WPP’s Mark Read on how GroupM needs to improve, China woes and ‘cautious’ clients

WPP’s chief executive has blamed “macro-uncertainty” in the global economy for the agency group’s declining revenues because clients have become “a little bit more cautious” and cut some “discretionary” work.

Mark Read was speaking to Campaign after Q2 results where WPP reported a 0.5% decline in revenues less pass-through costs and downgraded its annual forecast. The UK-listed group now expects revenues to decline by between 0% and 1% in 2024. That contrasted with its French rival, Publicis Groupe, which upgraded its annual forecast in July and predicted growth of between 5% and 6%.

China was a major source of weakness in Q2 as Group M, the media-buying division, suffered account losses, following a Shanghai police investigation into bribery allegations, and WPP’s revenues slumped 24%, although Read said there was “pressure” across the group’s activities in the Chinese market, not just in media.

Read acknowledged that Group M needs to change after a slowdown in its revenues globally and said “improving our new business record” and “continuing to innovate on the product side” would be priorities for Brian Lesser, who will replace Christian Juhl as global chief executive in September.

He added Group M was looking “carefully” at whether it could expand in principal-based media-buying — where the agency acts as principal and commits to buy inventory in advance and then sells it onto the client later, sometimes for a higher price — after seeing rivals win business in the US.

WPP also announced at its Q2 results that it is set to receive a £600m windfall from selling its remaining, majority stake in financial public relations firm FGS Global to private equity investor KKR. There was a hint of tension as Alex Geiser, the chief executive of FGS Global, told Campaign’s stablemate, PRWeek, that there had been “very low synergies with WPP” and being part of the holding company “had posed limitations for us". Read responded to PRWeek that there were “many advantages” to being part of WPP and “I don’t think KKR is going to be an easier manager of the asset than WPP was".

Campaign discussed a number of other issues with Read, including WPP’s decision to cut more than 3,000 roles since January to drive efficiencies. However, he declined to answer any questions about Elon Musk, the owner of X, who had criticised both the UK government and global advertisers in the preceding days.

Campaign: You’ve cut your guidance for the year. How much is this a WPP-specific issue or problem?

Read: If you've followed the earnings season, over the last few weeks, there has definitely been some caution in a lot of consumer-related businesses. You've seen in the [alcohol] spirits sector, the airline sector, some elements of the package goods sector, that volumes are under pressure. There's no doubt that [client] companies are a little bit more cautious, and we're reflecting that.

Part of the pressure on us is in some of the more project-related and the branding and identity parts of our business, and some of the more technical consulting parts, where projects are more discretionary.

I think what we're seeing reflects broader caution in the global economy and some greater level of macro-uncertainty and the need to be cautious and give people the correct guidance for the second half of the year [which is why WPP has reduced its forecast for the full year].

There are clearly some challenges. Let’s start with China. It's a huge drop of 24% in Q2. To what extent is this to do with Group M [which has faced allegations of bribery as part of a Shanghai police investigation, which began in Q4 2023, and seen some account losses]?

There’s pressure across the business in China — some of it partly in Group M but actually more broadly across the business. We are seeing challenges in a lot of Western multi-national companies operating in China, [which are] finding a tougher environment, particularly in some of the sectors where we're strong — like automotive and luxury.

What about the UK, which had quite a steep drop of more than 5%?

Largely it’s a combination of a strong comparative with last year [when revenues grew 8% in the quarter] and timing issues. We have a strong business in branding and identity and some of those pressures are a bit more focused in the UK [specifically].

Do you need to appoint a UK country manager or president after Karen Blackett left [in spring 2024]?

We’ll look at what the right structure is for the UK in time.

Let's talk about Group M, because it has suffered a slowdown and there's been a hit from China. What does Brian Lesser, the new global CEO, need to change at Group M? Some of your peers have been growing double-digit [in media] and Group M has not been growing very fast [with low single-digit growth in three of the last four quarters, including 1.4% in Q2].

We have to focus on improving our new business record. Brian is going to be focused on clients, new business, and continuing to innovate on the product side.

IPG recently said at its Q2 results that it plans to increase its role in principal-based media-buying [where the agency acts as principal and commits to buy inventory in advance and then sells it onto the client later, sometimes for a higher price]. It actually said that some of its competitors had been growing faster because of that. What’s WPP’s position on principal-based media-buying? How much do you feel Group M is already doing it?

We do have a strong, proprietary media business around the world, but it's certainly much smaller in the US than a number of our competitors. I do think that has been a trend in the US — some of our competitors using proprietary media to win new business.

I'd say that's something that we're looking at carefully, but we want to make sure that we always act in the best interests of our clients. And the US has always been a market that has historically favoured more transparent business models, and that's probably a good thing in the long run.

WPP appears to have conducted what seems to be quite a deep job restructuring programme. Your headcount has dropped by upwards of 3,000 since the start of the year to 111,000 and, anecdotally, you seem to have lost quite a lot of senior talent — you've said goodbye to them or they've said goodbye to you — in the last six months. How painful and disruptive has this process been?

When you do bring four global businesses together [including the VML and Burson mergers and the Group M simplification], inevitably, there's some restructuring, and when you merge offices, unfortunately, some of that does fall on the leadership of those agencies.

We tried as much as we can to use natural attrition. Turnover [of staff] runs at maybe 25% in our industry and we try, where we can, to use natural attrition to bring costs in line with the new structure. But, regretfully, there have been cases where roles have been eliminated as businesses have come together.

We do need to make the company more efficient. I think in the long run, it will make us more competitive and more effective.

The sale of FGS to KKR has been well flagged but it does mean you're losing what is a fast-growth part of WPP when you could do with some faster growth. And all the money [from the sale] seems to be being just ploughed back into the business. At first glance, it doesn't appear like it's particularly benefiting shareholders, beyond improving the balance sheet.

It takes us down to the middle of our range [in terms of the ratio of net debt to earnings], which is a good thing for shareholders [because it reduces debt repayments] and it will give us more financial flexibility in the future. It can enable us to focus on our core offer.

FGS is an excellent business but a very different business from the rest of WPP. It operates with, in most cases, different [types of] clients, inside client organisations. We have very strong public relations capabilities in consumer and corporate public relations [under the recently-merged Burson and Ogilvy PR brands] and I think it makes sense for us to focus on that.

When we started to bring FGS together four years ago, we took three disparate businesses in WPP and worked together with the management team to bring them into one company and supported them in the acquisition of Sard Verbinnen in the US [in 2021]. We’ve created close to over $500m of value. It’s a very good result for WPP shareholders and something that we're pleased to be able to do at an attractive valuation.

Could you repeat this with another part of WPP [by spinning off another agency division]?

You know we have worked on Kantar [in partnership with private equity firm Bain, after selling a majority stake in 2019] but no – I think the rest of WPP is strategic. The reality is that FGS is really the only significant asset of that nature that’s not integrated with the rest of WPP. This transaction makes sense on its merits, both from a strategic and financial perspective.

There's a lot of talk that advertisers and their agencies have a role to play in where they choose to invest, and that includes on social media platforms. Given the unrest in the UK – and it could apply to other markets as well – what should advertisers be doing about social media [even if you won’t discuss Elon Musk, the owner of X, during this results interview]? How are you holding these platforms to account as the world's biggest media buyer?

Our role remains to communicate the views of our clients to the platforms and to advise our clients objectively on what is ultimately their decision on where to place their advertising.

A final word about artificial intelligence. In your results, you talk about how you can see enough about AI already to know that its impact will be “significant”. We keep hearing anecdotally about brands being able to do more, much more cheaply [with AI]. Is this having an impact in terms of the revenue pressure that you are seeing, particularly on the creative agencies [which were down 2.4%]? Is AI hurting marketing services revenue?

I’d say at the moment, it is a growth driver for us. It's still too hard to say what its long-term impact will be.