WPP plc

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2020 Preliminary Results Conference Call and Webcast. At this time, all participants are on a listen-only mode. After the initial opening remarks, there will be a question and answer session. At which time, if you wish to ask a question, please press the star and one on your telephone keypad. Today's conference is being recorded, and at this time, I would like to hand the conference over to WPP CEO, Mr. Mark Reid. Please go ahead, sir.

Thank you very much, and good morning to everybody that's listening to us from the United States. Welcome to our 2020 results presentation. I'm here in London with John Rogers, our CFO, and Peregrine Riviere, who heads up our Investor Relations Department. And as is customary, we're going to have a few brief opening remarks and then open up the floor to questions. You should look at the presentation that we made this morning, including the cautionary statement that was included within that presentation. I think to start, it's now been actually exactly one year to the day since we asked everyone at WPP, some 100,000 people to work from home if they weren't working from home already. And it's been quite a year. But I think overall, a very productive year. We entered 2021 in a good place. It's clearly been an amazing effort from our people who have looked after each other very well. We've had a great degree of support from our clients, and I'm very pleased with our client satisfaction scores and the new business that we've won. And actually, as a company, we've done a lot to help our communities to manage their way through COVID. Overall, I think the performance we've described is resilient, and we've made significant progress on our strategic goals, and we need to highlight some of the key themes that perhaps we can touch on in the Q&A. The first is the sequential recovery in our business that we've seen since the initial lockdown. The second quarter we were down 15.1%, down 7.6% in the third quarter, and 6.5% in the fourth quarter. So we have seen an improvement throughout the year in our relative net sales performance on last year. We have got major parts of our business that are growing well. For the year overall, indeed, in Q4, so CPG, tech, pharma, about 57% of WPP's business. And they have turned to us for help and advice during this period. We're seeing growing demand for commerce services. We're working with 76 of our top 100 clients in that area, and that extends both to the work we do in helping them build websites, but also the work they do in digital media, where GroupM, we've seen commerce media grow by 43%, and the overall shift of GroupM's digital billings by 3.8% business mix over the year. Our new business performance has been excellent. We've led all the new business tables and I think it's going to be a busy year in 2021 for new business with both opportunities and challenges for all of us in our industry. I talked about our people and we have really had a fantastic effort from our people. We focus a lot as a company on their wellbeing more as you would expect as the year has gone on. And I think everyone's keen to get back into our offices, if not five days a week for at least a fair part of the week. And we have had a great degree of success in attracting top talent into WPP over the last 12 months. I talked to a few people, Rob Riley, who's joining us, our Chief Create Officer, Andy May, the CEO of Ogilvy, Kurt McDonald, running GroupM in North America, Devika Porchandani, who's running Ogilvy in New York and heading up their advertising business, and then also the work we're doing with Barry Waxman and Sunil Radia back in Croto, their new digital transformation consulting. And I think talent is at the heart of our business, and we're really pleased to be able to attract top talent into WPP, but also pleased to be able to invest in the talent of the people who already work for us inside the company. So the work we've done on the sort of the front end, if you'd like, the client facing part has been supported by the work that John and our finance teams have done. You know, we've shown, I think it's very strong financial discipline throughout the year. So despite our net sales being down 8.2%, we saw 1.4% decline in our operating margin and very pleasingly our net debt end of the year, 700 million pounds, the lowest since 2004. So we've made a lot of progress, as I say, during the year. We laid out in our capital markets day our plans to accelerate our growth, to invest in the company while building an efficient platform. And we can touch on some of those topics during a Q&A. So I'm going to end these opening remarks just by thanking all of our people and our clients for the work that they've done and now give you the chance to ask any questions that you may have.

Thank you, sir. If you would like to ask a question at this time, please press the star and 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow the signal to reach our equipment. If you're also watching the webcast, please make sure the computer's volume is down to prevent feedback. So your first question today comes from the line of Dan Salmon from BMO Capital Markets.

Hi, Dan. Great. Hi, Mark. Good morning. Good afternoon to you guys over there. Mark, I wanted to just start by tapping in a little bit more on the continued focus on growing commerce services. And one of the things that you talked a little bit more about lately is building more commerce services at the creative agencies. And I just wanted to hear a little bit more of an update on that and the traction that may be happening there in the short term and And more about how you think about that over the long term is, you know, should commerce be a certain mix of business at the creative agencies? I don't know if that's the right way to put it. And then just to follow on to that, you know, how you think or how your recruitment of young talent, right, maybe out of college and university is changing as commerce services. Do they require a different talent set? Love to hear more about that as well. Okay.

So I think, broadly speaking, at a group level, we have set targets to increase our commerce business to something that we're looking increasingly to track and to measure our investments to make sure that our investments are delivering revenue. I think our view is that commerce services should be an integrated part of an agency's offer. I mean, what we're seeing in the market today is the confluence of communications and content and commerce on a device, largely the mobile device. And I think clients need integrated solutions to do that. I'd say the two agencies that are probably most advanced would be Wunderman Thompson Commerce, particularly on the web build side, and VML Y&R Commerce, where we brought geometry to bear with VML Y&R to create VML Y&R Commerce. But we do have some strong commerce offerings inside AKQA. and inside Ogilvy as well. I think it should be integrated. I mean, the services that we offer from a sort of inverted commas creative perspective, and it's a very broad definition, quite frankly, of creative is everything from helping companies to build their own website. So we built With the client, I would add, you know, savingsfreeze.co.uk, netaporte.com. We're helping one of our top 10 clients with a rollout globally of a direct-to-consumer platform. We're helping clients to merchandise their product on retailer websites, so how they would sell through, you know, Walmart or Target or other retailers. And then we're helping to think through how they take advantage of the marketplaces, you know, Amazon, Alibaba, MercadoLibre. And we've invested in a number of companies in that area. Plus, you know, commerce is part of what we do within GroupM. So our media business, we talk about a 40% increase in commerce billing. So increasingly, clients are looking at their media budgets, whether brand or promotion or sales, in one kind of bucket, if you like. And that presents us with an opportunity to expand our trade media advice that we give to clients. And then I think we have to work together and collaborate at a group level to bring clients an integrated solution. From a talent perspective, I don't think that the commerce part of this necessarily need different types of talent. What I would say on the talent front is we're very focused on bringing different types of people into WPP. Over the summer, we ran this next-gen leaders program to bring in a new set of interns we had. 750 interns that joined it. We want to expand it this year. Those interns, 57% came from diverse backgrounds. So we're attracting different types of people into the business. And I think naturally, you know, commerce will attract a somewhat different type of people. But I wouldn't say it's a substantial difference from those that WPP has had traditionally.

And then if I could maybe sneak in one follow-up, just latest views on Apple and Google's platform changes and maybe how you're helping clients prepare, especially for Apple's ATT changes, which are expected to come into your shortly.

Yeah, look, I think that from our perspective, I don't think it changes the overall attractiveness of digital media, which still provides greater targeting, greater measurability, and greater variation of creative assets than traditional media. I think by protecting consumers' privacy, we do help sustain you know, the long run viability of the media. So I think in that context, you know, we would probably welcome the changes. But they do clearly have a different impact on different players in the value chain. They tend to benefit, you know, those companies like Google and Facebook and Apple that have first party relationships. And a cynic might say that that's why they're doing it. I don't think that's the case for doing it because it's the right thing to do. But they're less advantageous to smaller publishers and to intermediaries that don't have direct relationships with consumers. I don't think that really applies to WPP. I mean, our job is to help our clients activate their data and their channels. And to the extent that that becomes a harder proposition, they probably need our advice a little bit more than they did in the past. So I think it's probably, at worst, neutral. At best, slightly positive to us to help our clients navigate what they're working through.

That's very helpful. Thanks, Mark.

Thank you. Question comes from the line of Tim Nolan.

Hi. I've got a couple questions just on the numbers, following on the broader stuff that Dan was asking on. Just to be clear, your guidance today is really no different from what you presented in December, right? I just want to make sure if there are any differences in there first off. I don't think there are.

John? No, no differences. I mean, I suppose the only new news is the year-end net debt position of $0.7 billion, which was better than we expected as a result of the strong working capital management. As we said on the call earlier on today, we would expect Some of that upside to reverse out this year, about $200 million to $300 million or so, but we'll keep the vast majority of it. So it's a positive outturn, but we'll expect a small reversal in 2021. Aside from that, everything's consistent with what we said for the capital markets day in December.

And could you remind us, is there any more restructuring to be done in 2021 or has that all been taken care of in 2020?

There's a little bit more to come through in 2021, probably 70 to 100 million or so, half of which will be the remainder of the restructuring programme we announced as part of the 2018 strategy review. The other half will be COVID-19 related, so there's a little bit to come this year. And then going forward to 2022 to 2025, we anticipate up to another 100 to 200 million or so spread over those years. to reflect the transformation program that we're undertaking and that we announced at the capital markets day in December. But a significant drop off from what we've seen over the last couple of years. So we've seen the, if you like, the worst of the restructuring charges come through. We'll see a little bit in the future, but a lot lower than it's been historically.

Okay, thanks. And then one more on cash and use of cash. You mentioned, I think in your press release, which is new news, reinstating the buyback program. Could you just run through one more time for us your priorities on use of cash? You do mention M&A. I think you say half a point to a point of acquisition growth per year. Just in general, what are the targets you might be looking for in M&A? What type of activity do you think there might be, and how much might you spend?

Yeah, so we said at the Cabinet Markets Day we intend to spend between $200 million and $400 million a year on M&A. The likely targets, of course, are going to be in the areas of commerce and experience and technology, those areas that we anticipate high growth occurring in. In fact, the two relatively small acquisitions that we've done this year to date absolutely sit in those areas. A small acquisition up in Scotland of an e-commerce consultancy business and then a digital consultancy business in Brazil, both of which are in line with those high growth areas. But in terms of our capital allocation, we said that we will, as I said, we'll do 200 to 400 million in acquisitions, and then any capital above and beyond that we'll intend to return to shareholders. And so if you apply the guidance that we gave at the Capital Markets Day in December, then it's easy to see in future years if we achieve those levels of growth and the cost savings that we've anticipated, there'll be further opportunities the share buybacks in 2022 and beyond.

Okay, good. Thanks very much.

Thank you. Once again, ladies and gentlemen, as a reminder, if you wish to ask a question, please press the star and 1 on your telephone keypad. That's the star and 1 if you wish to ask a question. Your next question comes from the line of Doug Arthur.

Yeah, thank you. John, I think you had reiterated at the beginning Analyst Day that you expected to reach the upper end of 700 to 800 million in cost savings pounds for 2020. Just specifically, do you have an updated figure on your total employment level right now?

Yes. In terms of the number of employees, is that the question?

Yes.

It's just under 100,000. Okay.

Okay.

And we delivered savings for 2020 of $810 million, so slightly higher than the $700 to $800 that we guided to.

Okay. And I would assume going into 2021, I mean, you've talked about sort of the second round of, you know, kind of process rationalization, so there's more to go.

Well, in fact, in headcount terms, we anticipate increasing headcount slowly over time because Obviously, we anticipate growth to take place over the next year and the years ahead. So we actually see our headcount going up slightly. However, obviously, an offset against that will be further efficiency savings that we think we can deliver, frankly, over the next three to four years. So we identified 600 million of savings to deliver over the next few years. That will net-net mean, well, overall will mean headcount reductions, but when you pair that off against the growth that we're going to deliver and heads that we anticipate recruiting to deliver that growth, then the net net position will be an increase in headcount over time.

Okay. And then just sort of off the beaten path per se, but it's not, it's still pretty important to you guys. Any, any comments on, on how Cantar is doing?

I think there's, there was information in the public domain that, A week or so ago, I think they did an update to their debt holders. They had a reasonably, they had a slightly tougher year than WPP did in net sales terms. I think it was about 10 or 11% down for the year in net sales, but did a good job, as you'd expect, to manage their cost base, and so their margin was down, but not by much. So they've had a reasonably good year, and obviously they've got plans to consolidate costs going forwards.

Okay, and then finally, Mark, Eddie, you probably touched on this in the earlier conference call, which I haven't finished listening to, but any thoughts on China outlook for 2021?

Yeah, I think just to add to what John said on Kantar, I think we're very pleased that we did the transaction. I mean, I think navigating 2020 with both Kantar and the lack of reduction of debt that would have resulted would have made a very different outcome. So I think that Andrew and the team that worked on the deal did a fantastic job getting that done just at the right time. On China, I think that our business has been a little bit disappointing for us the last 18 months. And I'd say our peers have probably been a bit more impacted by the pandemic than we would have liked. And I think we're soon to see you know, recovery in 2021, but I think there's probably some business-specific and client-specific issues that we're going to work to address and invest in the business. We've got a fantastic business in China, you know, a number of very, very strong clients, both domestic and multinational, but we're probably a little bit over-indexed to the multinational client than we would like. We're probably a little bit over-indexed to traditional media than we would like. While we've got a good commerce business there, we could probably invest a little bit more in that. And we are looking at investing behind a sort of a China-based, stronger China-based technology strategy because really, you know, the technology footprint there has pretty much totally diverged from the rest of the world. So I think it does merit, you know, its own approach. And I'd say, you know, that's something that, you know, given our scale in the market, we should be in a good position to take advantage of.

Okay, great. Thank you very much.

Thank you. We have no further questions at this time, sir.

That's it. Well, thank you very much, everybody, and thank you for your questions, and we'll see you on the next call in a couple of months.

Thank you. That will conclude today's conference call. Thank you all for your participation, ladies and gentlemen, and you may now disconnect.