Ad giant WPP hamstrung by one-off costs

Revenue at WPP (WPP) edged up 3 per cent in 2023, but the advertising agency was weighed down by impairments, restructuring costs and the accelerated amortisation of intangible assets. Despite flat headline profits, therefore, statutory operating profit fell by 61 per cent to £531mn.

Profitability is likely to remain an issue in 2024. The group is forecasting wider adjusted profit margins on the back of efficiency savings and artificial intelligence (AI). However, cash restructuring costs – which are adjusted out of headline figures – are expected to reach £285mn this year and drag into 2025.  

The strength of client demand is also uncertain. WPP said it was using AI, data and technology to “harness the full power of our offer to clients”. For now, however, there are few indications that customers are queuing out of the door. Net new billings reached $4.5bn in 2023 compared with $5.9bn in 2023, and North America – WPP’s biggest region – is still causing problems. 

On a like-for-like basis, US revenue less pass-through costs (the company’s preferred metric) fell by 2.7 per cent in 2023 as a whole, and 4.1 per cent in the final quarter. This was blamed on lower revenues from technology clients, which hit the creative agencies in particular. By contrast, the UK managed to grow net sales by 5.6 per cent. 

At its capital markets day last month, chief executive Mark Read presented WPP as a company on the cusp of exciting transformation. Today's figures suggest that progress could be slow, however. Organic revenue less pass-through costs is only expected to increase by 0-1 per cent in 2024 and, in the medium term, is only due to pick up to 3 per cent. The restructuring programme could hamper cash flow in the meantime. Hold.