Good morning, ladies and gentlemen, and thank you for standing by. Welcome to WPP First Half Trading Update Call. At this time, all participants are in the 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 one on your telephone keypad. Today's conference is being recorded. I would now like to pass the conference over to our host, Mark Read. Please go ahead.
Thank you, Operator, and good morning, everybody. And thank you for taking the time to be with us first thing in the morning. I know this is an unscheduled announcement, and so we do appreciate the flexibility. Hopefully, you've had time to review the release, and we'll go into more detail. So on this call, Joanne will take you through some of that detail on the trading performance and then discuss our guidance for the full year. And following that, we'll open up the line for questions. Given that we have another call coming in a month, I'm going to ask them to focus on the main points. We can get into detail, obviously, in a month's time. But over to you, Joanne.
Thank you, Mark, and good morning, everyone. So let me take you through our trading performance in the first half under updated guidance before we open the line for questions. At the outset, I think it's important to recap what we have communicated so far this year. At our preliminary results in February, we set out our expectation for net sales to be flat to down 2% in 2025, with a profile that anticipated a stronger performance in the second half compared to the first. We expected Q1 trends to be broadly similar to the Q4, which had minus 2.7% like-for-like. They were. And at our Q1 trading update in April, we expected similar trends to weigh on Q2 performance, namely the uncertain macro environment to continue and the net new business impact reflecting prior year account losses.
In the event, we saw a deterioration in performance as the second quarter progressed, with first, a greater degree of caution on client spending than expected, and secondly, weaker net new business. This was exacerbated by one-off factors which impacted WPP media's performance in the quarter and which we don't expect to continue in the balance of the year. As such, we now expect H1 like-for-like to show a decline of minus 4.2%- minus 4.5%, with a second quarter decline of minus 5.5%- minus 6%. Stripping out one-off factors, the underlying run rate like-for-like would be closer to minus 3.6%- minus 3.9% in the half and minus 4.5%- minus 5% for the second quarter. In absolute terms, we expect revenue-led pass-through costs of around GBP 5 billion.
We will share more detail on the performance in the second quarter when we report interim results on August the 7th, but at a headline level, I would make the following comments. Starting with regional performance, we saw a deterioration in Q2 like for like in North America reflecting tougher comps and a weaker like for like versus Q1 in the UK and Western Continental Europe despite softer comps. In contrast to when we met in April, we are seeing an increasing number of clients across different sectors cut budgets and spend in reaction to pressure in their businesses from ongoing macro uncertainty. Turning to performance across segments, we have seen the most significant quarter-on-quarter impact in WPP media and Ogilvy reflecting a pullback in client spending, and for WPP media, the one-off factors I referred to earlier, as well as a quicker ramp-down of the Q1 client loss.
As a result, we expect the like-for-like decline in global integrated agencies to weaken from minus 2.8% in Q1 to a mid-single-digit decline in Q2. Moving on to headline operating profit, we noted at our Q1 results that the severance actions at WPP media would weigh on our H1 profit margin. In the first half, we expect our total severance costs to be around £100 million reflecting the actions in WPP media and other parts of the business. This represents an incremental severance charge of around £65 million or 120 basis points versus H1 2024. In addition to a higher severance cost, the weaker net sales performance has also weighed on year-on-year margin performance in the first half despite benefiting from a lower level of accrued incentives.
As a result, we expect our first half headline operating profit to be in the range of GBP 400 million-425 million with a headline operating margin range of 8%-8.5%. Excluding FX, this reflects a 280-330 basis points decline year-on-year. Turning now to our revised guidance for the full year, we expect our 2025 net sales to decline on a like for like basis by minus 3%- minus 5%. This compares to the guidance we set at the start of the year of flat to minus 2% like for like. Reflecting a weaker topline, we now expect margins, excluding the impact of FX, to be down 50-175 basis points versus previous guidance of flat year-on-year margin. To help build a bridge between our guidance at the start of the year and now, I will provide some context on what has changed.
Let me start with our top line and net new business. Our original guidance anticipated a headwind from net new business in the first half and a tailwind in the second half, leaving the full year impact broadly neutral. This reflected known wins and losses at that time and an expectation on the volume of new business and our win rate. We now anticipate a negative impact from net new business for the year as a whole, reflecting incremental client losses and a lower level of new business conversion. We estimate that impact to be around 100-150 basis points. This includes some pull forward of client losses, which we would have originally expected to impact in 2026.
At the same time, the impact of the macro on current client spending has been more pronounced in the second quarter than we anticipated and more than we had assumed at the bottom end of our original guidance. Turning to margin, the first half has been impacted by weaker-than-expected topline performance. Actions have been taken in response to this, with headcount at the end of H1 expected to be down around 3.5% since the start of the year, while the full benefit of these actions will only be realized in the second half. As we look to the full year, we anticipate a margin decline of 150-175 basis points. This reflects the weaker topline and also our expectation that the actions we are taking and have taken, including the restructuring of WPP media, will deliver an improved margin performance in the second half.
In the full year, we expect a broadly neutral P&L impact from the Q2 restructuring actions in WPP media. At the same time, it is our intention to continue to prioritize selective investment in the business with a focus on WPP media and our data and tech offering through WPP Open. We believe this is critical for the longer-term success of the business. So thank you, and I will hand you back to Mark.
Thank you, Joanne. Before we take all questions, I'll make a few closing remarks. First, it's obviously disappointing to have this update, but we wanted to be clear with you about what's happening in the business and our expectations for the full year as soon as we could. If I go back to the three strategic priorities we shared for the full year back in February and how we're doing against them, I'd make the following observations. First and most importantly, the implementation of the new strategy for WPP media I would say is going well, but we're clearly not yet seeing that translate into better business performance. The InfoSum acquisition has been well received by clients, and it is definitely starting to address the perceived data deficit in our media strategy, but it's early days, and I think it's encouraging.
The restructuring is delivering significant structural cost savings. It doesn't help us in severance in the first half, but that will flow through into the second half, and that's going to help make us more competitive. But I think it has come with some distraction to the business. And WPP media has suffered with a deficit of new business opportunities. The latest COMvergence tracker shows that new business opportunities in media year to date are running about a third of the level in 2025 as they were in 2024. I do believe that WPP remains a strong competitor with an excellent global offer. Secondly, and linked to that new business issue, new business conversion in terms of win rate is probably similar to last year, but is falling short at WPP media and the lower level of new business opportunity.
The pipeline in general has made us more cautious in the second half. Lastly, we have focused a lot on AI, as you know. I am convinced by the progress in AI and the power of WPP Open, and that's being seen in the level and degree of engagement we're having with our top clients and will be seen in competitiveness. I think it's important to say that as we prioritize our investments for the year, we do continue to invest in WPP Open in line with our plans at the start of the year. With that, we'll open up for questions. Just keep in mind we do have another call in a month, so we can get into more detail then, but we're obviously happy to take anything anybody has or if you want to give people a chance to ask questions.
Okay. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We'll pause here briefly as questions are registered. Our first question comes from the line of Adrien de Saint Hilaire with Bank of America. You may proceed.
Thank you very much. I'm really sorry I missed the first couple of minutes of the call, so you probably have touched on that. But I'm just curious what actually changed during the months of June. It sounds like it was the worst months of the quarter, so why would you now expect the second half to be stable versus the first half in terms of organic sales loss if June was indeed the worst? Secondly, do you expect that there will be incremental severance and restructuring costs coming with that lower guidance? What does that imply in terms of fully or free cash, and where does that leave leverage? And if you're above range, do you think there's a risk of other measures to mitigate maybe that higher leverage? Thank you.
Joanne, can you get the first question?
Adrien, we lost the line a little bit. Could you just repeat the first question? We got your second question. That would be very helpful. Thanks.
Oh, sorry. Excuse me. My first question was about what actually changed in June and if it was indeed the worst month during the quarter. I think your guidance implies that the second half is stable versus Q2, but how is that consistent if indeed June was the worst month of the quarter?
Okay. Let me start there. Look, what we saw was a weakening in client sentiment from the start of the quarter, but we didn't see a material step down in spend, and like-for-like performance was broadly in line with expectations and very much within our guidance range. Performance did deteriorate through the quarter, particularly in June. It was really driven by three factors as we progressed through the quarter. We saw deeper client spending impacts than we saw in prior months, and that was particularly in CPG and auto. Net new business was lower than expected. We saw Coke North American media rolling off as we went through the quarter. And then there were one-off factors which impacted June's net sales performance as well and impacted the Q2 like-for-like overall.
So look, I think June, of course, performance is a consideration, but it's important to look at the quarter as a whole. Certainly, the performance through the quarter has made us more cautious, and at the lower end of that guidance, it does assume an H2 deterioration versus H1 and a deterioration in the underlying Q2 like-for-like. In terms of the second question on incremental severance and restructuring costs, we did see, as I spoke to, a significantly higher level of severance in the first half, which relates to the actions we took at WPP media, but also across the rest of the business. And that's included in the headline operating profit. I'm not expecting restructuring costs to change as a result of the actions we're taking.
We'll take that severance through headline operating, and our guidance for the second half margin reflects the further cost actions that we are planning to take as we go through the balance of the year. In terms of leverage, obviously, the lower profit does have a negative impact on cash under leverage ratio. We are very focused on our cash flow management, as you'd expect us to be. We'll give further detail at our interim update on the 7th of August. We do have an average debt maturity of seven years. Our average cost of finance is 3.7% with no covenants, but as I said, I can give more updates on cash and on the 7th. Thanks, Adrien.
Thank you very much.
Thank you. Our next question is from Dan Glanton with Barclays. Your line is open.
Yes. Hi, morning, everyone. Also, apologies I missed the first couple of minutes, so you may have already addressed that, but if I got it right, you said the impact of the account losses to be 100 basis points to around 150 basis points. Can you perhaps just go into where the rest of the delta of that downgrade comes from? Thank you very much.
Yeah. So in terms of the delta versus what we were expecting, it's about three percentage points at the top and bottom of the range. And with net new business, as you said, we expect that to be about 100 to 150 basis points, so that's half of it. The remainder is really the impact that we're seeing on the macro was more pronounced than what we were anticipating in Q2 and more than what was built into our guidance at the start of the year. And as I said, we've seen that across different sectors, so not just sectors where they've seen direct impact from tariffs and uncertainty, but also in some of those sectors that are seeing second-order impacts. So we've just seen more caution from clients. So the way to think about the delta is roughly half from net new business and half from that weaker macro.
Thank you.
Our next question comes from the line of Adam Berlin with UBS. Your line is open.
Yes. Hi, good morning. I have two quick questions, please. The first is, is it fair to take the implied H2 growth rate as part of the rate that's on 2026, or is it really more specifically about once we start taking out 2026 numbers as well?
Adam, can you hear me?
I'd say we're good.
I'm not able to hear you.
Yeah, that's better. Yeah.
My question was, is it fair to take the H2 implied run rate on organic growth into the first half of 2026? Obviously, we need to start thinking about 2026 numbers now. I know it's a bit early, but just any reason not to kind of assume that's the case. And the second question, I was a bit surprised to hear that June's been so weak in terms of macro. How can you be sure that your clients are just spending less overall and not just less through your agencies?
Look, I think on the first question, it's too early to talk about 2026. When we think about what we're able to say in the interim, I wouldn't normally give you sort of guidance and indication so far. And I think the way to think about it probably is the trends in the first half continue into the second half with a range that implies some ability to have continued some improvement in the underlying performance from the first half to the second half, but also the ability but also with de-risking where we are today as we look at the pattern. But I think that June is just one month, and I think it's quite dangerous to look at one month overall and extrapolate from that.
But I think what we saw in June was a combination of both sort of more pressure on the top line and then de-risking of plans across the rest of the year as we went through our forecast in the second half. And I think it's a combination of those two factors that get us to this place and realization and the fact that clients are cautious, and that cautious extends both into the macro, but to some extent into new business activity because new business activity is driven by the degree of confidence in the future. So we're seeing fewer opportunities. Opportunities tend to be smaller. And I think that in WPP media, it's more a factor of sort of annualization of losses going into this year.
Some losses that we thought that Mars would impact Q1 next year, but actually would impact us Q4 this year as a result of decisions that the clients have taken, and fewer opportunities to drive growth within WPP media because of fewer pitches. I mean, the conversion rate is quite stark. It's pitches year to date are running a third this year as the level they were last year, and I think that that's out there in the public, so I think it's a combination of macro caution, and again, we can go into more detail in a month's time on how we see that broken out by sector and how that continues into the second half. Thank you, Adam. Operators, any further questions?
Our next question comes from the line of Keval Patel with Citi. Your line is open.
Hi, morning. I was just hoping for a bit more clarification just on Q2 and the scale of the miss versus expectations. Were there any one-offs that came in that quarter that could help explain the miss a bit better?
Yeah. Thanks, Keval. Yes, there were one-off factors which impacted the Q2 like for like by about 1%. So the underlying performance in the Q2 was more like negative 4.5%-5%. And those one-off factors impacted in the last month of the quarter. So I think that's important as we think about the Q2 underlying rates. It's certainly in the context of our guidance for the balance of year. And so at the bottom end of our guidance, we are that would assume a deterioration in that underlying rate in Q2.
Thank you. Our next question comes from the line of Laura Metayer with Morgan Stanley. Your line is open.
Hi. Thanks for taking the question. I'm sorry if it's been said already. I just wanted to check on the margin on the new guidance range. What does the low end imply versus the high end, and why such a big range for the margin guidance? Thank you.
Yeah, we could. But I think the lower the margin guidance is quite closely related to the net sales guidance. And if we're at the top end of the range for net sales, we'll be at the top end of the range for margin and vice versa. And I think that is the best way to think about it. I also think I'd observe with our headcount down 3.5% at the end of the first half, roughly, you would expect that to flow through in terms of savings, which would support the relatively lower margin impact in the second half and in the full year. But do you want to add anything to that?
Look, I mean, I think that's right. It's really reflecting the top end of our sorry, the range of guidance that we're giving for the balance of year. In terms of the guidance, we are seeing an improvement in the second half, and that's really driven by the fact that we took restructuring actions in WPP media in Q2. We alluded to those in Q1, and therefore, the bulk of actions that we've taken in that part of our business was really skewed to the second quarter, and that drove a much higher severance. We'll see that to be a tailwind on margin in the balance of the year, and also, in Q2, the step down in sales is more significant, so we have taken headcount action, as Mark said, but there'll be a lag effect of seeing the full benefit of that in H2.
I think it's important as well to say, Laura, that we are continuing to invest selectively in the business with that focus on media and WPP Open, and it's our intention to continue to do that through the second half. We remain, as you'd expect us to be, very cost-focused, particularly around our discretionary spend.
Thank you.
There are no questions waiting at this time, so I'll pass the conference back over to Mark. Please go ahead.
Okay, so thank you, everybody. Thank you for your questions. We'll have our update in a month. We are going to have the WPP media leadership CEO on that call, so hopefully, we'll be able to give you a bit more of an update. I mean, if you look at sort of where this is focused, as Joanne said, the issues primarily have been in WPP media and to some degree overall they're impacted by project-related work in the creative part of the business. So thank you all, and I'm sure we'll have a follow-up when Tom, Joanne, and I are here to follow up. Thank you.
Thank you.
That concludes the WPP first half trading update call. Thank you for your participation. You may now disconnect or line.