Proactive Investors - Shares in WPP PLC (LON:WPP) fell 3% as full-year results came in largely in line with expectations, though lower technology spending in the final quarter in the US acted as a drag.
Net new business was 24% lower year-on-year and reported pre-tax profit fell 70% to $346 million due to accelerated amortisation of previously indefinite life brands and impairment of leases related to a property review.
Underlying operating profit rose 0.5% to £1.8 billion, held back by a 13% increase in IT costs reflecting investment in technology including AI capabilities, linked to the £250 million AI plan announced at its Capital Markets Day in January
Headline revenue, which excludes pass-through costs, was up 0.9% on a like-for-like basis at $11.9 billion.
On a segmental basis, Global Integrated Agencies, which includes planning and ad agencies GroupM, Ogilvy and Hogarth, saw revenue growth slow to 0.7% in the fourth quarter, PR picked up to 2.4% while Specialist Agencies declined further at 6.8%.
Chief executive Mark Read said 2023 "was more challenging than we expected" due to cuts in spending by technology clients, but felt it was a resilient performance, including a 0.2 point improvement in operating margins at constant currency on the back of cost control while investing in tech.
"AI will be fundamental for our business and we are embracing the opportunities that it presents, putting it at the heart of our operations and our work for clients," he said.
"Our AI-powered platform, WPP Open, is now being used by more than 30,000 people across WPP with growing adoption by our clients."
Looking to 2024, Read's guidance was for like-for-like revenue less pass-through costs growth of 0-1%, with improvement in headline operating profit margin of 20-40bps, excluding the impact of FX.
Analysts at UBS noted that the headline figures and guidance were in line with recently updated expectations following the capital markets announcement last month.
They expected a neutral reaction from investors today: "While organic growth and margin guidance had been given, new guidance on FX, finance costs and tax rates and incrementally negative to consensus EPS. Strong performance from GroupM in Q4 is an incremental positive."
Mark Crouch, market analyst at eToro, said the results were "underwhelming" and that shareholders were "likely to still be reeling" from the two profit warnings issued last year.
Roddy Davidson at Shore Capital agreed that it was a challenging year for WPP, but he believes it is "well placed" to generate accelerating medium-term earnings and dividend 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".
Sophie Lund-Yates, analyst at Hargreaves Lansdown (LON:HRGV), flagged that WPP was being hit by lower ad spending by technology firms in the US.
"The media, analytics and advertising giant is in the firing line for any slowdown in corporate spending or sentiment, as its products are often nice-to-have, rather than something that helps companies keep the lights on.
"With that said, WPP has done an awful lot of the right things to position itself for the future. It’s throwing money at improving its offering, including AI capabilities. There will be some trepidation surrounding exactly when these hefty investments will bear meaningful fruit, but it’s a step in the right direction."