WPP sets out AI strategy and raises financial targets

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

WPP, the London-listed advertising group, has upgraded its medium-term financial targets on the back of cost-cutting measures as it sets out plans to spend £250mn this year on technology focused on artificial intelligence.

In a capital markets day in London on Tuesday, WPP will say that it has completed a broader restructuring of bringing its marketing, advertising and PR agencies under six networks — AKQA, Ogilvy, VML, Hogarth, GroupM and Burson.

This merger process would deliver annualised net cost savings of about £125mn in 2025, WPP forecast, with close to half of that expected to be achieved in 2024.

It is targeting a further £175mn in gross savings from cost reductions in its back office and in other parts of the business. However, WPP faces an associated restructuring expense of about £125mn in 2024, it will warn.

WPP will invest an annual £250mn in the sorts of AI technology that many analysts believe pose a threat to the sector, with the potential to replace many of the functions of an advertising agency in creating, planning and buying marketing for big brands. AI could also allow more companies to carry out their own marketing functions.

Mark Read, chief executive of WPP, said that “AI will have a profound effect on our business”, pointing to the opportunities for AI-enabled services and tools for its clients to help create marketing campaigns at scale.

“AI is transforming our industry and we see this as an opportunity not a threat. We firmly believe that AI will enhance, not replace, human creativity.”

WPP Open, its AI technology platform, is used by more than 28,000 people in the group, and has been adopted by clients including L’Oréal and Nestlé.

Read said it was “too early” to say whether these moves would lead to more or fewer jobs in the sector. He told the Financial Times that the strategy reflected “how we think the company needs to be organised to succeed in an era of AI”.

He added: “Its much easier to see all the jobs that AI will disrupt than all the jobs it will create. But it’s going to make creative people even more important, because it can level the functional playing field and make the idea itself even more critical.”

At its capital markets day, WPP will say that it plans to focus on a progressive dividend policy and a disciplined approach to mergers and acquisitions. Analysts and bankers have speculated about the opportunity for private equity to push for a break-up or sale of the business. 

WPP is reviewing whether to sell its 40 per cent stake in Kantar, the market research company.

WPP said it had a medium-term target of more than 3 per cent growth in revenue less pass-through costs, from a previous goal of 3-4 per cent — a figure boosted by M&A. Headline operating profit margin would be 16-17 per cent, it said, from 15.5-16 per cent. 

It said that like-for-like 2023 revenue less pass-through costs was expected to be 0.9 per cent, at the upper end of guidance of 0.5-1 per cent, with an operating profit margin of 14.8 per cent, again at the top end of guidance.

And for 2024, like-for-like revenue — less pass-through costs — was forecast at 0-1 per cent, with a headline operating profit margin improvement of 20-40 basis points.

Read warned that there would continue to be challenges for the business in 2024, pointing to the impact of some client losses last year, before predicting a return to stronger growth.