WPP PLC (WPP) 2021 Q2 法說會逐字稿

Good morning, and good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2021 Interim Results Conference Call and Webcast. (Operator Instructions) Today's conference is being recorded.

At this time, I would like to hand the conference over to WPP CEO, Mr. Mark Read. Please go ahead, sir.

Thank you very much, operator, and good morning, everybody. I'm here in London with John Rogers, our CFO; and Peregrine Riviere, who heads up our Investor Relations team. And we're going to -- I'm going to make some opening remarks, and then John and I will answer any questions that you have.

There's a full set of slides in the presentation on the website, and I just draw your attention to the cautionary statement at the beginning of the slide presentation and maybe I'll just make some opening remarks on the first half overall.

I think we saw a very strong performance in the first half. An acceleration in our growth from 3.1% in the first quarter to 19.3% in the second quarter on revenue pass-through costs, giving us 11% growth in the first half of the year following a decline in the first half of last year of 9.5%. So net-net, plus 0.5% on a 2-year basis for 2019.

We saw that growth really across the board at 19.2% in our integrated agencies and GroupM, there was the standout performer, which have been a really very strong growth, particularly in the second quarter. But we saw growth across all of our business sectors, 12.9% in public relations and 27.8% in our specialist agencies. That reflects both a shift into our experience, commerce and technology businesses now represent 26% of WPP, but also strong growth in the communications area.

And I remind everybody that we do have very strong growth opportunities in the communications area around digital media, around e-commerce media, programmatic and other areas. Actually, we had a solid new business record. We retained -- won $2.9 billion of net new business. I think compared to last year, probably slightly stronger creatively than it was on the media side of the business.

But reminding you that we had really a standout year last year in new business, and we came into this year, probably with a little bit more at-risk than we have done in previous years. That's just the way that things fall. I think we're pleased with the performance we've had so far this year. And hopefully, there will be some more good news in the second half of the year.

We've invested tremendous amounts at WPP in our creative talent over the last 3 years. It's been a major area of focus, not least with the recent hiring of Rob Reilly as our Global Chief Credit Officer. And that investment was reflected in us winning holding company of the year or most creative company of the year at 2021 Cannes Lions, which comprises the last 2 years of work, the first time we've done that since 2017.

Taken together, this meant that we were able to raise our dividend by 25% to 12.5p and combine that with GBP 248 million of share buys in -- share buybacks in the first half of the year, a further GBP 350 million to go in the second half of the year. And we are raising our guidance for the second time this year to 9% to 10% growth in our revenue as pass-through costs on a like-for-like basis and headline operating margin toward the upper end of the range that we set at the beginning of the year.

I think it's a very strong performance. We're back to 2019 levels a year ahead of plan. We're up 0.5% in the first half of the year in 2019, actually 1.3% in the second quarter, slightly improving quarter on that. I think taken together, our results reflect the resilience of WPP's business model, the strength of our client relationships, our adaptability in the face of significant change and the long-term durability of the company overall. So great results. Thank you to our clients for their support and to our people for their hard work.

And I think now we're available to take any questions that you have, and John and I will field them together.

(Operator Instructions) Your first question today comes from the line of Tim Nollen from Macquarie.

Great. And very nice to see a nice bounce back in the numbers. I wonder -- I see your upgrades to the numbers for this year. And I just wonder if you could maybe give us an indication on what a post-COVID '22 or '23 kind of run rate revenue growth might look like?

And in addition, it looks like your net debt has gotten to such a nice low level now, and I always like to see low debt levels, but that almost creates a lot of things you could do with your cash. I wonder if you could talk about beyond shareholder returns, what your M&A pipeline might look like. What types of things you might want to look to acquire? Any comments there would be great.

Okay. Why don't I tackle the M&A pipeline, and John can fill you in where we are on the guidance. So I think we've made a good start to the year in terms of our M&A versus our targets. We've probably done a smaller number of deals in sort of -- in a numerical sense. But I think we're on target to meet what we set out in December last year from an absolute quantum amount, and they're in the faster-growing areas around technology and data technology for numerator through Kantar.

Our focus is very much in M&A on e-commerce, on marketing technology and on data and analytics. Now no doubt there'll be other areas of interest to us, but that's really where we're focusing most of our effort. We're seeing good-sized opportunities. I have to say valuations are high. Particularly when we can get into markets like Brazil where we acquired DTI, we can get a little bit more reasonable territory from that perspective. John, do you want to talk to the upgrades and the net debt?

Well, I'll come on to the point on growth, I think, first. And then I'm not sure whether there was a follow-on question on the net debt that Mark hasn't already covered. But look, on the growth side, we're reiterating our guidance in 2023 and beyond. So if you remember at the Capital Markets Day in December, we talked about a like-for-like growth of 2.5% to 3%, topped up by M&A of 0.5% to 1% or so. So overall 3% to 4% long-term growth. And we've reiterated that guidance today, and we're -- we've got line of sight to that and confidence against that with regards to 2023 and beyond.

Obviously, today, we announced that 2021, we were upgrading our guidance to 9% to 10% growth for this year. We stayed actually silent so far on 2022. And largely because we still got another 6 months to travel of this year. We had very strong momentum coming through in the first half and upgrading our guidance. We think that momentum will maintain itself in the second half. And we think it will also maintain itself coming through into 2022.

But we really want to experience the second half before we provide detailed guidance for 2022. So at the moment, we're not currently guiding for 2022. But in relation to the long-term post-COVID rate, if you like, sustainable rate, we're reiterating from 2023 onwards a 3% to 4% growth. So hopefully, that covers it.

In relation to the net debt piece, obviously, I think we've done a great job over the last year or so managing net working capital, really squeezing our net debt position down. I think there's more that we can still do there. All else being equal, as I said on the call this morning, we ended up the year at a net debt-to-EBITDA ratio that's significantly below our guidance range of 1.5 to 1.75x.

And so all else being equal, of course, that then logically gives us scope for further share buybacks against the capital allocation policy that we outlined at the Capital Markets Day where we said after organic investment, after dividend, after M&A, if we look if there was any capacity still left subject to that balance sheet requirement, we would return cash to shareholders through share buybacks.

And clearly, all else being equal, that -- there is scope for that in 2022. But as Mark has highlighted, we are always proactively looking at M&A opportunities, particularly in areas where we can accelerate our growth. And so it's always going to be subject to that.

And on the run rate growth, again, this is a strange year, just like last year was on the other side in terms of growth rates, but has the nature of client demand for your services change in any way? It's been migrating over the last several years. I guess, some things got accelerated during COVID, but any further comments on the nature of the demand that clients have for your services that might affect your growth rate going forward?

Look, I think the growth rates very much as we outlined in the Capital Markets Day. But I think they are underpinned by a fundamental change in what clients are looking for, certainly compared to 10 years ago. And even as we come out of the pandemic, we're seeing a much greater demand for, as we said, investments in e-commerce, in marketing technologies, in implementing solutions, data-driven marketing and personalized marketing. So it is fundamentally different.

Now it's probably a little bit more of an accelerated evolution over the last 3 years. But I think that certainly, when we look at our numbers, the fact that we've grown so strongly this year coming out of COVID, I think reflects the changes that we've made in our offer, the way in which we've integrated the company and the investments we've made in creativity and technology.

Now there's no doubt in my mind that we still run a -- we still have a business that depends on the so-called traditional creative skills and understanding of consumers and marketing strategy. And there's no doubt there's still investments in traditional media from television to outdoor that are going to remain important.

But if you look at where clients start now, they increasingly start with digital and not with analog. And that's true for WPP's clients, and it's also true for our companies in the way in which we've positioned our offer. So I think things have changed fundamentally. And we expect that to continue to shift. And the growth opportunity we see in the company in the e-commerce, in digital media, in connected television.

And you saw the performance in the results business like Finecast, Xaxis, they do reflect stronger growth in the newer areas than in the more traditional areas of our business.

Your next question comes from the line of Doug Arthur, Huber Research.

Yes. Mark, just to that point, you focused certainly in your written commentary on the -- as your business has evolved, the opportunity in sort of commerce services. Now Criteo is focused on it, Publicis just made an acquisition in sort of retail media. I mean how -- that term commerce services seems a little nebulous to me. How do you define it? And is it really an e-commerce-driven business? And sort of how is WPP positioned competitively there?

Yes. Maybe I can sort of try to contextualize it for you. I think our focus is really in 2 areas. There's commerce services, we really start by advising clients on their e-commerce strategy. So how do they move more of their sales online, and then help them implement that through their own direct-to-consumer channels.

So we're building direct-to-consumer platforms for clients like Unilever through retailer websites or how do they sell through a Walmart or Sainsbury's or indeed, how they sell through an Amazon or an Alibaba or MercadoLibre. So we're running both strategy and implementation through to building enterprise-level websites.

So we built -- we've re-platformed all of NetFortris' websites. We built sainsburys.co.uk. And we build in platforms like Adobe who acquired Magento or Salesforce acquired Hybris or what was known as IBM WebSphere Commerce enterprise-level websites.

We also create content that sits on those websites, particularly content that sits on your Amazon page to drive consumer demand, reviews and similar. And then within our -- and that's sort of one, I'd say, major bucket of commerce services, and that sits really within our creative agencies, so Wunderman Thompson, VMLY&R in particular, but also within Ogilvy and AKQA.

And then within GroupM, we have a big business that drives demand to those websites. So we said we saw e-commerce media grow by 60% in the first half of the year. Part of that is spend on digital media, classic digital media, Google, Facebook, other programmatic media that sends demand to those websites. Part of it is also a spend that goes through amazon.com or Shopify that drives customers to those websites.

So it's -- and then within our data business within Choreograph, we have a lot of data on what consumers are purchasing online. So I think we have -- to my mind, commerce is part of an integrated offer and sits across multiple different WPP companies.

(Operator Instructions) Your next question comes from the line of Michael Nathanson from MoffettNathanson.

Mark, a question for you. One of the things you clearly noted is the fundamental changes to what clients are requiring. And to that point, data on the use of first-party data seems to be rising clearly.

So could you talk a bit about the establishment of Choreograph? What capabilities will set it apart from others? And I wonder, post this pandemic, has there been any change in your thinking? I mean, possible with the needs to add more data capabilities and data skill sets? So give us an update on that, please?

Yes. Look, I'd say we established Choreograph. In our mind, that would sit as sort of our offer alongside Epsilon, and Acxiom and Merkle to bring together the key data capabilities that clients need. They see their role as advising clients on their data strategy, helping clients build programs that build the more first-party data and then helping them enrich that data.

And then thirdly, helping to deploy it through both the media channels and their own channels. And that's why we aligned Choreograph with GroupM because we see the benefit of aligning data very closely with media, though Choreograph do work across multiple WPP agencies.

I think that there are -- one of the benefits of doing that -- was that we were able to build a global business that operates in, I think, more than 10 markets around the world from day 1. It's not just a U.S. business. And probably launching at a time where we're clear about or clearer than we were about the future of the cookie and the importance of privacy, that cannot be built into its operating system.

I would say that we are looking for areas to invest and grow that business, primarily in the areas of sort of data management. But my view remains that clients don't want to work with us because we own a particular data set. They want to work with us because we can advise them on how to build their own first-party data sets, how to enrich that with data that's around in the world more generally and sort of first-party purchase level data is not to be all and end all.

Actually, the real trick is being able to combine the multiple sources of data there are in the world in a way that's privacy compliant.

So if you go to a fast food -- to a soft drinks client, how do you identify using data different occasions for soft drinks? It's not really a question of who buys one versus the other. And I think that applies in many categories. And so I think Choreograph brings a sort of degree of sophistication to thinking through client data strategy that differentiates in the marketplace.

Okay. And then can I just ask one more on GroupM?

Yes.

I think we've had this in the past where logically, people would have expected GroupM to slow down as budgets move from TV to digital. Now the budgets move into Connected TV and AVOD, I wonder if you agree that the world is even more complicated in terms of how do you buy media. And if anything, you're seeing accelerating growth from just the complications in the marketplace now.

So I wonder like when you step back and look at client-by-client behaviors at GroupM, those that are more advanced are actually spending more for your services because the world has become a lot more complicated and a lot more fragmented. I wonder like what are you observing on the ground on a client basis at GroupM?

Yes, I think there's some base. If you look in our statement, we gave a growth figure for Finecast, which is our Connected TV business of 113%. That compares to digital media at 60% and GroupM less than that. So I think we are seeing strong growth, yes, 55% is Xaxis and less of that improvement overall thing we are seeing a strong shift to connected television. And I think the Finecast is a strong business and gives us another leg up in terms of growth opportunity at GroupM. So I agree with you.

I mean, look, I think that for longer than I've been doing this job, people have asked is GroupM being disintermediated question, and we tried back in December to give you 5-year growth rates to persuade people that that's not the case. I think it's a fantastic business, and it's come through the pandemic in a very strong way.

Yes, it was more badly impacted last year, but it's more than made up for that in the first half of this year, it's up 3.7% on a 2-year basis, which I think shows the long-term growth potential of the business in a more complicated world. And despite the comments about in-sourcing, et cetera, I think that -- I think they've overdone.

Now I think one final point, and it relates to your data question. On much of connected television, we're actually using the ZIP code or post-code level information in the U.K. to target media. So we're sort of almost going back to old-fashioned direct mail, and it's more previously compliant. And we're generating strong returns and targeting for our clients using much more previously compliant methods than perhaps we did when people were engaged in quite a lot of tracking on your retargeting on the web.

So I think that it offers both connected television a richer experience, you're watching it on a big TV. Many of the benefits in terms of targeting through post-code level or ZIP level targeting as well as the speed and responsiveness that you get through digital media. I think we see that as a strong growth opportunity for us.

I think the other point just to build on what Mark said as well as the top line growth in GroupM over the last 5, 10 years at around 3% to 5%. We've also seen very, very stable margins in that business as well, actually, if not slightly increasing over time. So it's both a combination of top line growth and very, very stable and slightly accretive margins.

Your next question comes from the line of Dan Salmon from BMO.

I apologize, guys, I've been bouncing around a few different calls. But Mark, I wanted to follow up on -- I think I caught a little bit of an answer a moment ago where you were addressing this a little bit. But you were recently, I think at an industry conference where you spoke a little bit about your views on, I guess, what we'll call alternate identifiers.

And I think expressed the view similar to what we've heard from Google that maybe that these products don't necessarily align with consumer expectations on privacy and platform changes. So I'd love to hear you just expand on that specifically a little bit more.

But then related to that, just talk a little bit about what WPP's role in the changing nature of identity should be? You spoke a moment ago about the importance of helping your clients leverage first-party data in those changes, and that's probably first and foremost. But should you be developing your own ID? We see that from some of your competitors, but I'd love to hear more about that as well.

Yes. Look, I think I'll sort of roll it all up into one answer. I think that no one intended the cookie to be used in the way in which the cookie ultimately was used. And no one intended people to be tracked online as much as they were. I think I mentioned on a previous call, the Washington Post study that said the journalist found out that his data was being sent to 5,400 different services over a week from his phone.

I think in that context, an attempt to sort of recreate the cookie using alternative ID is ultimately not going to succeed. Well, it can be very difficult to do in a way that secures the permission of consumers to do it. And so in the long term, I don't think it will be successful.

I think, therefore, the clients need to focus on, as you say, their own first-party data, i.e., the information about their consumers they have the right to have. So we're working very closely with WBA. As you know, we re-pitch WBA, and they're one of the founding clients of Choreograph, working very closely with WBA to look at what data they have on their consumers. Those people are opted in, and then we can look at how we can enrich that with other privacy compliant data and how we can activate it on the platform.

I think the key thing is if you have 2 opted-in solutions, then you can probably join them together. But the notion of having -- connecting them with an unopted anything in the middle, I don't think it's going to work, right?

And now that undoubtedly gives more power to the platforms and makes life harder for intermediaries that didn't have permission. But I think from a WPP perspective, it increases the role and value of what we're doing for clients.

Now I made one other comment, and we've been working with Google very closely on a product that they call PEGASUS that allows contextual targeting. And we're seeing very strong results for contextual targeting, which as you would know, is what used to be called old-fashioned media planning.

But it's not just down to -- now it's down to the audience, but you can think about the message and how you contextualize the message to the medium, which the consumer is working. So I think it's going to be a more complicated environment. I think in that environment, the advice that clients need is going to be more valuable, and that puts us in a good position.

And we're not planning to create the WPP ID, the wookie, if you like, on top of the cookies. But we are looking to help our clients maximize the value of the data that they can click and develop marketing programs and consumer value propositions where consumers are more willing on an opted-in basis to share their data with those clients, which I think many of them will be willing to do.

We have no further questions at this time. I would now like to hand the call back to Mr. Mark Read for any further closing comments.

Well, thank you very much, operator. Thank you for everyone for listening. I think it's been a very respectable first half for us. I think it demonstrates the power, the adaptability, the viability of our business. And I think we've got work to do in the second half of the year, but we're upgrading our guidance. So we go into it with some momentum.

So thank you to our clients and for their support and our people for all their hard work over the last 6 months in delivering the results. And we'll see everybody in a few months, if not before.

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

Thank you.