WPP plc

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2024 Interim Results Conference Call-On Webcast. At this time, all participants are on listen-only mode. After the speaker presentation, there will be a question and answer session, at which time, if you'd like to ask a question, please press star followed by one on your telephone keypad. Today's conference is being recorded. I would now like to hand over to WPP CEO, Mr. Mark Reed. Please go ahead, sir.

Thank you and good morning everyone and welcome to WPP's 2024 interim results. I'm Mark Reid and I'm here with Joanne Wilson, our CFO. We're going to take you through our results for the first six months of the year and then take your questions. We have been extremely busy in the first half of this year against the plan we outlined at the CMD, and I'm very pleased with the strategic process we've made since then. I'm confident it's going to make us more competitive as an organization in the market. It's absolutely my focus and that of our leadership team. We're going to market with fewer, stronger brands. We're embracing AI and new technology at great speed and leading the way in how we're deploying this and how we work and how we better serve our clients. We're delivering excellent work to our clients. And at the same time, we are making the company's structure more efficient to improve our profitability. So while we have undoubtedly more work to do, we've made a lot of progress. As I'm sure you'll see with the FGS transaction, we are very focused on value creation for our shareholders. So before we start, please read the important cautionary statement on page two. And on page three, turning to the agenda for the call, I'll go through the financial and strategic highlights and the details of the FTS transaction before handing over to Joanne to take you through the financial performance. I'll then cover the significant strategic progress we've made in the last six months, and we can get then straight into questions. Turning to page five and our financial performance, we did see net sales decline by 1% for the first half. the year, really due to a combination of factors. We had growth in three of our largest agencies, Group M, Ogilvy, and Hogarth. At the same time, we were impacted by certain client losses in 2023, largely in the US. We had macro pressures on our project-related businesses around the world and challenges in China. That said, we did see a sequential improvement in performance from a decline of minus 1.6 in Q1 to minus 0.5 in Q2. We saw sequential improvement in our creative agencies from minus 3.3 to minus 2.4 by VML, in our public relations agencies from minus 3.3 to plus 1.5, and in our specialist agencies from minus 7.6 to minus 2. These are all important parts of our business and imposter signs of significant work at VML and Burson. We've also seen stabilization in spending from our technology sector clients has had a big impact on us for the past 12 months, from minus 9% in Q1 to minus 1% in Q2. It's important, and in line with our expectations, we start to lap the spending cuts that started in Q2 2023. We continue to stand by what we've been saying since this sector came under pressure, that these companies need to market and and there'll be a point where their spend will stabilize. In the second half, we do expect it to return to moderate growth. And with technology clients contributing to this, we return to growth in North America at 2% compared to a decline in the first quarter of minus 5.2. Now turning to new business, I describe our new business performance in the first half as satisfactory. We've had some major wins, including AstraZeneca, and some important strategic wins, for example, with Colgate on Amazon Media. We do have a very full new business pipeline with significant opportunities ahead of us and some major reviews outstanding that we're very focused on winning. But we do have to be more competitive in two areas, in the U.S. and in Group M primarily in the U.S. And we believe the structural changes, technology investments, and people moves we've made and will continue to make will begin or continue to address this over the course of this year and going into next year. And lastly, in terms of financial performance, we did deliver 0.1% of constant currency margin improvement against the first half of last year, despite the top-line decline. This came from both the structural savings and strong cost discipline. Now, as you'll see, we have moderated our guidance, bringing it down from 0 to 1 to minus 1 to 0, which is largely because we see continued impact from China in the second half and the macro pressures weighing on our project-related businesses. I'll turn to our strategic progress, and I said at the start of the call, since the CMD at the end of January have been very productive, and I highlight three areas that we'll get into later. First, investments in AI and WPP open that are critical to our future. Secondly, the work the teams are doing across Burson, GroupM, and VML to build simpler, stronger businesses. And these three brands cover 70% of WPP's business. And lastly, the quality of work that we're doing for clients across the company resulting in our success at Cannes. And building on our strategic progress on phase seven, let's look at the sale of our shareholding in FGS Global. As I said at the start of the call, we've reached an agreement to sell our 50.1 cent stake in FGS Global to KKR at a headline valuation of $1.7 billion, representing about 19 times 2023 reported earnings. We believe this is an excellent result for WPP shareholders. If I remind you, we embarked on the plan to create FGS Global back in 2020, bringing together three independent and separate companies in WPP, Finsbury in the UK, Kering Schupner in Germany, and Glover Park in the USA. And while they were three very individually strong companies, they operated quite independently. And the ambition, together with the management led by Roland Rudd and Alex Gleiser, was to create the leading strategic advisory firm with the ultimate goal to bring the company to IPO. As part of this, we supported the company making the acquisition of Saad for Binan in the U.S. in October 2021, and KKR came in as a minority investor in 2023. Today, we were able to announce we've reached agreement to sell our shareholding, for which we received net proceeds of 604 million pounds. This transaction has a number of advantages for us. First, it allows us to crystallize value much more quickly than waiting for an IPO at an attractive valuation. Secondly, it allows us to reduce our debt and strengthen our balance sheet. It takes our pro forma leverage close to the middle of the range at 1.6 times, putting us in a strong position to navigate the next few quarters and the broader macro environment. Finally, it allows us to focus on our core creative transformation offer. And I'd remind you that we're still very committed to public relations with both Burstyn and Ogilvy Public Relations having strong global positions with strengths in those areas closer to our core business. So those are the highlights we'll come back to later. Joanne, do you want to take us through the financial performance?

Thank you, Mark, and good morning, everyone. So let me take you through some more detail on our financial results for the first half of 2024, and I'll start on slide nine. Revenue-less pass-through costs fell 3.6% on a reported basis. This includes a 2.9 percentage point headwind from FX due to sterling strengthening relative to last year, and a 0.3 percentage point contribution from acquisitions This is lower than prior years as we have not made any sizable acquisitions since acquiring influencer agencies GOAT and obviously in the early part of 2023. On a like-for-like basis, revenues less past your costs declined 1% with like-for-like in the second quarter down 0.5%, a sequential improvement versus Q1 like-for-like, which was down 1.6%. Turning to the headline income statement on slide 10, Overall revenue-less pass-through costs was £5.6 billion, a decrease of 3.6% year-on-year, with headline operating profit of £646 million, down 3% year-on-year. This resulted in reported operating profit margin of 11.5%, which reflects an adverse FX impact on margin of 10 basis points as a result of the strengthening of sterling. On a constant currency basis, our margin improved 10 basis points year-on-year. We continue to take a disciplined approach to cost management, balanced against investing in our proposition, and absorbing the macro pressures impacting our smaller agencies and our overall business performance in China. Moving down the P&L, income from associates is £7 million higher, and again, in compliance with IAS 28, this excludes any contribution from Kantar due to no carrying value on our balance sheet. Net finance costs increased 6.3% year-on-year, and that was primarily due to the impact of refinancing bonds at higher rates. Reflecting the tax rate of 28% to the half, which is in line with our guidance for the full year, and non-controlling interests of £41 million, the profit attributable to shareholders is £338 million. This resulted in a headline diluted EPS of 30.9 pence, down 6.6% or 2.2 pence, with two-thirds of this decline due to FX. And finally, we've declared a 15 pence interim dividend in line with our 2023 interim dividend. Moving to slide 11 and the reconciliation between our headline and reported operating profit, headline operating profit of 646 million pounds is adjusted for amortization and impairment of intangibles of 57 million pounds, which relates to an accelerated amortization of certain brands as a result of the creation of Burson. Restructuring and transformation costs of £131 million and property-related restructuring costs of £22 million are consistent with our full-year guidance and include costs associated with our three strategic initiatives, the creation of VML and Burson and the simplification of Group M. Overall, non-headline items declined from £360 million in H1 2023 to £223 million in H1 2024 with reported operating profit of £423 million compared to £306 million in the first half of 2023. And moving on to slide 12 and the performance of our global integrated agencies, which saw a like-for-like decline of 0.7% in the half, with Group M growing 1.9% and our creative agencies declining 2.8%. Group M's growth in the half was held back somewhat by 2023 client assignment losses, and a challenging performance in China, the latter adversely impacting Group M's overall like-for-like in H1 by 1.2%. Group M Q2 like-for-like of 1.4% was lower than Q1 of 2.4%, driven by weak performance in China and macro pressures in Germany. These offset an encouraging sequential improvement in the U.S., where Group M saw mid-single digit growth compared to a decline in Q1, with a broad-based recovery, including across key technology clients. Our global integrated creative agencies felt the full impact from the 2023 loss of a significant healthcare client and macro pressures weighing on project-related client spend at AKQA. These are partially offset by continued growth at Ogilvy, benefiting from new business wins, and at Hogarth, benefiting from growing demand for its technology and AI-driven capabilities. Q2 showed a sequential improvement in Q1, driven by VML and Hogarth. Headline operating profit of £551 million was marginally up year-on-year, with headline operating margin up 40 basis points, reflecting disciplined cost management and structural cost savings. Moving now to public relations in slide 13, we saw a 0.9% decline in the first half, which reflected a sequential improvement in Q2 across both FGS and Burson. FGS delivered double-digit growth in Q2, benefiting from a stronger corporate transaction market. Whilst Burson improved sequentially, net sales fell in the first half due to the 2023 loss of a Pfizer assignment and macro pressure on client discretionary spend. Operating profit of £80 million represented a margin of 14.1%, down one percentage point year-on-year, reflecting the softer top line and cost phasing. And now turning to page 14 and specialist agencies where revenue-less pass-through costs was down 4.7% on a like-for-like basis. CMI, our US specialist healthcare media agency, delivered double-digit growth in Q2, but this is more than offset by our brand agencies, Landor and Design Bridging Partners, and the tale of smaller agencies which were impacted by continued cautious client spending. This is resulting in a lower level of project-based work, and longer lead times in ramping up new assignments. Headline operating profit of 15 million pounds resulted in operating margin of 3.4%, down 2.6 percentage points year-on-year, reflecting the decline in revenue, higher severance costs, and the impact of operating leverage. I'll turn now to slide 15 and our performance by region. In North America, the U.S. declined by 1.4% in H1 2024, reflecting lower revenues from technology clients which were down double-digit in Q1, but improved to broadly flat in Q2, and from retail and healthcare sectors, reflecting 2023 client losses. This was partially offset by growth in CPG, telecommunications, and automotive. Q2 growth of 2.6% was a marked improvement over a Q1 decline of 5.4%, driven by an improved performance in Group M and the stabilization of technology client spend against easier comparisons. United Kingdom declined 2.6% in H1, with a Q2 decline of 5.3%, affecting a strong comparator and timing factors. Ogilvy Group M and Hogarth grew, and these were offset by declines in other agencies, which are more exposed to project-related work. In Western continental Europe, we saw weaker quarter and quarter performance, really driven by Germany, which declined 4.8% in the first half, impacted by a weak macro environment. This is offset by good growth in Spain as new clients were onboarded. The rest of the world declined in H1 2024 with a Q2 decline of 2.2% as high single digit growth in India was offset by a decline of 24.2% in China on client assignment losses and persistent macroeconomic pressures impacting both our media and creative agencies. Slide 16 shows Q2 and H1 performance across our client sectors with continued strength in CPG, as we see clients in this sector continuing to invest strongly behind their brands, and telecom media and entertainment, which benefited from client wins in 2023. Automotive growth improved in Q2, driven by growth at our largest client. Growth in these sectors was offset by continued lower spend from technology clients, which began to stabilize in Q2 as we lapped weaker comps and the impact of previously disclosed assignment losses in healthcare and retail. Slide 17 shows the development of our headline operating margin against last year. Margin of 11.5% was up 10 basis points in constant currency as we absorbed a small headwind from stronger sterling. In the bridge, you can see that staff costs pre-incentive were 132 million pounds lower year-in-year. This reflects wage inflation offset by lower headcount as a result of actions we've taken, along with benefits from structural cost savings. These cost actions offset top-line pressure in China and in some of our smaller agencies and together with investment in WPP open and AI teams led to an overall 20 basis point drive on margin from staff costs. Staff incentives were lower as the business performance lagged internal targets in some areas leading to a lower level of accrued annual and longer term bonuses. We expect much of this to be due to phasing which should unwind in H2. Savings and personal costs from establishment and other GNA made a small positive contribution offset by IT costs, where spending was broadly flat year-on-year against a weaker top line. And turning now to slide 18 and the structural cost savings from our strategic initiatives. We have made very strong progress implementing the cost actions as part of the creation of VML and Burson and the simplification of Group M. And I would like to recognize all three teams for the significant work they have done at speed to deliver against their plans. Restructuring actions at Burstyn and VML are now broadly complete with annualized savings on track and associated restructuring costs to deliver the savings in line with guidance. At VML, as well as delivering cost synergies, we are integrating our enterprise tech solutions and optimizing our production and tech hubs. We are also making good progress across our finance and HR transformation and delivering efficiencies from real estate and legal entity rationalizations. Similarly, at Burson, the teams have been busy expanding the breadth of their offer, retiring legacy brands, integrating across enterprise tech and real estate. Having now broadly executed all of their cost actions, VML and Burson are shifting their focus from integration to continuous business improvement. GroupM has implemented its new market operating model, simplifying support functions and integrating growth and marketing efforts, as well as GroupM's go-to-market strategy under OneLeader. Strong progress has been made in both structural cost actions and our global media platform, Open Media Studio, which brings together key media tools, simplifying our global proposition and consolidating our investment. Execution of the Group M plan will continue through the second half with all related cost actions completed in 2024. We also continue to make good progress on our back and front office efficiency. Across enterprise IT, we successfully rolled out an economy in several markets in EMEA and South America, our cloud migration continues to deliver cost savings and other benefits, including decommissioning, legacy equipment and capacity. We've continued building our finance shared service centers, including migrating teams from VML in North America and Brazil and WPP HQ. Across procurement, we continue to drive further savings and consolidate our supplier base. And in real estate, we continue to optimize across our property portfolio, recently opening a new operations and delivery hub in Wuxi, China, as part of an ongoing optimisation of our cost base in that market. Slide 19 shows the movement in net debt, which is down just under £100 million versus June last year. This is primarily driven by a lower level of M&A spend in our first half. The working capital outflow reflects the usual seasonal movement, and we continue to work towards a flat working capital movement for the full year. We continue to expect underlying debt at the end of 2024 to be broadly flat versus year-end 2023, and this excludes the impact of the sale of our majority stake at FGS Global, which is expected to complete in Q4. And turning to slide 20 and our capital allocation policy, which remains unchanged, we continue to prioritize targeted investment in our business with a focus on WPP Open and our AI capabilities. Today, we have announced the 15 pence interim dividend consistent with our dividend policy. We intend to use the net cash proceeds of 604 million pounds from the sale of our majority stake in FGS Global to reduce our leverage, implying a pro forma average net debt to EBITDA of 1.6 times, while within our target average leverage range of 1.5 to 1.75 times. And finally, turning to slide 21 and our guidance for the full year. While our performance in the second quarter delivered sequential improvements in net sales, further weaknesses in China and ongoing macro pressures have led us to moderate our expectations for the pace of recovery in the second half. As a result, we now expect like-for-like revenue-less pass-through costs of minus one to flat for 2024. We are making good progress on our strategic initiatives and efficiency programs and expect to see an acceleration of savings realized in 2024. which supports full data margin guidance for 20 to 40 basis point improvement in operating margin in 2024. This is before any impact from FX, which at current rates and based on our expected geographic mix in the balance of the year, we expect to be a headwind of 2.8% for like net sales and a 10 basis point headwind on margin. On M&A, we have not made any significant acquisitions so far in 2024. And as a result, the contribution of M&A in 2024 is likely to be below the previously indicated range of the 0.5 to 1%. Our guidance for the remaining metrics, net finance costs, tax, capex, restructuring costs, and working capital is consistent with that at the start of the year. So thank you, and I will now hand you back to Mark.