WPP AUNZ to be overhauled after sales and profit slide

WPP AUNZ's new leader has unveiled a three-year strategy to return the business to growth off the back of disappointing full-year results, where net sales and profit slid and many of its agencies posted losses.

Total net sales were down 4.4% to AUD$819.4 million in the year to 31 December 2019, with profit after tax and minority interest down 9.6% to $62.8 million.

In the "continuing business"—which excludes results of Kantar and Ogilvy NZ and the impact of significant and non-cash items—net sales were down by 2.6% to $712.5 million for the year. Profit after tax and minorities was $51.2 million, down by 9.6%.

In the "discontinued business", net sales in 2019 fell by a considerable 14.8% to $106.9 million, which helps paint a picture of how Kantar was dragging the group down.

It was a bleak year for the majority of the group's business segments. Its core advertising and media agencies, which includes the likes of Mediacom and freshly merged Wunderman Thompson, experienced a 3.1% fall in net sales to $481.8 million in the full year 2019, with headline EBIT falling 13% to $61.1 million.

Net sales also fell in WPP AUNZ's public relations and public affairs segment and its large format production segment—by 6.6% to $56.3 million and 5.1% to $19 million respectively. The group said certain brands within the global integrated agencies and PR segments suffered from account losses amid a persistent weak advertising and media market environment. WPP AUNZ expects 2020 to "continue to be a challenging environment" for its integrated agencies but has a more positive outlook for PR, expecting it to "return to growth" in 2020.

The group's second biggest segment, specialist communications, which includes technology brands AKQA and Aleph, was the only division in the green in 2019, with net sales up a marginal 0.8% to $155.4 million. The group said the positive performance was "consistent with trends across markets globally where clients are investing more heavily in marketing and advertising technology".

Debt reduction through Kantar sale

The sale of Kantar led to a reduction in debt facilities of $100 million in December 2019, the group said. Its debt facilities now stand at $420 million.

Net proceeds from the sales of Kantar, Ogilvy NZ, Yellow Edge and Smollan was $163.5 million—$150 million of which was made up by Kantar and Ogilvy NZ.

Of the sale proceeds, the board intends to return approximately $50 million to shareholders. The remainder of the sale proceeds will be used to pay down the group’s debt and invest in the new growth strategy.

The group paid $13.2 million in earnout payments in the year.

In total, WPP AUNZ sold or merged 15 operating companies in 2019, and intends to continue to streamline its portfolio in 2020. This will form a key pillar of its new group strategy.

New group strategy

The three-year strategy includes a simplification of its structure and a focus on growth areas that will "significantly change our operating model", unveiled Jens Monsees, managing director and CEO.

WPP AUNZ will be refocused on four "solution pillars": communications—its biggest—plus experience, commerce and technology. To build expertise in the latter three pillars, it will be investing in tech partnerships with platforms such as Microsoft, Adobe, Salesforce, MS Dynamics, and is eyeing targeted acquisitions. January's acquisition of Dominion in New Zealand is the first of this vision.

It will establish a centre of excellence for AI, data and technology that will develop solutions to be scaled across brands.

The group has different priorities for its regions. In Southeast Asia, the group wants to expand its offering and establish an "offshore hub". In Australia and New Zealand, the focus will be on driving collaboration through the establishment of one 'campus' offering per major city, in Perth, Brisbane, Adelaide, Auckland and Wellington. Each campus will have content and production capabilities. New Zealand looks set for the biggest change, with a restructure of its leadership team and reporting structure.

The creation of key city campuses forms part of its ambition to share services and take a more coordinated approach to client engagements and leads. 

An internal restructure will be underpinned by development of one central IT, CRM and HR system across the group

It is also establishing a new leadership model that will align individual performance with the overall performance of the group. Employees will be given individual performance KPIs, and will be incentivised by a renumeration framework that will include shares and options.

The group is targeting operating margin improvement of 2% to 3% over the period to 2022. 

The strategy will "simplify and scale our business and capture the new growth areas of the advertising, media and communications market," said Monsees..

Monsees joined in the business in October from BMW Group where he was corporate vice president. He said he has been "impressed by the capability and talent within our business" over the past five months, but added it was now time to "capture growing areas of e-commerce, technology and experience."

“We are confident in our ability to change gear and create a future of opportunity and success. No-one in our market is yet leading the future of consumer communication and that is where we want to be," he added.