Earnings Call: H1 2021

Aug 5, 2021

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. Call. Today's conference is being recorded. Call. At this time, I would like to hand the conference over to WPP's CEO, Mr. Mark Reid. Please go ahead, sir. Thank you very much, operator, and good morning, everybody. I'm here in London with John Rogers, our CFO and Peruvian Riviera, who heads up our Investor Relations team. And I'm going to make some opening remarks, and then John and I will answer Call. 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 19.3 percent in the 2nd quarter on revenue as part of the cost, giving us 11% growth call. 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, in Group N there was the standout performer. We've been a really very strong growth, call, particularly in the Q2. But we saw growth across all of our business sectors, 12.9% in public relations and 27.8 percent in our specialist agencies. That reflects both a shift Into our Experience, Commerce and Technology businesses, now up percent, 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 there around digital media, around e commerce media, programmatic and other areas. I'd say we had a solid new business record. We retained a $1,000,000,000 $2,900,000,000 of net new business. I think compared to last year, it's probably slightly stronger creatively than it was on the media side of the business, but remind 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. Call. And hopefully, there'll be some more good news in the second half of the year. We've invested a tremendous amount Call. At WPP, in our creative talent over the last three 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 of the Year at the 2021 Cannes Lions, which comprises the last 2 years of work, the first time we've done that call since 2017. Taken together, this meant that we were able to raise our dividend by 25% to 12.5p And combine that with £248,000,000 of share buybacks in the first half of the year, further £250,000,000 to go in the second half of the year, And we are raising our guidance for the 2nd time this year to 9% to 10% call. Growth in our revenues, 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 conference 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. Call. Your first question today comes from the line of Tim Nollen from Macquarie. Great. Thanks a lot and very nice Call. I see your upgrades to the numbers for this year and I Just wonder if you could maybe give us an indication on what 8 post COVID-twenty 2 or 2023 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'd 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 and A call. Pipeline might look like, what types of things you might want to look to acquire? Any comments would be great. Thanks. Okay. Why don't I tackle the M and A pipeline and John I'll fill you in on where we are on the guidance. So I think we've made a good start to the year in terms of our M and A versus call. Our targets, we've probably done a smaller number of deals in sort of in a numerical sense, but I think call. We're on target to meet what we set out in December last year from an absolute quantum Call. And they're in the faster growing areas around technology and data technology for numerator through Kantar. Our focus is very much in M and A on ecommerce, On marketing technology and on data and analytics, 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 into 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, the Capital Markets Day in December, we talked about like for like growth of 2.5% to 3% topped up by M and A of 0.5% to 1% or so, so overall 3% to 4% call. And we've reiterated that guidance today, and we've got line of sight of 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 this year. We stayed actually silent so far on 2022, largely because we still got another 6 months to travel 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 call. Post COVID rate, if you like, sustainable rate, we're reiterating from 2023 onwards 3% to 4% growth. So hopefully that covers it. In relation to the net debt, Pete, obviously, I think we've done a great job over the last Call. Managing net working capital, really squeezing our net debt position down, I think there's more that we can still do there. Call. All else being equal, as I said on the call this morning, we end up the year at a net debt to EBITDA ratio that's significantly below our guidance range of 1.5x to 1.75x. And so all else being equal, of course, that then logically gives us scope call. Thank you for the share buybacks against the capital allocation policy that we outlined at the Capital Markets Day where we said after Organic investment after dividend, after EBITDA, 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 Marcus has highlighted, We are always proactively looking at M and 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 Call. Growth rates, but has the nature of client demand for your services changed 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? Call. Look, I think the growth rates are very much as we outlined in the Capital Markets Day, But I think they're 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, call. 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, as we look at our numbers, the fact that we've grown so strongly this year coming out of COVID, I think, reflects Call. The changes that we've made in our offer, the way 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, they're going to remain important. But if you look at where clients start now, call. They increasingly start with digital and not with analog, and that's true call. And it's also true for our companies and the way in which we've positioned our offer. So I think things have changed fundamentally, and we expect that to continue to shift in the growth opportunity we see in the company in the areas of e commerce, In digital media, in connected television, you saw the performance in the results business like Finecast, Saxis, they do reflect call. Stronger growth in the newer areas than in the more traditional areas of our business. Yes, that all makes sense. Thanks, Mark. Thanks, John. Thanks, Tim. Yes. Thank you. Thank you. Your next question comes from the line of Doug Arfess from Huber Research. Yes, thanks. Mark, just to that point, you focus Call. 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 do you that Call. 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? Call. Yes. Maybe I can sort of try to contextualize it for you. I think our focus call. It's really in 2 areas. There's the Commerce Services. We really start by advising clients on their e commerce Strategy is 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, so how do they sell through call. At Walmart or Sainsbury's or indeed how they sell through in Amazon Call. For Alibaba, MercadoLibre, we're running both strategy and implementation through to building enterprise level website. So we built we replatformed all of Net A Porter's websites. We built same trees.co.uk. We build in platforms like Adobe, who acquired Magento or Salesforce acquired Hybris or what was known as IBM WebSphere Commerce in enterprise level website. We also create content that sits on this website, particularly content that sits on your Amazon page to drive call. 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, VML Y and R in particular, but also within Ogilvy and And then within Group M, 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, all the programmatic media that sends demand to those websites, Part of it is also spend that goes through amazon.com or Shopify that drives customers to those websites. So call. 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 our mind, commerce is part of an integrated offer and sits across multiple different WPP companies. Conference. Call. Your next question comes from the line of Michael Nathanson from MoffettNathanson. Thanks. Hey, Mark. Call. Hi, good morning. Question for you. One of the things you clearly noted is the fundamental changes to our clients requiring. Call. And to that point, data and the use of first party data seems to be rising clearly. So can 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? Call. And then possibly the need to add more data capabilities and data skill sets. So give us an update on that, please. Thank you. Yes. Look, so I'd say we established Choreograph. In our mind, that would sit call. As sort of our offer alongside Epsilon and Acxiom and Merkle to bring together call. The key data capabilities that clients need, they see their role as advising clients on their data strategy, Helping clients build programs that build to more first party data and then helping them enrich that data And then thirdly, helping to deploy it through both their 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, the Correvoc do work across Multiple WPP agencies. I think that there are one of the benefits of call. Doing that was that we were able to build a global business that operates in more than 10 markets around the world from day 1. It's not just a U. S. Business and probably call. 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, call. That can all be built into its operating system. I would say that we are looking for areas to invest and grow that business, So primarily in the areas of sort of data management. But my view remains that clients don't want to call. They 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 that sort of Call. 1st party purchase level data is not the be all and end all. Actually, Call. 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. Call. 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 1 versus the other. And I think that applies in many categories. And so I think Corigar brings a sort of degree of sophistication to thinking through Client's data strategy that differentiates in the marketplace. Okay. And then can I just ask one more on Group M? I think we've had this in the past where logically people would have expected Group M to slow down as budgets move from TV to digital. Call. Now the budgets moving to 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 Call. From just the complications in the marketplace now. So I wonder like when you step back and look at client by client behaviors at Group M, Those that are more advanced are actually spending more for your services because the world's become a lot more complicated and a lot more fragmented. So I'm wondering like what are you observing on the ground Call. Yes, look, I think there's some base. If you look in our statement, We gave a growth figure for fine cast, which is our connected TV business of 113%. That compares to Digital Media at 60% and Group M less than that. So I think we are seeing Strong growth, yes, 55% is access and less for that. So we are seeing a strong shift to Call. Connected television, and I think that Fine Cross is a strong business and gives us another leg up in terms of growth opportunity call. 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 call. In a more complicated world and despite the comments about in sourcing, etcetera, Call. I think that I think they're overdone. Now maybe one final point relates to your data question. Call. On much of Kent Television, we're actually using zip code or postcode 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 privacy compliant, and we're generating call. Strong returns and targeting for our clients using much more privacy compliant methods than perhaps we did call. When people engaged in quite a lot of tracking on your retargeting on the web. So I think that it offers both Call. Kensington Television, a richer experience. You're watching it on a big TV. Many of the benefits in terms of targeting Call. Through postcode level or zip level targeting as well as the speed and responsiveness that you get through Call. I think we see that as a strong growth opportunity for us. I think the other point is to build on what Mark said as well as the top line growth In group, over the last 5, 10 years, it's around 3% to 5%. We've also seen very, very stable call. 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 with slightly accretive margins. All right. Thank you, guys. Call. Thank you. Your next question comes from the line of Dan Salmon from BMO. Great. Good morning, everyone. Good afternoon. Hi, Dan. How are you? And 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're addressing this a little bit, Call. 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 you expressed a 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 Call. 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 1st party data in those changes and that's probably 1st and foremost. But should you be developing your own ID? We see that from some of your call. Yes. Look, I think I'll sort of roll it all up into one answer. Call. I think that no one intended that the cookie to be used in the way in which the cookie ultimately was used. Call. And no one intended people to be tracked online as much as they were. I think I mentioned on The previous call, the Washington Post study that said that 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 or is going to be very difficult to do call. 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. Call. The information about their consumers they have the right to have. So we're working very closely with WBA. As you know, we repitched 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. Call. Those people have opted in, and then we can look at how we can enrich that with other privacy compliant data And then how we can activate it on the platform. I think the key thing is, if you have 2 opted in solutions, then And you can probably join them together, but the notion of having connecting them with an un opted in thing 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 who didn't have But I think from a WPP perspective, it increases the role and value of what we're doing for clients. Now I'll make 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 we used to be called old fashioned media planning. No, but it's not just 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, call. 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. That's great. Thanks, Mike. Thanks, Dan. Call. Thank you. We have no further questions at this time. I would now like to hand the call back to Mr. Mark Reid for any further closing comments. Call. Well, thank you very much, operator, and thank you for everyone for listening. I think it's been a very respectable first half for us. I think it demonstrates call. 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 Call. 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 All their hard work over the last 6 months in delivering results, and we'll see everybody in a few months, if not before. Call.