The world’s largest advertising company suffered a 70 per cent drop in profits last year as big technology and retail clients reined back on marketing spending.
Pre-tax profit at WPP fell to £346 million from £1.2 billion the year before, also partly due to a writedown in the value of some brands, while revenues remained relatively flat, up 3 per cent to £14.8 billion.
The FTSE 100 company’s share price fell by more than 5 per cent after the announcement. It is off by more than a quarter since this time last year amid concerns about the state of the advertising market.
Mark Read, the chief executive, has repeatedly emphasised his strategy to use generative artificial intelligence, spending £250 million a year on what he considers a “fundamental” technology. While its AI-powered platform, WPP Open, is being widely used across the business, there are associated risks: the company pinpointed “IP [intellectual property] infringement” in the “underlying data sets used in the creation of client works” as a potential headwind.
Read said: “We’re acutely aware of it and are building solutions designed to give clients AI-generated images that don’t suffer from problems to do with copyright or brand accuracy. We do not use, in client work, models that are not trained on copyright safe databases.”
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The company reported $4.5 billion of new business including contracts with Allianz, Krispy Kreme, Mondelez and Nestlé. This was down from $5.9 billion in 2022, with a higher pipeline of new billings for this year. It was behind four of the top five ads during this year’s Super Bowl, which had record viewing figures.
The company said that strong revenue growth in the UK and India was partially offset by weaker performance in Germany, China and North America.
The company had property-related restructuring costs of £265 million. “With people in the office less often, we need less space,” Read said. “There’s opportunity for us to reduce costs. We did have significant property exposure in New York, which we decided to review and we made the decision last year to bring all our people together in one building in New York. I do believe at the same time that we are a business that needs people in the office.”
WPP was built by Sir Martin Sorrell, who bought up dozens of advertising, marketing and communications agencies. Sorrell, 79, left the company in acrimonious circumstances five years ago and was replaced by Read, who has been trying to simplify the business. He has brought many agencies under the same roof, such that 90 per cent of WPP’s annual revenue comes from six networks: AKQA, Ogilvy, VML, Hogarth, GroupM and Burson.
![Michael Cera, the actor, in a tongue-in-cheek advert for CeraVe, developed by WPP Onefluence — another Super Bowl commercial that was widely shared on social media afterwards](https://cdn.statically.io/img/www.thetimes.com/imageserver/image/%2Fmethode%2Ftimes%2Fprod%2Fweb%2Fbin%2F5d4dc9b5-263f-4845-928e-ef00bd7e00ce.jpg?crop=1920%2C1080%2C0%2C0)
Barclays said that while “there are a few niggles … there is deep value in WPP. We still believe that WPP will turn its fortunes around in the next two to three years and deliver higher margins and higher cash flow, although we acknowledge that most investors won’t agree until momentum improves”.
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Shore Capital, which has a “buy” rating on WPP, said: “2023 was a challenging year for WPP, but we believe it is well placed to generate accelerating medium-term earnings per share and dividend per share growth and robust cash generation as the ad spend backdrop improves and it reaps the benefit of self-help initiatives and its recently updated growth strategy”.
The shares closed down 50p, or 6.38 per cent, at 730½p.