WPP plc Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Progress: Made good progress against four strategic objectives. Led through AI, data, and technology with widespread AI adoption across WPP, launching WPP Open's Creative and Media Studios. Creative transformation with strong performance at Cannes. Three major structural initiatives: VML (world's largest creative agency), Burson (number two PR firm), and GroupM (simplifying go-to-market).
• Financial Performance: Net sales declined 1% due to client losses, macro pressures, and China challenges. Sequential improvement in Q2. Constant currency margin improved 0.1%. Delivered GBP604 million net proceeds from FGS sale to reduce debt and strengthen balance sheet.
• New Business: Satisfactory new business performance with major wins like AstraZeneca, but need to be more competitive in U.S. and GroupM.

Segment Performance

• Global Integrated Agencies: Net sales declined 1% for the first half. GroupM, Ogilvy, and Hogarth had growth. Sequential improvement in creative agencies (from -3.3% to -2.4%), public relations (from 3.3% to 1.5%), and specialist agencies (from -7.6% to -2%). Headline operating profit was marginally up year-on-year with margin up 40 basis points.
• Public Relations: 0.9% decline in first half, with FGS delivering double-digit growth in Q2 and Burson improving sequentially but down due to 2023 Pfizer assignment loss and macro pressure. Operating profit margin was 14.1%, down 1 percentage point.
• Specialist Agencies: Revenue less pass-through costs down 4.7% like-for-like. CMI had double-digit growth in Q2, but offset by brand agencies and smaller agencies. Operating margin 3.4%, down 2.6 percentage points.

Guidance

• Moderated full-year guidance to minus 1% to 0% from previous zero to one. Expect like-for-like revenue less pass-through costs minus 1% to flat. Operating margin to improve 20-40 basis points. M&A contribution likely below previous range of 0.5% to 1%. Net finance costs, tax, CapEx, etc., consistent with年初 guidance.

Risks

• Continued impact from China in second half and macro pressures on project-related businesses.
• Client losses in U.S. affecting performance.
• Technology sector spending stabilization taking time, with China and smaller agencies facing headwinds.

Question and Answer

Q: Laura Metayer asked about phasing of growth for H2 and actions in China.

A: Joanne Wilson said H2 phasing depends on macro and China, with China expected to remain challenging. Mark Read mentioned changes in China like new leadership and Wuxi facility.

Q: Adam Berlin asked about key reviews, China organic downgrade, Kantar, and free cash flow.

A: Mark Read said reviews are competitive, China organic downgrade linked to double-digit decline, Kantar disposal in progress, and free cash flow expected to be flat with phasing in second half.

Q: Julien Roch asked about China organic downgrade impact, Kantar, and other assets.

A: Joanne Wilson said China organic downgrade significant, Kantar disposal with Bain, and ongoing review of non-core assets.

Q: Adrien de Saint Hilaire asked about 2025 outlook and margin maintenance.

A: Joanne Wilson said 2025 outlook too early, margin maintained via structural cost savings from VML, Burson, GroupM initiatives.

Q: Joseph Thomas asked about operational gearing, bonuses, and GroupM measures.

A: Mark Read said GroupM needed better new business win due to structure and leadership, Joanne Wilson said variable costs help with margin, bonuses phased.

Q: Steve Liechti asked about FGS sale use, Brian Lesser's role, and AI green shoots.

A: Mark Read said FGS proceeds for debt reduction, Brian Lesser brings product, tech, and client skills, AI impact early but some market signs.

Q: Thomas Singlehurst asked about China margin tolerance and FGS sale impact on medium-term guidance.

A: Joanne Wilson said China cost optimization, FGS sale not material impact on medium-term margin guidance