come at the expense of performance. And that is a contradiction. I think, correctly, purpose has to go in line with performance.
This article originally appeared on Campaign US.
