Verdict on WPP’s AI pitch to investors: ‘If only the company were growing more strongly’

“WPP has never been better positioned,” Mark Read insisted as he pitched to a roomful of investors last week about why the 1,15,000-strong, British agency group is ready for what he called the “new era” of artificial intelligence.

Read, who was hosting his third capital markets day for shareholders since taking over as chief executive in 2018, admitted “I may be biased” but maintained WPP is “the strongest in our industry”.

Investor days are carefully choreographed and rehearsed and this event, at WPP’s Sea Containers headquarters in London on 30 January and headlined “Innovating to lead”, had been planned since October.

A dozen WPP executives spoke alongside Read for more than four hours – a mix of agency chief executives, including Group M’s Christian Juhl, VML’s Jon Cook and Ogilvy’s Devika Bulchandani, alongside other business leaders, including Joanne Wilson, the relatively new chief financial officer (pictured above with Read), and Daniel Hulme, founder of Satalia, an AI technology company, which WPP bought in 2021.

The company focused on three core messages in its pitch to investors: the potential of AI, its improved agency offer and greater efficiencies.

First, WPP said its investments in AI, technology and data were delivering, after acquiring Satalia and developing WPP Open, an internal company-wide tech platform, which has been used by 28,000 staff since launch last September.

Read’s team showed examples galore of how it has been putting AI into practice with case studies for clients including Coca-Cola (Manolo Arroyo, the chief marketing officer, was a guest speaker), Ford and L’Oreal.

Hulme “geeked out”, as he put it, explaining how WPP and Satalia have been developing different AI “brains” – a brand brain, an audience brain, a performance brain and a channel brain – that can work independently or together to deliver for clients.

The company plans to keep investing £250m a year in AI, data and technology.

Second, WPP said it has simplified and modernised its line-up of agencies, after multiple rounds of internal restructuring, following the exit of Sir Martin Sorrell, Read’s acquisitive predecessor, in 2018.

Read boasted how the company had “retired” 300 brands, “eliminated” 1,400 legal entities, rationalised 70 enterprise resource planning (ERP) software systems and closed 840 office locations.

Now six key agency brands generate 90% of revenues: VML, Ogilvy and AKQA for creative, Hogarth for creative production, Group M for media and Burson for public relations.

Group M is number one in media globally in terms of media billings, and newly merged VML is the world’s largest creative agency by headcount, Read reminded investors.

Third, WPP expects to grow revenues at more than 3% annually and increase profit margin (from 15% to between 16% and 17%) in the medium term, by making further efficiencies such as standardising back-office functions (although ERP simplification has been slower than planned) and offshoring 50% more jobs in low-cost centres (from 10,000 now to 15,000).

The latest internal mergers and simplification moves will cost £125m in one-off restructuring costs but should save £125m annually – with £50m in savings from VML, £60m from Group M and some of the remainder from Burson. There was no word on job losses but some cuts look inevitable.

WPP is not growing as fast as it is promising

The vision for an AI future sounded positive and plausible enough to the assembled investors – both Citigroup and Morgan Stanley said they were “encouraged” and Barclays said it sees “deep value” in WPP.

Read argues that AI will create as many jobs as it destroys and drive new revenue models such as outcome-based remuneration. Already about a quarter of revenue does not come from charging on a traditional full-time equivalent (FTE) staff basis, according to Read.

But the challenge is that, for now, WPP is not growing as fast as it is promising.

Fiona Orford-Williams, a director at Edison Research and a long-time media analyst, told Campaign at the end of the capital markets day: “It would all fall into place beautifully if the top line were growing more strongly.”

WPP admitted it increased revenues by only 0.9% on an organic basis in 2023, which it blamed on cuts by tech clients, and it forecast growth of between just 0% and 1% in 2024 as client losses, including Pfizer, hit. Investors will have to wait until 2025, at least, to see better growth.

WPP’s 2023 performance is in line with some of its peers among the “big six” agency groups, such as Interpublic, and it is ahead of Dentsu, but it is far behind its main European competitor, Publicis Groupe, which grew 6.3% and had an 18% profit margin last year.

What’s more, in what looked like a calculated move, Arthur Sadoun, the chief executive of Publicis Groupe, rushed out his numbers, five days ahead of WPP.

Sadoun also hosted his own fast-turnaround investor presentation on its AI plans (an hour-long, pre-recorded video session that focused on capabilities and made virtually no mention of agency brands) on 25 January.

WPP’s AI proposition compared well with the Publicis presentation, according to Barclays.

But the French agency group’s strong growth was always going to cast a shadow over WPP’s event.

In a telling moment during the Q&A session with analysts at the end of the capital markets day, Read was asked whether his 3% growth target is challenging enough.

“Three per cent-plus is what we think of as our commitment to you,” Read replied. “That’s what we need to deliver and I think we’d like to do better – emotionally, rationally. Like you, I sit in this presentation, and think it should be five [per cent] or more.”

Importantly, WPP showed investors how part of its business, media (about 38% of revenues), has been growing 5% on a compound basis since before the pandemic (in the period 2019 to 2023) and is forecast to keep up that growth rate in the medium term.

It was striking how some of the analysts in the room leaned forward to listen more closely to Juhl, who spoke after the creative agency leaders. He emphasised how Group M was number one globally, including in EMEA and APAC, and he had launched an internal programme, Synergy, to simplify the organisation in recent years by building one company with one product and one culture, to suit a more complex media marketplace.

He conceded North America, where Group M is number two, needs work (“it’s not a capability problem” and “we failed to get as simple as we needed to be”, Juhl said) and he stressed the agency brands, EssenceMediacom, Mindshare and Wavemaker, remain important for serving clients despite the new, more centralised set-up.

By contrast, creative (45% of revenues) has been the drag, growing only 0.5% over the past five years, and it is expected to increase revenues by a modest 2% over the medium term.

Even then, Hogarth appears to be the driver for creative as Richard Glasson, the chief executive, pledged on stage to Read that he would deliver double-digit growth this year. “Clients have a virtually limitless need for production,” Glasson said.

The sense that the creative still needs to play catch-up hung in the air, despite all the examples of AI-driven work and Read’s talk about the power of creativity. “Creative availability is one of the biggest obstacles,” Evan Hanlon, CEO of Choreograph, Group M’s data unit, said at one point, when talking about the rise of more personalised advertising.

One other notable point about WPP's numbers: Revenues for its top 10 clients (Apple, British American Tobacco, Coca-Cola, Colgate-Palmolive, Dell, Ford, Google, Nestle, Procter & Gamble and Unilever)  grew 6.6% on a compound basis between 2019 and 2023 versus 2.6% for the whole group – proof that its bet on scale, such as creating VML, may have some merit.

Weak share price

Ultimately, WPP’s capital markets day offered no strategic shift or change of direction, beyond its confidence in an AI-driven future, underpinned by its own proprietary technology and close partnerships with tech giants such as Nvidia.

The FTSE 100 company remains the world’s largest agency group by revenues and headcount, but has fallen to fourth largest by stock market capitalisation with an £8bn valuation – far behind Publicis, the number one.

WPP’s share price has gone nowhere since the last investor day in December 2020, as the recovery in its revenues seen during 2021 and 2022 petered out, and last week’s presentation failed to light up the stock.

One WPP executive described the mood among the leadership team as “circumspect”.

Theoretically, WPP could be a takeover target given the stock is trading at £8 per share, down from £12 at the start of 2022 and well below its peak of £19 in 2017.

“At this kind of price level, I think it might attract more of a corporate activist or a private equity fund because it's really selling at what I think is an unrealistically low valuation for what it is,” David Herro, the chief investment officer, international, at Harris Associates, a top WPP shareholder, told Campaign last October.

Some change is coming soon to WPP because Roberto Quarta, the chairman, is due to step down this year.

Quarta and the non-executive directors did not attend the capital markets day, which was not unusual, but it meant they missed out on face time with investors and analysts – some of whom had travelled from the Netherlands and the United States.

The board of directors did gather in New York the following day for a scheduled meeting.

They will know that “innovating to lead” will mean little to shareholders unless the company can improve its numbers.

(This article first appeared on CampaignLive.co.uk)