WPP plc

Thank you very much, and good morning, everybody, and welcome to our third quarter results. I'm joined here in London by Joanne Wilson, our CFO, and Tom Waldron from our investor relations team. And we'll just take you through the presentation before answering questions. On slide two is our cautionary statement. I'd just like to draw your attention to this and ask you to read it. So slide three in terms of the agenda. So I'm going to touch briefly at the beginning on the highlights of our third quarter results before Joanne covers the financial performance in some detail. We'll take some time to go through the strategic update and then Q&A. So highlights on slide four. I'd say that our third quarter was somewhat below our expectations with net sales down 0.6%, taking us to around 1.2% growth on a year-to-date basis. We had expected performance in Q3 to improve somewhat on Q2 in part due to the easier comparatives, but we did see a continuation of the pattern of spending that we saw in the second quarter, in particular, reduction in spend by our technology clients. In fact, they were slightly worse, from minus 9 in Q2 to minus 13 in Q3. We also saw somewhat slower growth in Group M, primarily in the US and the UK, a little bit in Germany, due to a mix of factors, some technology impact, some around the new business performance in the US, and some client softness in the UK. As a result, although the US performance in Q3 is probably the same as Q2, around minus 4.2, minus 4.5, had a slower growth internationally from 5% in Q2 to 1.8 in Q3, taking down the overall performance. That's really the key drivers of our top lines of the year. In terms of new business, in a somewhat better Q3 after probably a tougher start to the year than we would have liked, with wins in Estee Lauder, in Media, Nestle, Media in Europe, Unilever, and Verizon. Importantly, we're making two important moves to strengthen our offer. The creation of BML and the simplification of Group M come onto them. They intend to deliver around £100 million of in-year savings by fiscal year 2025, together with stronger revenue growth. we are making ongoing investment in AI to enhance our offer. In terms of our guidance, given the results in Q3 and desire to be cautious for the year overall, we're lowering our net sales guidance to 0.5 to 1% for the full year with a headline operating margin excluding FX of 14.8 to 15, i.e. an underlying improvement of 0 to 20 basis points on a like-for-like basis from last year. Lastly, we do think it's the right time to come back to you with a more comprehensive picture of our plans and actions. The world is changing fast, a lot of development, and we're at a point where there are many opportunities ahead of us, particularly with the application of AI for marketing that will drive revenue growth. We want to share those with you in a comprehensive way. So we'll do that with the Capital Markets Day in January 2024, and at the same time address the actions we're taking to deliver further efficiencies, including, and on top of the steps we've announced, in the last few weeks, as well as margin improvement, which are equally important. So as I say, by introduction, and just of the overall results, just to touch quickly on the two major strategic developments, the creation of VML that we announced last week, and the continued simplification of Group M. The VML launch is something we've been working on for the last three or four months. It will be the largest creative agency in the world. The goal has been to bring together two strong creative agencies. These two agencies have significant capabilities in data, digital, marketing, technology, and e-commerce. We believe the combined company with 30,000 people will have the scale to deliver a stronger and more integrated offer to clients. They're also two very complementary companies. VML, Y&R, probably stronger in the U.S. Wunderman Thompson probably stronger internationally, and it's quite a complementary footprint. They do serve a number of the same clients, and this will make it easier for those clients to have an integrated offer. And VMO will be stronger creatively and in experience, and Wanda Thompson in data and commerce, again, on a complementary basis. And importantly, it means that our ongoing investments in AI and technology capabilities will be made once and not twice. The second development is part of the ongoing synergy program that GroupM has been tackling. Again, it's not totally new, but it's an acceleration the plan has been working on that's designed to refocus the business and improve service to clients to ensure we're more competitive. It's very important right now, particularly in the United States. I'd make the point that GroupM really is a very strong company. We've seen 23% total growth on a four-year basis in 2019. So we're dealing with one of the stronger parts of our offer. But we believe, and so does the GroupM leadership, that we can do better, and we're determined to do so. The basis of simplification is we need to continue to have the same three client-facing agencies, Essence, Mediacom, Mindshare, and Wavemaker, but have them focused on clients while drawing on a more common set of products and a common technology platform that serves each of the agencies or all the agencies. From a client perspective, it shouldn't be a radical move, but it will allow us to invest more effectively in the offer, simplify the business, put our best people against our biggest opportunities, as well as easily unlocking further efficiencies in our back office. The last point to make, these two agencies represent about 62% of our business, so it's pretty significant in the context of the group overall. So with that as an introduction, I'll turn to Joanne to take us through the financial performance.

Thank you, Mark, and good morning, everyone. I'll talk a little bit more about the expected financial benefits from BML and the further integration of Group M later, but first let me take you through the financial results for the third quarter. So starting on slide seven, Revenue-less pass-through costs fell 5% on a reported basis and was down 0.6% on a like-for-like basis. Reported growth includes a 5.5 percentage point headwind from FX due to sterling strengthening year-on-year and a 1.1 percentage point contribution from acquisitions. As Mark shared, the quarter was impacted by a continuation of the cautious client spending patterns we saw in Q2, particularly at technology clients, and also weaker quarter-on-quarter performance in media. Moving on to slide eight, global integrated agencies were broadly flat year-on-year in the quarter with growth of 0.1%. Within this, Group M, our media planning and buying business, grew 1.6%, a slowdown versus H1 as a result of lower spend from technology clients and the impact of client losses in retail and CPG in the US. Together, these contributed to low single-digit growth in the US and the UK in the quarter. Group M grew well in Asia, and we saw continued strong growth in digital, programmatic and connected TV advertising, driving the share of digital to 51% of billions in Q3, up from 48% a year ago. Across our integrated creative agencies, we saw a like-for-like decline of 1.1%, a slightly better performance quarter on quarter. Ogilvy benefited from new business wins and delivered continued strong growth, offset by declines at our other creative agencies. As in Q2, those agencies continued to be adversely impacted by reduced spend, primarily across tech sector clients, and longer lead times for new business and project-related work. Moving to public relations, which is around 10% of WPP, revenue-less pass-through costs declined 0.9% in the quarter. Within this, FGS Global, our leading strategic advisory and communications consultancy, continued to deliver strong growth. However, this is more than offset by a decline in BCW and Hilton & Knowlton, which saw broad-based, cautious spending patterns from clients. And finally, our specialist agencies, around 8% of WPP declined 6.8%, with CMI's continued strong growth offset by declines in smaller agencies. Slide 9 highlights performance across our geographic segments. North America declined 4.1%, consistent with Q2 performance, and with similar client spending drivers, reduced spend from technology clients and client losses in the retail sector. This is despite group growth in some other sectors such as CPG, healthcare and financial services. The UK slowed in Q3, growing at 1.1%, with a broad-based slowdown across our media and creative agencies. CPG and healthcare-led growth offset by weakness in tech and retail compared to Q2. In Western continental Europe, strong performance in Spain and some smaller markets offset declines in Germany as a result of the macro weighing on client spending and France due to client losses. The rest of the world saw continued growth in the quarter, led by India, where like-for-like growth accelerated to 7.3%, with a strong performance in media, on new business wins, and in Ogilvy. We also saw continued growth in Latin America, Central and Eastern Europe, and the Middle East and Africa. China like-for-like net sales fell 4.2%, a weaker-than-expected result due to the uncertain economic environment, which primarily impacted our integrated creative agencies. Now moving to trends across our key client sectors on slide 10. We again delivered strong growth in consumer packaged goods, our largest sector which grew 14.5% in Q3, driven by both our work with Coca-Cola Company and other CPG clients. Across other sectors, telecom, media and entertainment and automotive improved in Q3, delivering year-on-year growth. Healthcare slowed a little and retail remained a drag, reflecting client losses. Technology and digital services continue to dominate the overall picture, falling 12.7% versus 8.7% year-on-year in Q2, as we saw a small number of US tech clients also cut spend in media. Moving on to guidance for 2023 on slide 11. We are now expecting like-for-like revenue-less pass-through costs to grow by 0.5% to 1% for the full year. This compares to previous guidance of 1.5% to 3%, and reflects the continued challenging macro environment and more cautious client spending patterns, which have impacted our Q3 performance more than we anticipated. We expect these trends to persist in Q4. We remain focused on delivering margin progression, with full year margins now expected to be between 14.8% to 15% on a constant currency basis. Previous guidance was around 15%. We expect a one percentage point headwind to reported net sales from FX over the full year, On profit or mixed means, we still expect to have an adverse impact of 25 basis points on full year margin based on current FX rates. We continue to expect around £400 million in restructuring and property impairment costs in FY23. This assumes a small amount of costs associated with the creation of VML, which we expect to be sub £10 million. Net debt at the end of Q3 was £3.9 billion compared to £3.5 billion at Q3 2022. Consistent with the seasonal nature of our business, we expect net debt to fall to around £2.6 billion by the end of the year, which would leave it broadly flat year-on-year. Within that, we expect trade working capital to be flat and non-trade working capital to be a £150 million outflow at the end of the year. We expect our average leverage ratio to land slightly above our target range of 1.5 to 1.75 times as a result of lower profit and timing cash flows throughout the year. Guidance on associates, tax and capex is unchanged. Moving on now to slide 12 on our VML and Group M strategic initiatives. Mark will talk more about the strategic rationale for these initiatives and how they build on the simplification and the transformation work our teams have done over the last five years. VML will be the world's largest creative agency and the actions of Group M will make its business simpler for our clients with a stronger go-to-market proposition and a more efficient operating model. Together, these two businesses will account for over 60% of WPP's net sales and headcount. These initiatives will enable us to unlock scale benefits and optimise our back office across both our creative and media businesses. Scale benefits will come from three main areas. A simplified and scaled organisation structure as a result of consolidation of units in each market and across regions. Optimisation of how we utilise resources across our front and middle offices. And finally, from enhanced offshoring operations. We will also optimise our back office and support functions by centralising and consolidating some of our finance, HR and IT support, further simplification across our smaller markets, including reducing our legal entities and better leveraging our back office shared services. We expect to deliver net annualised cost savings of at least £100 million in 2025 as a result of these actions, with around half of this landing in 2024. We will share further details on those savings at our Capital Markets Day in January. So thank you, and I will now hand you back to Mark to update you on our strategic progress.

Thanks very much, Joanne. So turning to our strategic progress. On slide 14, we talked to the evolving needs of clients, and we continue to involve our offer, the creation of VML, the simplification of Group M, the recent acquisitions in the area of influencer marketing, the continued investment we're making in production through Hogarth, All of these are shaping our offer to meet changing client needs. Secondly, creatively, we continue to invest in our creative products. Here I'd call out the success of Ogilvy under Deplica and its leadership, its recent win of the Verizon business, both B2B and now B2C, and its recognition of Adelwee's Global Agency of the Year. Ogilvy's growing well, between 3% to 4% year-to-date, and this is in large part down to its creative rejuvenation under their leadership and many of the talented executives that they brought in, as well as those that are already in the business. Thirdly, technology and AI are increasingly important to our work and to our clients. We've shared with you on these calls over the year many examples of work that we're doing, and we continue to have examples. What we'd like to do now is come back to you in January with a much more comprehensive view of our overall approach and investment roadmap in AI and demonstrate how we can really transform the work that we do with clients using these new tools. Fourthly, we continue to be focused on simplifying WPP structure and gaining the benefits of scale. And the announcements today mean that our five largest companies, GroupM, VML, Ogilvy, AKQ, and Hogarth, now represent about 82% of the company. Significant progress in terms of simplifying the business, providing us with the benefits of scale, and supporting the transformation program on the back end of those businesses. And lastly, people. We continue to attract top talent, making progress at BCW, bringing new talent into that public relations, public affairs company, and I expect we'll see the impact of that on the business over the coming months. Returning to new business, as we said at the first half of the year, we did have a tougher new business performance in the first half. Part of that was down to a series of ongoing reviews in media. Probably had more than our fair share of business up for review, but we didn't win everything that we would have liked to win. it's going to have an impact on the business, but we're very focused on improving our competitiveness. I don't believe there are systemic or structural issues, nor does it affect our talent and capabilities, and we can and we will do better. I would note a couple of wins, both creatively and in media. Particular importance was the Nest Day Europe win against, you know, really very tough competition and a very demanding set of requirements from the client, from media partners to really help them transform their business across Europe. I'd also note the win that was announced yesterday at the PayPal media business in the US, which demonstrates what our business can do in terms of new business groups. As I mentioned, our work creatively and effectively has been recognized. You can see on slide 15, Ogilvy's Recognized Global Agency of the Year, the Game Theory Recognition, and the VML Y&R Network of the Year at the New York festivals. So turning on page 17 to VML. And I would say that the launch was very well received by our clients and the markets. There are two quotes here from respected industry analysts and point to the need for simplification. There was also a WFA report a few weeks ago that made the same point. The creation of VML is very different from the VML, Y&R, and Wunderman Thompson mergers that took place nearly five years ago in 2018 that brought together analog and digital agencies. This is really about bringing together two of our most successful agencies, each of which has a broad set of capabilities that are complementary and will build a stronger company. We're looking forward to sharing the capabilities of this new agency at our Capital Markets Day and demonstrating what they can deliver to clients. This offer does go a long way beyond traditional creative advertising. We did talk long and hard about changing the term creative agency to better describe the broad range of work that they do, and I think you'll see that in their expertise across e-commerce, data management, experience, CRM, influence marketing. It's a very different business from the idea of TV and press ads, a very strong capability around the world, strong partnerships, and particular strength in e-commerce, proficiency in technologies in Shopify, Adobe, and Salesforce. In talking to clients, They're very interested in the opportunity that the new agency can deliver to them and keen to see how it can help them to build their business. It will launch January 1st, 2024, and the teams are working hard now to bring the offer together. On slide 18, we talked to the continued evolution of Group M. As I mentioned at the start, Group M has been on a journey of simplification, and we've decided to accelerate our plans. GroupM will remain a structure very much led by agencies dealing with clients and ensuring that client conflict can be managed, but the products, media platforms, technologies, and back office services such as finance and HR will be consolidated into one organization. We can see significant potential in this to refocus resources on client-facing activities, but our best people and our biggest opportunities. We have greater talent fluidity across our organization, It will also accelerate our ability to standardise, automate and offshore activities. Again, we'll share further details of this move together with the cost efficiencies at our capital markets day. So in summary, on page 19, it was, as I said at the start, a quarter where we didn't meet our expectations we had earlier in the year. We have seen a continuation of the trends that we saw in the first half with cautious spending from technology plants in particular, continuing from Q2 to Q3, with some softness, although still growth at Group M in Q3 after a very strong first half. We are, though, continuing to make strategic progress because we think these are the right moves, as well as because they will address some of the challenges we've seen in the last six months. We'll come back to you in January with a comprehensive plan that will tackle the opportunities ahead of us and how we can deliver sustained organic growth. The efficiencies we can make in the business because of the actions we've covered today, as well as the other steps that we're taking and the net impact that these would have on our operating margin. Lastly, before I finish, I do want to reference recent events in China. We've been asked by the authorities in China not to comment on the specifics, some limited in what I can say at the current time, but I can assure you we take it very seriously and take an immediate action. We have dismissed the executive involved who worked for us and stopped dealing with the third parties who are alleged to be involved. We have senior leaders both within China and outside China who have stepped in to manage it and instructing independent experts to carry out an independent investigation. At this point, that's all that we can say. So, thank you for listening and we'll now take your questions.