Chief Executive's Statement
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STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT “ THE WORK WE DO FOR CLIENTS HELPS THEM TO GROW THEIR BUSINESSES, BUILD RELATIONSHIPS WITH THEIR CUSTOMERS AND READY THEMSELVES FOR FUTURE SUCCESS.” Mark Read Chief Executive Officer As technology reshapes our industry, WPP is undergoing its own transformation. I feel very proud to have been given the opportunity to lead the Company at this important moment in its development. WPP is a great business with many The amazing work produced by our people, thousands of talented people and agencies and teams is recognised around the outstanding agency brands. world for its creativity and effectiveness – forging bonds with consumers and delivering We count most of the world’s biggest tangible business results for our clients. companies as our clients and we are the largest partner to many of the world’s We have a deep understanding of leading media and technology companies. consumers and Chief Marketing Officers The work we do for clients helps them to see us as essential partners in helping to grow their businesses, build relationships reach them. with their customers and ready themselves for future success. We also have strong and growing relationships with Chief Information We have real scale, with strong global Officers and Chief Technology Officers, creative networks and the number one which is vital as data and technology both media-buying operation worldwide through disrupt and create new opportunities for GroupM. We are leaders in major markets like our clients’ businesses. China, India and Brazil, which are important See our strengths, page 39 to our clients’ future growth. 2 WPP ANNUAL REPORT 2018 CHIEF EXECUTIVE’S STATEMENT STRATEGIC REPORT STRUCTURAL CHANGE, in consumer behaviour. Consultants are RADICAL EVOLUTION: NOT STRUCTURAL DECLINE becoming more significant competitors. A THREE-YEAR STRATEGY So I am an optimist about the future of WPP. Technology companies are vying with us To restore WPP to sustainable, profitable I believe our industry is facing a period of for talent and attention. And amidst growth, we have begun a three-year plan structural change, not structural decline. concerns about transparency, privacy, of “radical evolution” designed to improve Clients are not cutting spend; marketing fake news and data security, the industry performance across the business. expense as a share of companies’ revenue needs to restore trust among the public, has stayed relatively constant over the last policymakers and clients. We use the term “radical” because of the five years. See our market, page 36 scale of changes we are making and the tough choices we have to take, and But spend is shifting and clients are seeking WPP has substantial assets to help us “evolution” because we need to take our broader partnerships, well beyond our tackle these challenges. It is an incredible people and clients with us on the journey. traditional strengths in commercial creativity. company that has built up a position as They want much greater insight into media a leader in our market. But that market The first element of the plan is clarifying channels and performance, and expertise in has changed, meaning we have to change our vision and offer. The way in which we data. They want us to connect all of our as well to continue to deliver results for present ourselves to clients and other capabilities together, and put technology our clients. audiences has to reflect the nature and at the centre of what we do. quality of the work we do and the creativity See our strategy, from page 42 Over the years the Company became too of the people inside WPP. complicated, and under-invested in key areas We are well placed to provide everything such as talent, creativity and technology. This is something we spent a lot of time on clients need, and in a growing number Consequently, WPP has under-performed during the second half on 2018 and we were of cases we already do that. However, its peers since the first quarter of 2017, pleased by how well the results were we need to adapt more quickly to the and top-line growth has been hard to find. received at our investor day in December. changing world around us if we are to continue to be successful. In 2018, organic growth1 was -0.4%, albeit at Our vision for the new WPP is to be a “creative the upper end of the guidance we provided transformation company”. Each of those three Every industry is being disrupted by in October. words is important and carefully chosen. technology, and ours is no exception. New media channels have proliferated The Company performed strongly in Our clients want our creativity, which is what as traditional outlets have declined. Western Continental Europe, Asia Pacific, makes us special and differentiates us from Companies like Google, Facebook, Alibaba Latin America, Africa & the Middle East other professional services firms. They want and Tencent have redefined the landscape. and Central & Eastern Europe, with the us to help them transform their business United States more challenging – in a world fundamentally changed by There has been an explosion in content to something we have begun to address technology. And they want us to be a true populate the new channels – content that through our new strategy. company, to work as one on their behalf. needs to be produced far more cost- Gone are the days when we could operate as effectively than ever before. Reported profit before tax was down a loose federation of independent agencies, 30.6%, reflecting the impact of overseen by a financial holding group. Ecommerce is frequently driving 100% of restructuring and transformation costs the growth for retailers, and our clients are and goodwill impairment. As well as this new vision we articulated a looking for us to be in that space – offering new, more motivating purpose for WPP: everything from consultancy to the building Dividends per share were 60.0p, flat with to build better futures for our people and of platforms and applications, and strategies the prior year, and our year-end net debt clients. We find this resonates with people for working with Amazon. position improved by £466 million both inside and outside the Company, who compared to the same date in 2017 are pleased to hear WPP express such a Clients expect us to be fluent in the (an improvement of £605 million at 2018 positive and confident reason for being. language of modern, data-driven marketing. exchange rates). In this new environment, the role of See our financial review, from page 54 traditional agencies is being challenged. Clients are under pressure due to changes 1 Organic growth defined as like-for-like revenue less pass-through costs growth. WPP ANNUAL REPORT 2018 3 STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT “ WE REMAIN PASSIONATE That purpose – of building better futures – Third, we are creating a simpler structure for ADVOCATES OF applies to our wider communities too, and WPP, to make it more straightforward for in our sustainability review we talk about the clients to access our skills and resources, BRAND-BUILDING, many ways in which we use the power of our and more straightforward to run. ITS INCALCULABLE creativity to bring about change. LONG-TERM VALUE, See sustainability, from page 60 Three principles sit behind the new AND OUR CREATIVE organisation: we will be absolutely focused Our new competitive positioning was on the needs of our clients in everything we AGENCIES’ ABILITY developed in consultation with our people do; we will have fewer, stronger companies, TO MAKE EMOTIONAL and clients, and is supported by a refreshed each positioned to grow; and we will have CONNECTIONS brand identity – developed by two WPP more closely integrated operations at the BETWEEN PEOPLE companies, Superunion and Landor – that country level to make best use of our you will see reflected in the pages of this collective strengths. AND BRANDS THAT report. We are very proud of it, the feedback LAST FOR A LIFETIME.” has been overwhelmingly positive, and I We have already made good progress in hope you feel the same way. simplifying WPP through, for example, the creation of the integrated networks VMLY&R We are also going to market with an and Wunderman Thompson; the formation improved, simpler offer that reflects our of BCW through the merger of Burson- clients’ needs and allows us to expand in Marsteller and Cohn & Wolfe; the alignment high-growth sectors. The new offer of our US healthcare agencies with encompasses communications, experience, integrated agency partners; and the commerce and technology – each of which elimination of the sub-holding company is necessary for success for modern clients. WPP Health & Wellness. See our offer, from page 7 We have also disposed of 30 non-core The second pillar of the strategy is a investments and associates, raising renewed commitment to creativity – putting £849 million to reduce our debt, and our most important competitive advantage accelerated our programme of co-locating back at the heart of the business. We are our agencies in state-of-the-art new investing an additional £15 million a year for Campus buildings around the world. the next three years in creative leadership talent, focused on the United States, which is Fourth, we are making technology and our largest market and where the investment data the engine of our business. Adopting is most needed. a common strategy for the whole of WPP, we will leverage our unique technology We remain passionate advocates of partnerships and make our capabilities in brand-building, its incalculable long-term marketing and advertising technology value, and our creative agencies’ ability to available to all WPP companies for the make emotional connections between benefit of our clients.