WPP plc

Good morning, ladies and gentlemen, and welcome to WPP 2025 Interim Results Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keypad. Today's conference is being recorded. Now I would like to hand it over to WPP CEO, Mr. Mark Reid. Please go ahead, sir.

Thank you very much and good morning everybody and welcome to our 2025 interim results earnings call and thank you for joining us. I'm on today's call with Joanne Wilson, our CFO, Brian Lesser, the CEO of WPP Media and Tom Singlehurst, our Head of Investor Relations. And before we get started, please do look at the cautionary statement which you can see on slide two and read that carefully. So turning to the highlights on page five of the presentation. First in terms of the first half performance for 2025. When we updated you in early July we went through how a more challenging macro environment coupled with a slower net new business environment had weighed in our performance in the second quarter and in particular in June and Joanne will take you through the details shortly but performance in the first half is in line with those revised expectations with H1 organic net sales growth of minus 4.3 is consistent with the second quarter down 5.8%. Now, as you said on July 9th, the second quarter was impacted by several one-off factors that negatively impacted our growth rate, even excluding those H1 growth was minus 3.8% and minus 4.8% in the second quarter, below our expectations at the start of the year. Now, in the face of this, we are maintaining strong financial discipline. Headcount has come down by 3.7% since the start of the year, broad in line with the organic growth trend. In addition, we continue to take out structural costs and focus on back office efficiency, underlining our disciplined approach to managing the cost base. As a result, headline operating margin was 8.2%, down by 290 basis points on a like-for-like basis, but this includes the cost of severance action taken in particular at WPP Media, which has not been treated as an exceptional, and we expect margins to improve in the second half of the year. As importantly, open, getting Group M, now WPP Media, back to growth and winning more new business. And we've made progress on those, which I'll talk about in a minute. But more broadly, I want to emphasise it has been a period of intense activity across the group, whether that be the release of new products, for example, Reputation Capital and DecipherTech at Burson, or the signing of new partnerships, for example, collaboration with Vercel, TikTok and Pateo. That has been particularly important in terms of further strengthening our retail media offer within WPP Media. There's also been a very busy period in terms of welcoming top talent to the organisation. Vincent Bejian Shah, who joins us from Accenture and Accenture Song as CEO of AKQA. We've had some more success in AKQA in the past few months in terms of winning new business. And I think we will see a continued turnaround in that business, which is reassuring. And Daniel Barrack, who joins us from RGA, is a global creative and innovation lead, working on a very important platform with a focus on AI and technology. Coming back specifically to the 2025 priorities on slide six and those three taking those three in turn. First, in terms of adoption of WPP Open, it's growing fast with over 80% of our client-facing people actively using the platform. And with adoption running ahead of our expectations, we're now pushing for greater engagement per user. Just to give you some statistics, put in context what we're doing, in the last month our team created more than a million images, 240,000 videos on the platform, and we now have more than 50,000 agents active across WPP, helping our people to use AI to deliver work for clients. The second priority was media. And one of the drives behind the increased adoption of WPP Open has been rapid expansion in Open Media Studio, which is encouraging in itself, but more important is the progress made by Brian and his team. And he'll take you through that in a few minutes, but an enormous amount has been achieved in the first half, not only in terms of re-engineering the operational model, making WP Media a much more client-centric organisation, but also in terms of bringing its AI-enabled technology platform to market, via the acquisition and integration of InfoSum, the launch of Open Intelligence, the data performance grain that powers the open real estate world. Another third priority in your business, I would say this has been a source of relative disappointment. Now, to be clear, we have had some significant wins, whether that's the Hero, Motorcore and Media, L'Oreal Influencer, TK Maxx and PR, Heineken and Commerce, IPO Creative. But there have been setbacks, and overall it has been a much slower new business environment, with, as the chart shows, new business running at less than half the typical rate at this point in the year. Now, my view is that clients have been dealing with a lot of short-term issues, whether that's pressure on consumer spend or the impact of tariffs or commodity prices, and these have delayed and prolonged decision-making. And I'm sure we've discussed that in the call and the Q&A. So now I can hand over to Joanne to take you through the details of the first half of the call.

Thank you, Mark, and good morning, everyone. So let me start by taking you through where our performance has landed relative to the revised guidance we set at the beginning of July. And you can see this on the slide here. Like-for-like revenue less past three costs fell 5.8% in the quarter, which was in line with the anticipated range. This leaves the first half organic decline at 4.3%. As mentioned in our July trading update, there were some one-off factors which did weigh on the second quarter performance. Excluding this, the like-for-like decline would have been 3.8% in the first half and 4.8% in the second quarter. Turning to headline operating profits, this came in at £412 million, the middle of our range. This is consistent with a margin of 8.2%, with a 290 basis point life-for-life decline driven by a combination of the impact of negative operating leverage on lower net sales and higher severance, in particular at WPP Media. Moving on to slide 9, and looking at performance across our business. Global integrated agencies saw a life-for-life decline of 6% in the second quarter, a step down from minus 2.8% in the first quarter. Within this, WPP Media was down 4.7%, which saw the US decline against a tougher comp and reflecting client losses. Trends remained tough in the UK. WPP Media declined 1.6% in H1 and minus 2.3% in Q2. Like for like for, other global integrated creative agencies fell 7.2% in the second quarter and compares with the decline of 4.4% in the first quarter of 2025. Within this, the main moving part is Ogilvy, which declined high single digits in the first half and was down double digit in the second quarter, impacted by cuts in client spending, in particular in CPG, tech and government. We continue to see an impact on weakness in project-based work. However, AKQA saw a slight sequential improvement quarter-on-quarter down from 6.6% in the first quarter. This performance reflects a more challenging environment for client discretionary spend, in particular in Europe and across smaller local clients. Looking forward, we are encouraged by improved momentum on new business in North America. And finally, specialist agencies saw a like-for-like decline of 1.9% in the quarter, with continued double-digit growth from CMI, our specialist healthcare media agency, and a return to growth of design region partners, OSSEP, that continued, albeit moderating declines at Landor and other smaller specialist agencies. Turning now to performance by region on slide 10, North America declined by 4.6% in the second quarter, following a decline of 0.1% in the first quarter. While there was a toughening camp, the performance was impacted by cuts in client spend, particularly impacting Ogilvy and the ramp down of a Q1 client loss. The United Kingdom declined by 6.5% in the second quarter, a slight deterioration on the 5.5% decline in the first quarter despite an easy income. Performance continues to be impacted by its higher raising towards project-based work and the impact of client losses at WPP Media, although Ogilvy posted positive growth. Western continental Europe saw an overall like-for-like decline of 6.5%, again versus an easy year-on-year comfort and reflecting the impact of one-off factors. The rest of the world declined 6.8% in the second quarter, largely driven by persistent pressures in China, which declined 15.9%. As discussed in the first quarter call, we expected performance to continue to be challenging in China in the first half of 2025, with some improvement later in the year. Against this, we saw a relatively better performance in India, which was flat at 0.1% in the first half, driven by WPP Media. Central and Eastern Europe saw robust performance, up 2.4% in the second quarter. Slide 11 shows Q2 performance across our client sectors. Having been stable in the first quarter, CPG saw a step down in the second quarter, declining 8.3%. Cuts to client spending and the loss of a large client in North America were key factors. Performance in the tech client sector moderated in the second quarter, showing a decline of 1.2%, having seen Q1 growth continue to improve at 4.5%. Geographically, the U.S. saw the biggest delta driven by client spending cuts, with trends elsewhere more robust. Healthcare has continued to stabilise with broadly flat growths in the quarter as 2023 client losses start to roll off, but Automotive and Financial Services, which was started the year well, saw a step down in the second quarter. The performance of our top clients continues to be relatively more robust than for the group as a whole, with our top 25 clients growing 0.1% in the first half, albeit this is consistent with a low single-digit decline in the second quarter. The water spore chart on slide 12 bridges our headline operating margin from 11.5% in the first half of 2024 to 8.2% in 2025, a 3.3% decline on a reported basis and a 2.9% move like for like adjusting for FGS and Ethelix. The near-moving parts of the impact of negative operational gearing on the reduced like-for-like net sales, as well as the impact of severance. To put some numbers to this, although our overall staff costs excluding severance and incentives is down £261 million, given the decline in net sales, this is still consistent with the 250 basis points decline in margin. This reflects a 6% reduction in headcount when compared to the 30th of June 2024 and reduced usage of freelancers, but also the impact of the FGS global disposal. Severance and other associated costs is up £59 million year-on-year, and this takes another 130 basis points off margin. This is primarily driven by actions of WPP Media, and we expect a payback progressively through the second half and into 2026. As we discussed in July, we estimate the annualised gross savings benefit associated with these actions will be at least £150 million, and we anticipate margins in the second half to improve as a result. While total IT costs have remained broadly flat, this represents back-office savings and enterprise tech offset by our continued investment in WPP Open, AI and data. Total IT costs were 0.6% point drag on margin. On slide 13, we look in detail at restructuring costs and to note ongoing severance action, both in reaction to the weaker top line as well as in more strategic actions at WPP Media are included in headline operating profit. Restructuring costs associated with historical programmes are coming down and in the first half were £45 million compared to £153 million in the first half of 2024. £40 million of the restructuring costs are cash and primarily relate to the ongoing IT. £110 million and we have reduced our full year expectation for restructuring costs to £90 million. We pull this all together to headline P&L on slide 14. Overall reported revenue less past year costs was £5 billion, a decrease of 10.2% period on period. FX contributed to a 2.4% drive, with M&A a further 3.5% headwind, leaving a like-for-like decline of 4.3%. Moving on to the P&L, a reminder that income from associates excludes any contributions on Cantar, in accordance with IAS 28, due to nil carrying value on our balance sheet. Net finance costs of £129 million was down year-on-year, affecting the lower average adjusted net debt. Our effective tax rate at 18.3% is down year-on-year, principally driven by the benefit of credits from the success and resolution of a tax matter. Given the impact from a lower level of profit based on our revised guidance, our modelling assumption is that the full year effective tax rate will be 31%. Non-controlling interests of £26 million were down significantly year-on-year, largely reflecting the impact of the disposal of FGS Global. Headline diluted EPS of 20 pence is down 35% in reported cases, a 10.9 pence move consistent with an 8.8 pence decline like for like and a 2.1 pence impact from FX and M&A. Turning to the dividend, the board recognises the importance of dividends to shareholders and also the importance of retaining financial flexibility for the business. With a new CEO starting imminently, alongside a review of the strategy, careful consideration, the board has declared an interim dividend of 7.5 pence. Moving to slide 15 and the reconciliation between our headline and reported operating profit, headline operating profit of £412 million is adjusted for goodwill impairment of £116 million, which relates to NKQA and grey lower year-on-year. As already discussed, we've seen a fall in restructuring and transformation costs to £45 million from £153 million a year ago. Putting these items together, that leaves a reported operating profit at £221 million in the first half, with the decline slightly lower than the move in headlines operating profit. Slide 16 looks at our adjusted operating cash flow and bridges the year-on-year movement in adjusted net debt to June 2025. Our 12-month adjusted operating cash flow before working capital to June 2025 was £1.2 billion. While we continue to focus on working capital management, we saw a working capital outflow of £175 million in the 12-month period. We saw a net outflow of £118 million, comprising the net impact of dividends from associates to minorities and including M&A earners. Net interest and tax contributed to a £633 million art flow, with the cash tax including £43 million of tax associated with the FGS global disposal. Net M&A and disposals was a £383 million inflow, primarily reflecting the disposal of FGS in the second half of 2024 and the acquisition of Interstam. Cash dividends paid in the 12-month period was consistent with prior year, while buybacks and other items amounted to net debt to the end of June, with adjusted net debt at £3.3 billion, down year-on-year but up from year-end, reflecting our typical cash cycle. Average adjusted net debt better captures the normal pattern of working capital moves across the year, and this is slightly down through the first half of £3.4 billion. Despite a reduced net debt balance, the average adjusted net debt to headline EBITDA ratio at the 30th of June is outside our 1.5 to 1.75 times target range, given the lower profit, and our expectation is that we will be above our target range for the full year 2029. Our balance sheet, however, remains robust. The weighted average maturity of our £3.8 billion of bond debt is 6.4 years, and this is an average coupon rate of 3.5%. Meanwhile, our total available liquidity across the group stood at £3 billion at 30 June 2025, including a $2.5 billion committed RCF, which matures in February 2013. Neither our bond debt nor our RCF have any covenants, and our credit remains invested in. And finally, for me, turning to slide 18, which shows our guidance for the full year. At our July trading update, we shared our revised guidance for revenue and operating profit, with a like-for-like decline in the range of minus 3% to minus 5% and a headline operating margin decline of 50 to 175 basis points. Looking beyond the net sales and margin guidance and reflecting the changes in those revenue and margin guidance, we now expect adjusted operating cash flow before working capital to be 1.1 to 1.2 billion pounds. As I already mentioned, the lower level of anticipated profitability in 2025 or of M&A has materially changed since the first quarter results. So thank you, and I will now hand over to Brian.