Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WPP PLC (WPP, Financial) has made significant strategic progress, particularly in AI and new technology adoption, which is expected to enhance competitiveness and client service.
- The company has seen sequential improvement in performance, with net sales decline reducing from -1.6% in Q1 to -0.5% in Q2.
- WPP PLC (WPP) has secured major new business wins, including AstraZeneca, Colgate, and Amazon media, indicating a strong pipeline and future growth potential.
- The sale of a 15.1% stake in FGS Global to KKR at a valuation of $1.7 billion is seen as a positive move, allowing WPP PLC (WPP) to crystallize value quickly and reduce debt.
- Despite a decline in top-line revenue, WPP PLC (WPP) delivered a 0.1% constant currency margin improvement, showcasing strong cost discipline and structural savings.
Negative Points
- Net sales declined by 1% in the first half of the year, impacted by client losses in 2023, macro pressures, and challenges in China.
- Revenue less pass-through costs fell 3.6% on a reported basis, with a significant headwind from FX due to sterling strengthening.
- The company has moderated its full-year guidance, expecting like-for-like revenue less pass-through costs to be between -1% to flat, reflecting ongoing macro pressures and challenges in China.
- GroupM's growth was held back by 2023 client assignment losses and a challenging performance in China, impacting overall like-for-like growth.
- Public Relations and Specialist Agencies saw declines in revenue, with Public Relations down 0.9% and Specialist Agencies down 4.7% on a like-for-like basis, reflecting macro pressures and cautious client spending.
Q & A Highlights
Q: Could you please give us a little bit of color on what your expectations are for the phasing of growth in H2? And could you tell us a bit more about the actions you're taking in China to improve performance and win new business?
A: We don't guide by quarters, but we expect macro pressures to continue into Q3, with potential improvement in Q4. In China, we saw a deterioration in Q2 and expect the second half to remain challenging, likely down double digits for the full year. We've made leadership changes and opened a facility in Wuxi to produce work in lower-cost locations, aiming for stabilization in 2025.
Q: Can you give us an update on some of the key reviews, such as Unilever, Sky, and Amazon? And what are the moving parts in H2 to be at either the top or bottom end of the guidance range?
A: We are focused on all three reviews and have done an excellent job, but they are competitive. For H2, the bottom end of our guidance assumes continued macro challenges and slow tech recovery, while the top end assumes some macro pressure lifting and a more meaningful tech recovery.
Q: How much of the second half weakness do you think spills over into 2025? And can you explain the extra initiatives taken to keep the margin steady for '24 despite the revenue shortfall?
A: It's too early to give guidance for 2025, but some headwinds from 2024 may stabilize or turn into tailwinds. For 2024, we are on target to deliver annualized cost savings of GBP125 million, with accelerated savings in 2024. We've been disciplined around cost actions and headcount adjustments in underperforming areas.
Q: Can you talk us through why you're not giving any money back to shareholders from the FGS sale, and instead paying down debt?
A: We are using the proceeds to pay down debt, which will bring our leverage to the middle of our target range. We will keep this under advisement as we go through this year and into next year.
Q: What are the key issues in GroupM, and how do the recent measures and the appointment of Brian Lesser address them?
A: GroupM has struggled with new business in North America due to leadership and structural complexity. We've made leadership changes, integrated our technology, and launched WPP Open Media Studio. Brian Lesser brings expertise in product, technology, and client relationships, which we believe will make us more competitive.
Q: How are you thinking about operational gearing in the business, and how persistent could the reduction in bonuses be?
A: We have a high level of variable costs, allowing flexibility to offset top-line deterioration. Incentives have dropped year-on-year due to performance but are expected to rebuild by year-end. We've taken headcount actions and addressed discretionary costs to manage operational gearing.
Q: Can you give an indication of how much you downgraded your organic expectation for China in the second half?
A: China was an 80 basis point drag on WPP overall in the first half and could be up to 80 basis points for the full year. We expect a double-digit decline in the second half.
Q: How much of the second half weakness do you think spills over into 2025? And can you explain the extra initiatives taken to keep the margin steady for '24 despite the revenue shortfall?
A: It's too early to give guidance for 2025, but some headwinds from 2024 may stabilize or turn into tailwinds. For 2024, we are on target to deliver annualized cost savings of GBP125 million, with accelerated savings in 2024. We've been disciplined around cost actions and headcount adjustments in underperforming areas.
Q: Can you talk us through why you're not giving any money back to shareholders from the FGS sale, and instead paying down debt?
A: We are using the proceeds to pay down debt, which will bring our leverage to the middle of our target range. We will keep this under advisement as we go through this year and into next year.
Q: What are the key issues in GroupM, and how do the recent measures and the appointment of Brian Lesser address them?
A: GroupM has struggled with new business in North America due to leadership and structural complexity. We've made leadership changes, integrated our technology, and launched WPP Open Media Studio. Brian Lesser brings expertise in product, technology, and client relationships, which we believe will make us more competitive.
Q: How are you thinking about operational gearing in the business, and how persistent could the reduction in bonuses be?
A: We have a high level of variable costs, allowing flexibility to offset top-line deterioration. Incentives have dropped year-on-year due to performance but are expected to rebuild by year-end. We've taken headcount actions and addressed discretionary costs to manage operational gearing.
Q: Can you give an indication of how much you downgraded your organic expectation for China in the second half?
A: China was an 80 basis point drag on WPP overall in the first half and could be up to 80 basis points for the full year. We expect a double-digit decline in the second half.
Q: How much of the second half weakness do you think spills over into 2025? And can you explain the extra initiatives taken to keep the margin steady for '24 despite the revenue shortfall?
A: It's too early to give guidance for 2025, but some headwinds from 2024 may stabilize or turn into tailwinds. For 2024, we are on target to deliver annualized cost savings of GBP125 million, with accelerated savings in 2024. We've been disciplined around cost actions and headcount adjustments in underperforming areas.
Q: Can you talk us through why you're not giving any money back to shareholders from the FGS sale, and instead paying down debt?
A: We are using the proceeds to pay down debt, which will bring our leverage to the middle of our target range. We will keep this under advisement as we go through this year and into next year.
Q: What are the key issues in GroupM, and how do the recent measures and the appointment of Brian Lesser address them?
A: GroupM has struggled with new business
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
