WPP PLC (WPP) 2021 Q4 法說會逐字稿

Thank you very much, and welcome, everyone. Thank you all for joining us. On this call, we're going to really make some brief introductory remarks and then focus it on the Q&A. You can see -- you can get the transcript of the call from this morning on the slides, if you like.

I'm here in London with John and with Peregrine. And look, I think before we start the sort of formal remarks, just a few comments on the news that I think we all woke up to. And I think it's something that we look at with, with great concern.

We have around 200 people who work for us in Ukraine. We have been in touch with them for some time on contingency plans. I don't know that we expected what happened today to happen. We have been in touch with them on contingency plans and providing them with financial and other assistance. I'm sure we'll get on to sort of the broader impact on our results in the call. I think we should sort of acknowledge the situation there right from the beginning.

So if we turn to our results and just how we think about the year, look, I think we had a very strong performance, 12.1% net sales growth, more than double the guidance we gave before the beginning of the year, and close to 2.9% increase on 2019. So effectively, we more than recovered our growth. Actually, we -- if you do the math, we outturned 2021, roughly the level of net sales that we expected to be in 2023, back in December 2020. So I think it's a much stronger competitive performance by WPP on top of a broader and stronger economic recovery than perhaps that we expected.

We had strong growth across the board in our general integrated agencies, both Media and Creative. I think it's important to think about the strong performance of our Creative Agency up 7.7% in the year, a really good performance from our public relations, profit affairs businesses and indeed, from our Specialist Agencies.

In Specialist Agency, [probably] there's a slightly tougher 2020, but the PR businesses against relatively resilient 2020, and in the faster-growing parts of our business are becoming strategically and financially more important to us, both in the areas of experience, commerce and technology, but also the digital parts of GroupM with a 41% growth in commerce media.

I think what we're particularly pleased with, the competitiveness of our offer reflecting the investments we've made in the networks, the investments we've made in creativity, the investments we've made in data and technology. I think what's most reassuring is there -- or most sort of validating to our approach is the fact that Google, the Coca-Cola Company, Unilever, all really increased and strengthened their partnership with WPP.

I think it's very important to see 3 of the world's top companies and 3 of the world's market affairs really strategically align much of what they do with us as a company. And a part of that, but not all of it, is down to the progress we're making creatively. I still believe and we still believe that creativity is at the heart of WPP's business.

We won Holding Company of the Year or company -- Creative Company of the Year at the Cannes Lions in 2021, the first time we've done so since 2017. And that, I think, reflects the strength of the business, not just in our creative agencies, but in our Media businesses, in our PR businesses and in our other agencies. Had a strong return from the business, not just GBP 1 billion returned to shareholders, but the money we've been able to invest inside the business organically and in acquisitions, in refilling our incentives, in share buybacks and in the dividend.

So net-net, that gives us good momentum going into 2022. We're guiding to like-for-like growth of around 5% for the year. Again, what's important to that, it's very broad-based. Geographically, the U.S., which, as you know, has been a strategic priority to improve the performance of our businesses in the U.S., is around -- is going to contribute around 5% for the year. Our creative agencies, again, areas where we haven't seen strong growth for a number of years, again, will contribute around 5% in 2022 against an increase of 7.7% in 2021. So growth on very good growth, '21 up to '22.

And again, we haven't seen growth at those levels in the U.S. or in our creative agencies since 2010. It is the first time since 2010 that we expect growth of above 5% and further continued margin improvement and then, given the strength of our balance sheet and our financial performance, have the ability to make a strong share buyback that we announced on today's earnings. Net-net, we go into the year with confidence.

So before we turn Q&A, just one thank you I'd like to make, thank Fran Butera. All those on the call know Fran. He's been working for us for more than 20 years. He's retiring, I'm sad to say, next week at the heart of our Investor Relations efforts, as I said, for a long time in the U.S., a great support to me and to the rest of our management team and I know to our investors and to our analysts. He knows our business, Sainsbury's, very well. So we wish him all the best and thank him for everything he's contributed, and I'm sure many of you will want to as well.

So with that, these opening remarks, John and I are here to take any questions.

Our first question is from Tim Nollen at Macquarie.

Could I ask 2 questions actually, please. First off, on the recovery that you guys have come through. Nice organic growth in '21, 5%, looks like a good number for '22. I think you say your run rate organic growth after -- from '23 and on should be 3% to 4%, including M&A, which I think means you're talking about an organic growth rate of 2.5% to 3%, if I'm reading that right, from '23 on.

That -- I think a couple of years ago, people might have said that's a nice return to kind of more normalized growth. But I'm wondering now if it's actually almost a conservative number, given how strong the recovery has been and the many things that you've done to improve the business. So I wonder if you could comment on potential upside to that number from '23 on?

And then secondly, I saw a couple of announcements today from Magnite and PubMatic, talking about alignment with GroupM about sell-side platform relationships. And I wonder if you could just talk a little bit about how that might improve the programmatic buying market for WPP. Is it about efficiency? Is it about pricing? And what is the role of Xaxis in this, working with the SSPs and working with the DSPs that you've worked with for many years, kind of how does the value chain evolve?

Okay. John, why don't you talk to the first? And then...

Sure. Well, Tim, as you rightly summarized, we haven't changed our medium-term guidance today that we issued initially at the Capital Markets Day in December of 2020, and we reiterated that guidance today. And as you rightly say, it does imply a 2.5% to 3% like-for-like growth from 2023 onwards.

And look, we're not changing that guidance today. But as you highlight, we've had a very strong year in 2021. We're projecting a healthy growth in 2022 at 5%. And it's really being clear that we are investing in many of the growth platforms in our business. So we very much talked about investing into Xaxis, Finecast, Choreograph and data, for example, and at the same time, just -- yes, I mean basically investing in those parts of our business that we know we'll see strong growth going forward. So we're not updating the guidance today, but we are confident the business is moving in the right direction.

We also provided the data point around the percentage of our business within our global integrated agencies, excluding GroupM, in terms of the work that they do on commerce, experience and technology. And again, that increased from what would have been 36% of our business 2 years ago to 38% of our business today. So we're clearly making good progress in investing in those parts of the business that we know to be high growth.

So yes, I guess in that sense, we're confident. We're confident in our business. We're confident in the growth projections, but we are not -- we are choosing today not to update the guidance for 2023. So you can read into that what you like, but we do all the right things to build that foundation for growth for the future.

Maybe I'll comment on the GroupM announcements. I mean I think really what we're trying to do is get access to premium inventory to improve the transparency of the supply chain and to improve the cost effectiveness to make sure more of our clients' investments go towards publishers, and [those] goes to intermediaries. And the 2 announcements really designed to do that, both in sort of broader programmatic media but also in connected television.

I think, one, the key benefit of us really aligning in a strategic partnership allows us to concentrate our spend, secure inventory and pricing advantage for our clients. And those benefits will be felt by GroupM's clients more broadly as well as by Xaxis and by Finecast. We have a very strong and growing connected TV business around the world.

And I think that consolidation, we see consolidation in many markets should give us a trading and a competitive advantage that will benefit our clients, as I say, both from a pricing perspective, but also from a transparency, from a technology integration so we can activate our data in those platforms more effectively and from an efficiency perspective by reducing the intermediary costs in those markets. So that's really the strategic goal.

Our next question is from Michael Nathanson of MoffettNathanson.

Mark, I have a couple for you. And Fran, wishing you all the best. Thanks for all the many years of help. So Mark, question we have for you, we get this all the time. It's going to Tim's question. How do you think -- how do you balance this answer, which is some of the growth in North America is just due to pent-up spending post-pandemic versus a broader need for transformation.

So when you think about like the long term, let's say, next 3 to 5 years, why isn't this the beginning of maybe a structural change in how companies have to go to market versus just simply a catch-up? So I wonder when you evaluate your view of North America anyway, what's the sustainability of what we see and what your guide is? And then just taken together, I want to understand, everyone is focused on the same areas of growth. It's obviously -- I listen to every call, it's direct marketing, it's procedure marketing and data, it's tech TV. Can you talk a bit about your interest in more M&A in the space? Or any type of inflation around people who are experts within those lines of work. So those are my questions.

Okay. A complex set of questions I'll try to get my head around. Look, I think on the first point, I think the recovery we've seen goes beyond just a cyclical recovery. And we guided at 5% to 6% for the year. It's come out at 12%. And we guide -- I think there are many people that thought that if we did well in '21, we'd be sort of rubbing '22, if you like. And that I don't think is the case. I think we'd expect a strong 2022, notwithstanding the events in Ukraine.

And like you, and like the previous question, I think if we could do better in '23, that would be our aspiration. The way we look to that is to get greater visibility into the year rather than say to make a commitment to do better. I do think that clients' perceptions of the importance of what we do have shifted during the pandemic. I think, to some extent, because the market's transformed so quickly, both a result of clients shifting demand and frankly, the actions we took ourselves at WPP have made us more competitive and accelerated that shift and made us stronger and better capable of growing in the areas where clients' budgets are shifting, and that's always been our goal.

And I do think that our -- WPP's relative underperformance in 2016, '17, '18 was not felt by all of the players in the market and so required us to make the investments that we've made in creativity and talent to improve the performance of the business. So I think you're seeing several things in our performance, a more competitive WPP that's performing above peer-level average.

We'll remind you, I think in the middle of [29], we were close to 3.5% below the peer-level average, and that's improved to between 1% and 1.5% above the peer-level average. That's a 4% to 5% delta in performance, the business, right, 4.5% to 5% delta in performance in the business. That makes a big -- that's a bigger shift through improving our competitive performance.

I think the second thing, as you rightly said, is if the industry players have tended to guide towards around 5% for the year, frankly, that's not a bad thing. I'd rather lead a business in an industry where we can all grow at 5% and we can aspire to do better than one where we're not and perform. So I think that there is that.

And so I think clients are looking to maintain and enhance their spend. If you look at Brian, we had done some work on advertising intensity. I was looking at the statistics. And I think amongst packaged goods, advertising and promotion as a percentage of your sales has increased '17, '18, '19, having declined for the '17, '18, '19 has sort of turned around a little bit. It's like had turned around a little bit.

And my observation would be that those companies, like on Mondelez that have tended to increase their ad spend above sales, have done relatively better. And those companies like L'Oréal who have a higher degree of advertising tendency, have also done better. And some of those clients, those owned by the more aggressive private equity companies who have cut their ad spend less have done worse. So I think the clients' growth is what the market values, and transformation is what clients need to do. So I think that, that is good for us.

I think turning to the question around -- which I think is around sort of relative competitive capability. I think we're pleased with the competitiveness of our offer and the right mix between creative and media, data and technology. We have a very strong business geographically.

So in years like the last 2, our relative sort of overweight -- we're not going to say overweight relative to the global economy but only overweight relative to our peers outside the U.S. can sometimes be a disadvantage when the U.S. is outperforming the rest of the world. But I think in the long run, it will be a source of competitive advantage.

It's certainly important with our clients whose businesses intend to look for growth outside the U.S. I think our ex-U.S. business makes us very strong. And I think that we have really strong competitive business in areas like public relations and public affairs. Look at BCW and Hill+Knowlton and Finsbury Glover Hering.

In e-commerce, I think we've made more investments than average. And I think, again, that can be a major driver of growth for WPP. I think the same is true with the content area for GroupM where having a strong and interesting kind of content and entertainment business, again, as well, Xaxis and Finecast.

I think we have a number of sort of important growth drivers that should lead to a differentiation in competitive performance or relative to that performance. I think that turns to M&A, which is that's where we would like to grow both M&A and also organic investment.

I mean, I think as a company, we'd like to increase the rate of organic investment, where our aspiration is to grow faster organically and be able to develop these capabilities organically, not just by acquisition. The cost of acquisitions actually makes that even more compelling to do. And what we have to do is set up the business in a way where we can leverage the savings we're making through. The transformation [firm] is very important to us and then reinvest them in the business to grow the top line.

Our next question is from Doug Arthur of Huber Research.

Yes, and I'm playing a little bit of catch-up here. And Fran, suffice to say, there's been a few twists and turns on the WPP story over the last decade, and thanks for all your help and guiding us through that. I'll try to catch up with you later today.

Mark, just -- and I'm sure you covered this in the early morning call, which I have not listened to yet. As you look at this Ukraine situation, I mean, it's like the world just got through a pandemic more or less. And here, we're dealing with like a potential cold will return. And you sort of look at where China is positioned to Russia and some potential fallout there. How do you sort of assess the risk to the 2022 outlook at WPP if this conflagration gets worse in Eastern Europe?

Look, I think it's very hard on the day to answer that question in a way that's truly informative. I'd just make some observations. One observation is we've been living with the sort of expansion in geopolitical tension for the last 5 to 10 years. So Russia did invade Crimea, I think, in 2014. So we have had geo critical tension for a number of years.

And I think my second observation would be Russia is at less than 1% of global ad spend, less than 1% of WPP's business. Ukraine is about [1/6 of 1%] of global ad spend. So the direct, let's say, economic impact on our business is not necessarily that great. I think our biggest concern, in fact, is for our people there.

You rightly say it's really a question of what the broader impact would be. And I think it wouldn't be right for me to really say what that will be. I think [it would be] for me to say what that would be at this time. I think we're going to have to see how events unfold and how people react. What I would say, we go into this year with some confidence in the strength of the recovery underpinned by our budgets for the year, underpinned by the new business that we've won.

Notwithstanding events today, the global economy is expanding. Inflation is the result of pent-up consumer demand and shortages in a number of markets. And I think that talks to a very healthy broadly consumer-led recovery during the year with challenges around topics like inflation and supply chain, none of which that by themselves are negative to advertising spend. So I think we're just going to have to see, over the next few days and weeks, how events unfold and what happens. It's obviously a great concern to us. But I think that notwithstanding that, we still have great confidence in the guidance that we've given for the year.

No. Fair enough. And just on sort of a detailed point. You have a slide on your leadership and new business wins. Now Publicis, when they reported a couple of weeks ago, had a slide that showed sort of net wins and had WPP kind of at the bottom, given the loss of a lot of business as wins versus losses. So can you comment on kind of the net gains in new business going into 2022?

Yes, I still feel that we've had net gains -- strong net gains, if you look at our business across Media and Creative during the year. And I'm not -- I haven't analyzed the Publicis chart in great detail. But the R3 numbers look at more than 4,000 accounts, [plus both] Media and Creative. So I'm comfortable with the numbers that we've given or that they've looked at as being relatively accurate. And even if you were to sort of take out the retentions, the competitive performance is sufficiently strong that I feel they underpin our budgets pretty well.

Okay. Terrific. Congrats on a great end to the year.

Yes. Thank you. I think just one last point on that. I think some of these charts have had different accounts in different years. So if you are, for example, to include a $1.4 billion account in '21 or in '20, depending on who you are, it would lead to a very big swing in competitive performance, which may explain some of the variances of the things that you're looking at that might help you get your head around it.

There are no further questions at this time. I will now hand the call over to Mr. Mark Read for further closing remarks.

All right. Well, thank you very much, everybody. And as I said, it's a concerning time. But notwithstanding that, we're very pleased with the performance of the business. Thank you to all of our clients and their confidence in us; to our people for their hard work; and to you, our investors and analysts, to your continued interest in the company. And John, Peregrine and I and Fran, for the rest of the week, are here to talk to you. Thanks, everybody, very much. And thank you, Fran.