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Edited Transcript of WPP.L earnings conference call or presentation 9-Aug-19 8:30am GMT

Half Year 2019 WPP PLC Earnings Presentation

London Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of WPP PLC earnings conference call or presentation Friday, August 9, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Grant Balfour Scott

WPP plc - COO

* Mark Read

WPP plc - CEO & Executive Director

* Paul W. G. Richardson

WPP plc - CFO & Executive Director

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Conference Call Participants

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* Adrien de Saint Hilaire

BofA Merrill Lynch, Research Division - VP & Head of Media Research

* Kate Pettem

Rathbone Unit Trust Management Limited - Investment Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Richard Eary

UBS Investment Bank, Research Division - Executive Director and Head of European Media Team

* Thomas A Singlehurst

Citigroup Inc, Research Division - Director and Head of European Media Research

* William Henry Packer

Exane BNP Paribas, Research Division - Executive Director of Media Equity Research

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Presentation

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Mark Read, WPP plc - CEO & Executive Director [1]

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All right, and good morning. I'm sorry to interrupt your summer holidays, but welcome to the WPP 2019 Interim Results. I'll just do a brief introduction and then Paul will take us through the numbers, and we'll come back to do an update on strategy and we'll take questions afterwards.

So here's our obligatory safe harbor statement. And as I said, I'll do our short introduction of where we are and how we see things overall.

So I think we set out the new strategy for WPP in December last year. We're now 8 months into that and we really see 6 months of good strategic progress in the business. Our first half revenue less pass-through costs was down 2%. And the second quarter was slightly more encouraging, slightly more encouraging than our own internal expectations. We're minus 2.8% in Q1, minus 1.4% in Q2.

We do have encouraging areas of growth, we point out, in our media businesses, GroupM particularly strong business, with technology clients, and in some of the faster-growing markets like India and Brazil we've seen very strong performances in the first half of the year.

The U.S. is our major area of focus. And again, our performance there I'd say is probably less bad, is the description. We're making progress in the U.S. with minus 8.8% in Q1 to minus 5.4% in Q2. And we really focus there on leadership, structure, strategy, investing in creative talent and technology. I think the team there is really focused on winning new business.

Overall, I'd say our clients are responding well to the new strategy. We've seen good retention in key clients. I think last year, from the beginning of the year really through to September, we did have some pressure on clients. And this year we've seen strong client retention. We haven't really lost a major client during 2019 and we've had a solid string of new business wins, really from the beginning of the year. Pick out L'Oréal in the U.K., where we retained the media business with an expanded remit. eBay, where we had some business in Europe, really won that business globally. And Instagram, where Ogilvy were appointed the creative agency representative. So good both client retention and new business wins.

We set out 2 things to do really in the strategy. One return the business to growth, and secondly, reduce our leverage through a sale of majority stake in Kantar. And the transaction with Bain Capital, where we'll reduce our stake in Kantar from 100% to 40%, really simplifies WPP and makes great strides in reducing our leverage. Since April last year, we've raised GBP 3.6 billion in disposals, GBP 1.1 billion through mainly associates and from the balance sheet and GBP 2.5 billion in Kantar. So we made significant progress. When the Kantar transaction is complete, our leverage for next year will be at the bottom end of the range that we set out in December. We're making good progress in new hires with more to come.

So it leaves us really this year with leaving our guidance unchanged. I'd say and I'm sure you will debate this in the Q&A, I think the way to think about it is we have greater confidence at this point in meeting the full year numbers. There are macro issues on the horizon. I'd say, not to alarm anyone, we haven't seen any impact of those in the business but we are rightly cautious about the full year. So I think where we are today is leaving the guidance for the year unchanged and we can discuss that later.

So Paul will take us through kind of the numbers in detail and then I'll come back at the end with a sort of update on the more strategic issues and then we can take some questions.

Paul?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [2]

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Okay. Thank you, Mark. So the 2019 interim results. So in the first half, our like-for-like or organic revenue less pass-through costs was down 2%. In the second quarter, like-for-like revenue less pass-through costs was down 1.4%, an improvement on the first quarter decline of 2.8%. The quarter 2 like-for-like revenue less pass-through costs improved significantly in North America, as Mark mentioned, minus 5.3% in quarter 2 versus 8.5% negative in quarter 1. And in the U.K., we saw a return to growth where we were down 0.9% in quarter 1 to growing plus 1.3% in quarter 2.

In Western Continental Europe, we improved slightly in the second quarter, where like-for-like revenue less pass-through costs were basically flat. They were down 0.3% in quarter 1. We saw good growth in the quarter particularly coming through in Belgium, France, Italy and Turkey performed well, and actually grew double digits in both Turkey and Belgium in this quarter. Germany however, was slower.

In Asia Pacific, Latin America, Africa and Middle East and Central and Eastern Europe, our strongest performing region, like-for-like revenue less pass-through costs was up 1.2% in quarter 2 compared to plus 2.3% in quarter 1. Improvements in the second quarter came through in Latin America, Africa and Middle East and Central and Eastern Europe offset by slower growth in the Asia Pacific region.

The first half operating margin of 11.9% was down 1.2 margin points on a like-for-like basis reflecting revenue less pass-through costs trend in the first half. The IFRS 16, which we have adopted from the 1st of January 2019, will generate 0.5 margin point in the full year and at the half year. And that is -- when you take that into account, we have a reported margin decline of 0.8 margin points.

Average net debt at GBP 4.384 billion was down GBP 595 million in a reported basis, but on a constant-currency basis was down GBP 709 million year-on-year, and that been supported by the disposal program in the last 18 months.

If I turn now to the statutory income statement, you can see on -- the revenues on a constant-currency basis were flat, but on a reported basis, currency benefited the group by 1.6%. At the operating profit level with GBP 673 million down 21% on a constant-currency basis compared to a year ago. Similarly, at the PBIT level at GBP 681 million were down GBP 170 million compared to a year ago or 20.9%.

The difference between the decline at the PBIT level of around 20% and the decline of 44% in the profit before tax level is explained by 2 items. First was in 2018 we had a significant exceptional gain on the sale of Globant and a very small exceptional loss this year. The net impact of the 2 years is GBP 117 million negative on the 2019 numbers. And there's a change in terms of how we revalue the financial instruments in 2019 where there's a charge to the P&L and in 2018 there was a benefit to P&L. The net impact of that was GBP 138 million.

Those 2 items alone account for GBP 255 million of the impact year-on-year between 2018 and 2019 and explains fully the difference between the 20% decline at the PBIT level and the 44% decline at PBT level.

Tax rate last year again was benign. It was -- there was no tax payable on certain of the exceptional gains and so we had a recorded rate of 16.17%. Whereas this 26.9% is more similar to the headline rate of tax we incurred and applied this year in 2019. So profit after tax at GBP 349 million were down 51% compared to a year ago, and the earnings per share at 24.8p was down 54% compared to 53.4p a year ago.

Turning now to the headline results or summary of the headline results for the year, revenues were basically up 1.6% reported, as I mentioned before, but on like-for-like basis were down 0.6%. Revenue less pass-through costs were flat on a reported basis, exactly the same number, GBP 6.149 billion, but were down 2% in the first half.

EBITDA at GBP 875 million was down 8.9%, and operating profit was down 8% at GBP 730 million. The operating margin on a reported basis which includes the benefit at the operating profit level in the first half of '19 of 0.5 margin points down overall 0.8 compared to last year from 12.7% to 11.9%. If you strip out the effect of IFRS 16, we are down on a like-for-like basis on margins 1.2 margin points.

Tax rate on a headline basis is very similar to last year at 22.8% compared to 22.5%., and diluted earnings per share at 34.2p is down from 42.6p last year. Dividend at the interim level has remained flat to last year at 22.7p and has a 66% payout ratio on the first half profits. Average net debt, whilst it has come down significantly, the ratio over the last 12 months, the rolling average net debt to EBITDA, has remained consistent with a year ago at 2.1x.

So turning now to revenue growth and the composition in the first half. You can see really acquisitions have been quite modest, adding 0.4% to the revenue less pass-through costs. Foreign exchange has been beneficial by 1.6% and the like-for-like, as I mentioned, was down 2%. So net-net on a reported basis, revenue less pass-through costs growth at the half year was 0.

Looking at foreign exchange and making an assumption using the 31st of July foreign exchange rates for the balance of the year, which were $1.22 dollar-pound and EUR 1.10 pound-euro, it looks as though we could have a foreign exchange benefit of around 4% at the second half of the year. Having had a benefit of 1.6% in the first half with this benefit coming through in the second half, on a full year basis, we look as though we'll have a benefit on foreign exchange of around 2.8% actually negating the headwind that we saw last year of minus 2.8% due to foreign exchange.

So turning now to revenues by regions, again nothing has changed in the way we are reporting our geography of our revenue less pass-through costs. So North America remains our biggest region, representing 35% of the business, which is still in decline as we -- as Mark has mentioned. So on a like-for-like basis, the first half decline in North America was minus 6.9%. And as we noted in the statement, quarter 1 was down 8.5% and quarter 2 was down 5.3%.

All other regions were either flat or growing. And the U.K., which is around 13.5% of our business, saw first half growth on a like-for-like basis of plus 0.2%, having been down 0.9% in the first quarter, growing at 1.3% in quarter 2.

In Western Continental Europe, it's 21% of our business, basically down 0.1% for the first half, having been down 0.3% in quarter 1, was flat in the second quarter. And likewise, Asia Pacific and Latin America, Africa and Middle East and Central and Eastern Europe representing 30% of our business was growing at 1.7% for the half year, having grown at 2.3% in quarter 1, growing at 1.2% in quarter 2.

If we now look at the 7 regions and subregions we've broken out for you, you can see basically an improvement in trend in 6 or so of the subregions coming through in the second quarter. I won't go through them all but there is the detail if you can see the slides in front of you. We've broken out the Asia Pacific, Latin America, Africa/Middle East region to the component elements, and a very strong performance coming through in Latin America as you continue to see.

But overall, if you take the first half collectively, mature markets in our definition are down 3.6% and the faster-growth markets are growing at 1.7% netting to an overall decline of 2% in the first half.

Turning now to some specific markets, I just will give you some of the sort of the history of how 2018 performed to give you some color in 2019. So 2018 was a tough year in the U.S.A. for us, and just I'll run through the quarterly trends in '18 to give you a sense of it. So quarter 1 last year, we were down 2.2%. In quarter 2, we were down 3.3%. In quarter 3 and quarter 4, we were down over 5%. So the full year last year, we were down 4.2%.

We did have a tough quarter in quarter 1 of minus 8.8% and a modest improvement coming during in the second quarter of minus 5.4%., growth coming through our global integrated agencies and our data investment management business in quarter 2, helping that produce that performance.

In the U.K., it was again a mixed year last year, with growth in quarter 1 and quarter 2 of around 1.5% but declines in the U.K. of around 2.5% in quarter 3 and quarter 4. Overall, U.K. last year was down 0.5%. We saw the decline in the first quarter of minus 0.9% but a positive growth of 1.3% in quarter 2, leading to broadly flat or plus 0.2% at the half year.

In Germany, again quite a volatile market last year and again I'll go through it. So quarter 1 last year, we were minus 4 -- 5.7% and quarter 2 we were up 5.5%. So flat in the first half last year. And the second quarter decline this year of minus 5% did have a tough comparison last year, but was in part -- we did see weakness in our global integrated agencies and our specialist PR businesses in Germany in the second quarter which were lapping quite a significant success fee achieved last year in 2018. We're still expecting a broadly flat performance for Germany overall and hope to see improvement coming through in quarter 3 and quarter 4.

Greater China, I'll refer to the next slide when I talk about both Mainland and Greater China. And in France, again, we saw an improvement in trend, having been down 1.5% in quarter 1, growing 0.9% in quarter 2.

So China is another market that has been volatile for us and our performance over the period. So last year, just on Mainland China itself, we grew 3.6% in quarter 1 and 9% in quarter 2. And part of the reason why we were down 10% in quarter 2 this year was a very tough comparison with China second quarter growth of 9% last year. So overall, we were down 2.8% at the half year in Mainland China.

We are hoping for that to improve, and the July numbers that have come in had been on forecast with that improvement coming through in Mainland China for the second half. We know there are concerns, another of our competitors had a tough time in China, but we have a very strong market position and well-led agencies. And as you'll see later, a number of China media wins coming through in the first half this year that should have some impact.

Brazil and India have both been stellar for us, to be quite frank with you. They had good growth, mid-single digits last year between 5.5% to 5.6%. Both growing double digits in the first half and expect to have a strong year in Brazil and India on a full year 2019. And Russia has picked up in the second quarter, to be growing at 5% this year and hopes to have a good year, full year 2019.

So turning now to the new sectors. We announced earlier this week on the 5th of August a recut of our revenue less pass-through costs to better reflect the business. And just to remind you which agencies sit within each of the sectors, so in global integrated agencies, which represents 63% of the business now, we include all of the Ogilvy businesses where previously parts of Ogilvy, such as Ogilvy Public Relations was in the public relations business and Ogilvy One was in the specialists businesses. But now, all of Ogilvy combined under one Ogilvy mantra is in the global integrated agencies sector.

VML and Y&R, which are now combined, are now all moved up into the global integrated agencies business, whereas VML before was in the specialist businesses. Likewise, Wunderman Thompson is combined and sits now within the global integrated agencies. Grey, GroupM and now Hogarth, where part of it was in specialists before, is now also combined within the global integrated agencies. So that is the largest sector we have.

The second sector, data investment management, which is the Kantar business, which is 15% of the group. Public relations and public affairs, as it's used to be called, is now public relations. It's very similar apart from it doesn't include Ogilvy PR.

And finally specialist agencies, we have the more specialist agencies by region or by range of services. These include brands such as AKQA; GTB, the Ford specialist agency we have; Health & Wellness outside the U.S.A.; Geometry, our brand consulting businesses; other specialists businesses; the old WPP Digital agencies; and some independent advertising units. That in total represents 15% of the group.

So with that new split, and again there was a release on Monday with a history of 2018 by quarter posted on our website for both the revenues and revenue less pass-through costs.

So our global integrated agencies, the half year decline was 1.8%. But in quarter 1, the decline was 3.4% and in quarter 2 the decline was only 0.3%. So some improvement coming through in the global integrated, both in U.S.A. and internationally.

In data investment management, we grew 0.4% at the half year, having grown 0.2% in quarter 1, growing 0.5% in quarter 2.

In public relations and public affairs, it was down 1.5% in quarter 1, having been down 0.4% in the first quarter and minus 2.6% in the second quarter, which did lap a very strong comparative last year where growth in this category in the sector in quarter 2 last year was 8.5%. So overall, public relations for the first half is down 1.5%.

The specialist agencies, which is our weakest performing category at the moment, which does include the GTB agency and the loss of the Ford omnichannel work, is down 5.7% in the first half and actually had a slightly worse performance in quarter 2, where it was down 7% compared to down 4% in quarter 1. So overall, the business down 2.8% in quarter 1, down 1.4% in quarter 2.

So turning now to the geographies, again, the pattern of the margins really follows the pattern of the revenues. So those regions where revenues have declined the most severe have seen the most margin impact. So North America, which did see net sales or revenue less pass-through costs down 6.9% did see a margin decline from 15.9% to 14%. U.K. was broadly flat on performance and flat on margins, declining from 12.9% to 12.8%.

Western Continental Europe again is broadly flat on margins, declining from 9.3% to 9.1%. And Asia Pacific and Latin America, Africa and Middle East, whilst it did see some strong revenue growth did have a mix of the margin, is down half a margin point from 11.5% to 11.0%. So this is the difference on a reported basis of minus 0.8% broken out by region for you, from the 12.7% last year to 11.9% this year.

And when I do the same by sector, again the pattern is similar. So those sectors suffering the most on the net sales decline will see the biggest margin fall. So on the global integrated agencies, the overall margin was broadly the same, moving from 12.6% to 12.2%. Data investment management actually is down 1 margin point. That is fully accounted for by higher-level incentive this year in the first half, whereas on a pre-incentive basis margins are similar -- very similar to the last year.

In public relations, a good margin business overall, down from 16% to 15.7%. And the specialist agencies, where the net sales were down 5.7%, has seen some margin decline across a number of our businesses with margins down from 12.7% to 9.7% in those agencies.

So turning now to trade estimates of new business won and lost in the first half this year. Under our own calculations of billings won and lost, we won approximately GBP 2.9 billion, which those that follow us know is a good rate at GBP 1.5 billion per quarter and around GBP 3 billion in the half year.

So what is pleasing here, you can see a number of wins coming through in the second quarter. Those are shaded. So there are 4 wins there coming through in the second quarter, and actually 3 media wins coming through in Asia, 2 in China and 1 in India coming through. And our major -- our largest creative win was coming through from Wunderman Thompson in Duracell, won in Q2 in the international business.

If I turn the page with further wins, we see 3 global creative wins coming through: our team in WPP for Distell, the global win for Grey on Nokia business and the global win for Ogilvy on the Instagram business in addition to other China and other media wins coming through the business.

In terms of losses, they actually have been modest. One was a switch from Wavemaker to Essence of the L'Oréal business in the U.K. and China, and one was an outright loss of the NBC Entertainment business in the U.S.A.

If I look at the trade publications since the 1st of July, there's been again one switch of business of Allergan from MediaCom to Mindshare, and one outright win of business -- although we did have some of the eBay business before, we've now picked up the North American and China business in MediaCom on media buying.

So turning now to cash flow, and again just to remind you, the cash flow does include the effects of IFRS 16 this half year where it wasn't there last half year. So in the depreciation/amortization charges which is a credit back to the cash generation at operating profit level, it is now GBP 360 million. You can see the traditional or the more traditional depletion/amortization flowing through of around GBP 200 million through the P&L. In the first half this year, it was a credit of GBP 192 million to the cash flow. And then in addition, the depreciation from right of use assets of GBP 168 million coming in, in depreciation in the numbers reversing the cash flow.

Lease payments, likewise, are pretty much the reverse of that. So they are an outflow of GBP 156 million in the first half. The other items in the cash flow are consistent with prior years pretty much in scale and in nature. The only item I draw your attention to down the bottom is, last year, the other items and it's part of the explanation for why the profits are different.

So again in the cash flow, you have to remove the exceptional gains that you achieve in any 1 year. So in '18, there was a significantly exceptional gain. And then you have to add back the dividends you received from associates and dividends you paid to minorities. In total last year, that was an outflow of GBP 231 million, in total this year it's an outflow of GBP 83 million. So net-net, free cash flow before working capital provisions was generating GBP 266 million and last year GBP 347 million.

So working capital is the measurement of the position from the 31st of December through the 30th of June. And in our industry, and as you'll see in the seasonal nature of the industry, we traditionally have an outflow of working capital in the first half and a significant generation of working capital in the second half. So the outflow was a little bit larger in trade working capital in the first half. In part, that's because we had a very strong balance sheet position at 31st of December, GBP 200 million better than the year before. So part of that reason why we've got an outflow in trade is GBP 100 million higher was because we had such a good year-end in December '18.

The nontrade items is really the reversal of the bonus provision that gets paid out in cash in the first half this year. And in our case, we had a VAT receivable that was quite late in collection from one of the governments overseas that did have an impact in the year-on-year numbers on the nontrade.

Turning now to the uses of our free cash generation, in terms of disposal proceeds, we generated GBP 304 million in the first half. And new payments for acquisitions was GBP 26 million. So net-net, an increase of GBP 278 million. There were no share buybacks in the first half and our dividends are November for the interim and July the following year for the final. So in the first half, there's no dividends paid. So net-net is consistent with last year, there was an outflow in first-half '19, it was GBP 235 million. In first half '18, it was GBP 62 million.

Again, just a summary of the disposal proceeds. If you'll recall, we had a freehold property which we actually acquired when we acquired Y&R. We moved it -- the freehold to 3 Columbus Circle. We disposed of that and entered into a 15-year lease and generated GBP 159 million of proceeds. Other disposals in total in the first half generated GBP 145 million totaling GBP 304 million in the first half.

Here's a summary of both the investments and associates subsidiaries that we have disposed of in the last 18 months. Around GBP 1 billion, but are fairly modest contribution to PBIT being forgone of around GBP 17 million. So a good generation of cash with a modest decline in the earnings consequence.

So turning now to the half year, as I mentioned before on a reported basis, the average net debt for the 6 months ending 30th of June on a reported basis was an improvement of GBP 595 million at GBP 4.3 billion. On a constant-currency basis, it was GBP 709 million. The point-to-point on the 30th of June, it wasn't particularly helpful, it further weakened. And there were a few payments that came in early July. It was GBP 471 million better than the year ago.

Interest cover remained strong, EBITDA as I mentioned here is using the conservative number and our rolling average net debt to headline EBITDA has remained consistent compared to a year ago at 2.1x.

So in terms of our uses of cash flow, our goal or our guidance is to generate from disposals that which we spend on acquisitions, circa GBP 200 million a year. So far, we have generated GBP 304 million from disposals and only spent GBP 26 million. We have stopped share buybacks until the leverage reduces to back within our range. And in terms of facilities, we have around GBP 3.6 billion of undrawn facilities and surplus cash on the balance sheet.

So in terms of balance sheet, again a chart you are familiar with. A very staggered maturity profile of bonds out there. The average weight of maturity of 7.1 years and average coupon around 2.7%. And we have recently refinanced our bank revolver of $2.5 billion to March 2024. And on the balance sheet in the half year was around GBP 1.8 billion of cash in overseas and international locations.

I'll give you a further update on IFRS 16. I'm sure you're fed up with hearing from me on this. It is primarily for us real estate. All leases go on our balance sheet except short-term and low-value leases. And you'll see in our balance sheet, on the 30th of June, assets for the right of use of GBP 1.8 billion and lease liabilities discounted of GBP 2.3 billion.

As I mentioned, there's a higher total expense in the earlier part of leases. We do have a number of long-term leases. But we did give you an indication of what the impact would be on the first half 6 months ago, and this is the sort of mathematics of how it's working through in our numbers in the first half 2019. So the middle column is really the reported headline EBITDA of GBP 875 million.

As we mentioned before, we get a benefit to operating profit, and you can see a GBP 34 million benefit in the first half which is a 0.5 margin point, which improves our non-GAAP margin from 11.4% to gap margin of 11.9%. However, there are additional interest costs coming through P&L. You can see that in the finance charges line, which again on the underlying basis non-IFRS 16 would be GBP 97 million, with the IFRS 16 impact it's an extra GBP 49 million. So the total for this year is GBP 146 million.

The net impact on this is an 8p reduction in earnings for the first half. You can basically double these numbers and have the 1.6p negative impact we're expecting on a full year '19 as a result of this implementation. And that compares to where we were on the right-hand side in 2018.

On Kantar, I think we have successfully completed a very complex transaction which aid simplification and deleveraging the balance sheet of the group going forward. Net proceeds again, as we announced, of circa GBP 3.1 billion available. The first completion of at least 86% of the proceeds are expected by early 2020. And the subsequent completion, the remainder of the proceeds, are expected to be within 12 months of the announcement, which was on the 12th of July 2019.

This should take leverage to the low end of a target range well ahead of our plan, with circa 60% of the proceeds used, or GBP 1.9 billion used to reduce debt. The other 40% of the proceeds of circa $1.2 billion to be returned to shareholders is expected to minimize the earnings dilution. The potential value upside for our shareholders through the retained 40% equity stake in the venture going forward.

And finally in terms of the outlook, as Mark has mentioned, it remains the same at the start of the year. So like-for-like revenue less pass-through costs of down between 1.5% to 2%, and headline operating margin down around 1 margin point on a constant-currency basis, excluding the impact of IFRS 16 which should benefit us by 0.5 margin points.

With that, I'd like to hand over to Mark.

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Mark Read, WPP plc - CEO & Executive Director [3]

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All right. Thank you, Paul. Okay. So back in December, we set out the new strategy for WPP. We're now 8 months into it. I think the headline on how we see things is solid progress, and maybe we'd sort of update you a little bit on how we saw it.

We really got 5 elements of the plan in December which were these. The first was really to set out an ambitious vision for WPP as a creative transformation company, help our clients grow and need to return the business to growth. Second, to recommit and reinvest in creativity, which we believe is WPP's sort of secret weapon or really the source of our competitive advantage. Third, to have a more deliberate and top-down approach to technology and data, to focus on really how we use data in our marketing not just whether we own it, and we're making good progress there. Fourthly, to simplify WPP to make it easier for our clients to navigate to get the best of WPP and easier for us to manage the business. And lastly, to build a culture at WPP to attract the best talent, the best people to the group. And against each of those, I think we made good progress.

In particular, if you look at our offer, we really wanted to shift our offer into the faster-growing parts of our business. They tend to be the parts of our business that are more technology-driven and critical to our clients in terms of how they grow. So you're really growing in the areas of experience, of commerce, of technology and where -- areas where we'll be a beneficiary of the growth of the technology companies like Google, Facebook, Amazon and Alibaba. There, I think, we'll see that in the wins that we've made with clients and an increasing technology-driven approach to what we're doing.

If you look across the business, there are encouraging areas of growth. And just to call out 5 of them, our business in India where we have 11,000 people, we've seen growth of around 13%. We're moving into a new campus in Mumbai later this year. We're moving 4,500 people into one building in Mumbai. Also moving to a new campus in Delhi early next year.

In Brazil, we're seeing 10%. We've got 7,000 people in Brazil and really a fantastic business in a very creatively vibrant economy. And again, we're moving into a new campus there and we've announced that Stefano Zunino will become our Brazilian country manager.

I think it's important, people talk about disruption of our business, to see that WPP is actually a major beneficiary of the growth in technology. Just to call out our sort of big tech clients are growing 16% in the first half of the year. If you look at our top 20 clients, they do include Google, Microsoft, Apple, IBM and Dell. So we do have a really strong position.

And ironically, those clients turn to us to understand how to grow their business and how to communicate with their customers. Xaxis, a business really founded on the back of our acquisition of 24/7 Real Media back in 2007. So we made our first ad tech investment in 2007, so 12 years ago. Xaxis grew 16% in the first half of the year.

I'll just call out luxury goods. I sometimes I say that the 2 areas of our business that are growing are technology and luxury, maybe Apple sits in the intersection of those 2 things. But our luxury goods clients growing at 7% at the beginning of the year. And I think we see across all sectors the kind of the premium end of our sectors are growing.

We talked about creativity and talked a little bit about the work that we're doing. We've showed some examples of work that we've done over the last year, actually we did particularly well at Cannes. There's really 3 pieces of work I want to call out that illustrate, I think, first, the importance of purpose; secondly, importance of creativity; and lastly, the importance of what I call creativity powered by technology. Really understanding the changing ways that you can communicate with consumers and how we can do that creatively.

The first piece of work is for Tommy Hilfiger. They asked us to work with them on a range of adaptive clothing. So clothing for people with disabilities. And Wunderman Thompson did this work, it won a Silver Award at Cannes. And I think we'll show you the video now of how we really launched that work in a very clever way for Tommy Hilfiger.

(presentation)

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Mark Read, WPP plc - CEO & Executive Director [4]

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So I think many of you were in Cannes actually in June where we brought some of the people in that film together and we had a fashion show with Tommy Hilfiger at the WPP Beach in Cannes.

So I talked about Brazil. The next piece of work is from AKQA who launched this product for Nike, and you'll see kind of how we did that now. Let's show the next film.

(presentation)

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Mark Read, WPP plc - CEO & Executive Director [5]

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So that piece of work won a Grand Prix at Cannes. You can see how creativity not just engages consumers but leads to increased sales performance. And Nike is one of AKQA's foundational clients. I think in many ways it's great to see them doing such good work after so long.

So the last piece of work involves Fortnite. I don't know how many of you play Fortnite? But 215 million people around the world do. And apparently the peak was 8.3 million people played at one time just after it was launched in South Korea.

So VMLY&R have been working with Wendy's for some time. Initially as their digital agency, but now as really their agency of record across all creative areas. And they came to us and said, "Well, how can we look at the -- how can we look at Fortnite and what opportunities are there, there?" And I think the key thing to understand in watching this video is that the burgers at Wendy's are fresh and not frozen. So we'll show the Wendy's video now.

(presentation)

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Mark Read, WPP plc - CEO & Executive Director [6]

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All right. So I think we've consistently said that we want to put creativity back into the heart of WPP. And the reason for that I think is the good ideas are really what clients are looking for. And we see that better work leads to client wins and retention.

Just to call out a few of the wins. We mentioned Ogilvy being appointed as Instagram's agency of record. MediaCom won the eBay business, and they've really -- MediaCom actually had a fantastic new business performance really over the last 12 months. Centrica was a major -- probably the most hotly contested pitch and re-pitch this year. And the combined team of The&Partnership, Wunderman Thompson, MediaCom really won that business, expanded the work that we do with them into Ireland and North America.

But just to call out sort of 2 examples to sort of bring to life a little bit about why we're winning business and how our new strategy is delivering. The first is L'Oréal in the U.K. L'Oréal in the U.K. is a top 5 advertiser in the U.K. So extremely important piece of business. But we'd worked with them for some time through Wavemaker. When they called a review, really listened to the client, we decided to go back with Essence because the client wanted a clear, technology-led approach. And the combined team both with Essence -- actually and somebody from Wavemaker, pitched the business. I'd say, it was a very collaborative effort. Karen Blackett, our U.K. country manager was involved, as were many of the leadership from the media agencies. But also drawing on the rest of WPP, particularly in the commerce area. And a very technology-led approach led to an increased remit with the client.

The second example, VodafoneZiggo, the new joint venture in the Netherlands. And this was a very hotly -- again, another hotly contested review. It's a top 5 advertiser in the Netherlands. And really I think why we won was the ability to deliver a much more integrated model. It's a vindication of the strategy of putting people in campuses. We opened a new campus in Amsterdam I think in April or May of this year. And that campus houses 1,800 people from WPP in one place, and which is the heart really of creating a much more integrated team for the client.

We put customer experience really at the heart of the proposition and it brought together the newly formed Wunderman Thompson, Greenhouse and GroupM, as well as our other media and design businesses. And the final pitch was against Accenture, so we can see that a creatively-led but technology-driven approach can be successful with clients.

And just to mention campuses again, we have a program to move as many people as we can into campuses. We believe that it creates a fantastic working environment for our people and brings together the best of WPP in a way that's very visible to our clients. Today, we have actually 29,000 of 134,000 people in campuses, around a quarter of the people that work at WPP campuses; we expect to be about half by 2021. And to those of you that were lucky enough to visit Sea Containers, you can see how these campuses bring to life the strategy to clients.

One element of the plan we laid out in December was to restructure the business into a simpler structure to drive improvements both in efficiency but also try to reposition the business for growth. And you can see that in terms of sort of rationalizing our business units and taking out head count, we are on track. And the savings are on track for this year and next.

So I'd say in summary, I think we see really good operational execution of our strategic plan. The leadership at WPP is working extremely well together and I think focused on returning the business to growth. Our financial performance in the first half was really in line with our expectations and perhaps slightly better than we expected in the second quarter.

The Kantar transaction that Andrew led has really been successfully executed and further helped to simplify and deleverage the company. The fewer, stronger businesses that we have created are driving greater client retention and success in new business, and we see that at VMLY&R, at Wunderman Thompson and at Burson Cohn & Wolfe in particular.

We do expect further progress in the second half of the year. As we said before, we are facing headwinds from account losses that really started in the beginning of last year through to September. They will continue to impact performance in 2019 but we really had a very strong performance in retaining clients during this year. So we do expect that to tail off towards the end of the year. And broadly speaking, we are on track to meeting the 3-year targets we set out in December.

So I think -- so that's sort of where we are. I think before we take questions, just want sort of make one sort of final point that while we have challenges at WPP, I do believe there's a very positive future for the company, not only because we have tremendous assets in terms of our people, our clients, investments we made in technology, the scale of the business, also because what we do is critical to our clients and critical to the success that our clients have. The power of creativity, in my view and our view is never more important. Clients need growth, and growth comes from creative ideas, from innovation, from inspiration, the types of things that WPP companies uniquely provide. In my view, more than consulting companies.

Secondly, clients do need partners. It's not just a question of how we can internalize work. If you look at our major clients, they include Google, Facebook, Dell, IBM, Microsoft, all of those clients turn to WPP to understand what's going on in the markets, what's going on with consumers, how to communicate with them and how to grow. And I think while technology is disruptive, it's also a major opportunity for WPP if we continue to invest, if we continue to attract the right people. And there will be growth in Facebook, in Google, in Amazon, in Alibaba, and the growth in those platforms for clients that want to succeed with them makes WPP a much more valuable partner for those clients.

So we set out a 3-year strategy to address the issues and capture the opportunities. No doubt there will be twists and turns along the way. We're not declaring victory at this point. But we do believe we have the right strategy to return the business to sustainable growth. And the first 6 months of the year, in our view, demonstrate that.

So thank you for listening. And questions. If we could move on.

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [7]

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Just wait for the microphone. It's coming.

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Questions and Answers

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [1]

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It's Lisa Yang from Goldman Sachs. Firstly, I was just wondering if you look at the Q2 performance in the U.S. which was clearly better than Q1, could you give us the impact of the account losses? Because it looks like from the press release, there was a lesser impact. And how should think about that for the second half? And the similar question is what you think underlying in Q2 in the U.S. and whether we should also see an improvement in H2? That's the first question.

Secondly, I mean, you mentioned -- you pitched against Accenture, and you won in this Vodafone account. Have you seen more consultants being involved in the pitches so far this year? And have you lost anything to them? That's the second question.

And thirdly, if I look at your organic growth guidance for the year, that still implies about minus 1% to minus 2% in the second half, yet you're expecting an improvement. So I'm just wondering how to reconcile your full year guidance versus your commentary that you're expecting improvement versus Q2?

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Mark Read, WPP plc - CEO & Executive Director [2]

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Okay. So I think the way to think about the U.S., I think we said in Q1 that about the sort of 9%, maybe 2/3 were account losses and 1/3 were sort of underlying performance in the business. And I think maybe that ratio still holds true in the second quarter. So I think the improvements in performance in -- or the less bad performance if we're being direct in Q2, is a result a little bit of the account losses tailing off but a little bit of improvement in the underlying performance, maybe 50/50 between those 2 things. But I think the account losses are fairly spread throughout the year. But we said sort of slightly more in the first half than the second half.

I think in terms of competition versus the consulting companies, there are occasions that -- where we win. I can't think of, but I'm sure there are occasions where we have not won. And I think that it's a balance. I wouldn't say we see a material increase in competition, sort of, today versus a year ago. But we do know that they have been active in terms of acquisitions. We do compete against some of the companies that they've acquired. But I'd say that's more sort of traditional creative agency versus creative agency competition than a sort of a different type of offer.

In terms of the full year, I didn't totally understand. I mean if we are minus 2% in the first half and minus 1.5% to minus 2% for the full year, it would imply that we could be slightly stronger in the second half, then -- or slightly less bad in the second half than the first half. I think it's kind of how we see it. I mean I think we see -- we set out the targets for the year. I think the way to think about it is we have more confidence now in reaching those numbers, naturally than we did in, let's say, December when we communicated them. But there are macro events out there. And I think that we feel the best thing to do today is to hold them really where they are.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [3]

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I was referring more to the second quarter.

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Mark Read, WPP plc - CEO & Executive Director [4]

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Sorry, the what?

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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I was referring more to -- versus the second quarter, the sequential improvements in the second half versus Q2 where you were down 1.4%.

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Mark Read, WPP plc - CEO & Executive Director [6]

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Down 1.4%? In what -- so I don't...

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [7]

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I haven't quite (inaudible) either. Sorry.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [8]

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Sorry. I was just wondering your guidance implies basically H2 down about 1% to 2%. But obviously, Q2 was already down 1%. And the comps will be easier in the second half. So just wondering why you shouldn't see any improvement.

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Mark Read, WPP plc - CEO & Executive Director [9]

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Without sort of a -- I did this before and got told I told you the answer. I mean if mathematically we were minus 2% in the first half and minus 1% in the second half, then mathematically that would equal minus 1.5%. And minus 1% will be better than minus 1.4%. So I think the guidance kind of still holds in turn in terms of what we expect. And that's a mathematical equation for everybody out there, not anything else. And this is all broadly in line with the consensus, so...

Yes. We'll start here. We start in the front and then work back. It's probably the easiest way. And then come to this side.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [10]

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It's Will Packer from Exane BNP Paribas. Firstly, on China. Now I understand there's some volatility around comps, et cetera. But the gap between the agency organic growth for yourself. And yesterday, we had a Dentsu warning on China, and the underlying ad growth was very extreme. Is that just simply is very difficult to monetize the back growth which is now dominating advertising growth in China? A comment there would be helpful.

Secondly, in terms of your new divisional split, can you just talk us through the thinking behind that? Perhaps it would be tempting to maybe ring-fence some of the underperforming assets or highlight some of the faster growing assets. And yet, we have a new disclosure, but we don't quite see, for example, how some of your more digitally focused assets are performing, which could have been helpful.

And then just lastly, following up from the previous question, U.S.A. is improving. It's been a key source of weakness. Should we now think of a positive organic growth number for FY '20 as those account losses shift out?

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Mark Read, WPP plc - CEO & Executive Director [11]

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So on the last one, your positive that we...

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [12]

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For 2020, should we think of it all positive organic revenue growth number?

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Mark Read, WPP plc - CEO & Executive Director [13]

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Why don't you take a start, Paul, and then go ahead with China?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [14]

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Yes. So I think China has been volatile for us. I'd say we start from a position of really good market share, generally good businesses with good leadership, and more importantly, a really good mix of clients with international and local. And you kind of saw that in the media wins coming through in the first half this year. So we're not fully dependent on any -- either just international clients or just local clients. That has always been one of our secrets to success.

The financial performance has been strong. Again, it is second half-weighted in China, as always. And actually, whilst it was disappointing in the minus 10%, it did follow a very strong second quarter last year. And we have seen volatility over the years. Our management there remain confident. They haven't seen anything materially different from the recent macro events to affect our numbers. And July actually was a vindication that their thoughts and their thinking is consistent with what they're seeing in the marketplace. And actually, we haven't found it any more challenging to be profitable in China, i.e., to monetize our business than we have been in prior years, and it remains a strong business for us. So all I can say is that, yes, I have read all the competition and their concerns about their performance in China, and I saw the announcement from Dentsu. We haven't seen anything to mirror that yet and are hopeful for an improved performance in the second half of this year.

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Mark Read, WPP plc - CEO & Executive Director [15]

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On the splits?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [16]

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So the split was really -- it was very much operational. And we do, I suppose, like to track businesses in granular detail ourselves. But when you are literally combining all the offices and all the staff in each location of Wunderman and Thompson, and likewise at VMLY&R, to become one unit, it was proving to be such an exercise in estimation of how the splits were then falling out in both the specialist businesses and then the PL businesses. It was just averaging down the underlying performance of those specialisms, quite apart from the fact you've now got 1 management team for Wunderman Thompson. You got one management team for VMLY&R. So actually, all we're doing is reflecting that mix of businesses. Hogarth, again, it had some of the business nestled within the agencies and some independently. So again, it was the right to put it in the same sector.

In my view, it's kind of exposed the specialist businesses to become a smaller business and more volatile as you're seeing. And so yes, we have some digital businesses within there. But actually, our main digital engines, if I'm honest with you, are now in the global integrated agencies because they are helping those businesses grow in the future. Unfortunately, yes, I know it's a bigger number, but it's a true reflection of how the business are combined and how they operate, and that really is the basis of what we did. I know it's a bit disappointing to not have full granular detail, but that's, I'm afraid, the way it is right now.

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Mark Read, WPP plc - CEO & Executive Director [17]

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I mean I think it was just trying to say there's a digital bit and an analog bit of the business. It's just no longer really relevant. It's just not helpful, not how we -- not how clients think about the world, it's not how consumers think about the world, it's how we want to run the businesses. So critical to the strategy has been bringing that together and combining it. So I think the -- really, we just move things up into that box to reflect that.

On 2020, I hate to disappoint you, but you'll have to draw your own conclusions on where we get to. You know where we are now, and you know where we want to be by 2021, and at the certain point, the line will cross 0. But I think it's premature for us to sort of talk about exactly when that will happen, I'm afraid.

Thanks. So we'll go back to [Matthew]. Yes.

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Unidentified Analyst, [18]

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I've got 3 questions, please. The first one is I think you don't like the idea of your clients being audited by Accenture. How many of your clients are audited by Accenture? And how do you see that playing out going forward if you -- if both sides sort of maintain that position?

Second question is on creative in the U.S. You're investing GBP 15 million, I think, a year over -- for 3 years. Just in the context of WPP, it's such a huge group. Is that really enough to get to the root of the issue and really boost the creative output in the U.S.? It does seem, on the face of it, like quite a low number. So maybe if you can comment on that?

And lastly, you showed us some very interesting work. And obviously, the purpose is becoming increasingly important. I think there's been a lot of press around -- a lot of trade press around CPB and Ogilvy recently. Is that affecting Ogilvy's new business performance? Is it affecting staff retention? How do you feel about that?

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Mark Read, WPP plc - CEO & Executive Director [19]

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So I think -- thank you. On Accenture, there was some press coverage. I don't -- I mean I have not or we have not put out an edict as reported in the press. But I think we do have some concerns about people who are competing with us who are also auditing our work. So I'd say we're proceeding very, very carefully with that and making sure there's a separation for that work. They're one of a number of people that do that work. There are many other very good providers or companies that clients can go to, to do that. And I think we'd certainly feel more comfortable doing it with people where we don't have a conflict of interest.

In terms of creative, I think the GBP 50 million was incremental investment. And I would say that we are looking to do more. And I'd say we want to shift existing resources more into creative. And part of what we're trying to do is make it more efficient. One of the benefits of bringing VMLY&R and Wunderman and JWT together was it enabled us to take out back office costs and administrative costs and property costs. We have a big property saving in New York from the consolidation. And what we want to do is ensure that as much of the business as we can will be invested in creative resource that will do better work for clients. So I'd say that the GBP 15 million was sort of incremental from a P&L perspective. But overall, I would hope that we put substantially more than that into our creative department. So I think it's very important.

Turning to purpose. I think John Seifert's note set out well the rationale behind Ogilvy's work. And it's clear that in many businesses, employees take a greater interest in the types of people that they work for. I'm sure it's true in banking as it's true in many of the technology companies. It's true across the world, and I think Ogilvy have stood by the work that they have done, and we haven't seen any impact really directly in the business. Though I think we understand people's concerns and talking to people about what they are and how best to address them.

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Kate Pettem, Rathbone Unit Trust Management Limited - Investment Analyst [20]

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Kate Pettem from Rathbones. You spoke about expanded remits within your existing clients. And I'm particularly interested in contractions and if there are any sort of like characteristics where you could make investments or you need to talk to us about in the development of the market. I'm provoked in asking the question by the press over Dove Men, where Unilever is a net expander. They've been very supportive of you, and you've done at least, to the untrained eye, an excellent job. So are there any like characteristics in businesses that have contracted their business with you and where we might expect further investment to stem that sort of flow?

The second question is on currency. On the cash flow statement at the operating level, so operating cash flow, what would the currency effect have been in the first half? Is it like the P&L? Is it about 1%? And would you expect the plus 4% for currencies valued at the end of July also to run through the cash flow statement at that level?

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Mark Read, WPP plc - CEO & Executive Director [21]

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Okay. Well, Paul will talk to the currency point. I think on the question -- on the specific example you mentioned, look, I think many large clients work with several thousand agencies. And I think that Unilever have made clear their direction of travel, but it doesn't mean that we'll win every assignment. So I think the Dove Men is a sub brand of Dove. And that was the sort of decision that they took. But I don't think it implies one thing -- anything one way or another, really. Currency?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [22]

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So on the currency, the main effect will be the benefit to EBITDA. So that will run through the cash flow. Obviously, that's before interest. There is a little bit of a higher cost of interest because our debt is in dollars and euros, and that will be an offset. But the majority of the benefit of the 2.8%, will flow through to the bottom line but not the full 2.8% because EBITDA benefit is mitigated by the interest offset through higher interest.

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Kate Pettem, Rathbone Unit Trust Management Limited - Investment Analyst [23]

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And working capital has the same sort of [stake]?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [24]

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Well, actually, you can't return the working capital because we put the balance sheet effect of currency through other reserves. What you see in the working capital movement is we make that adjustment when we compare our working capital position year-on-year. So to try and do it on a constant currency basis. So currency is not really one of the reasons why working capital is different, to put it another way.

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Kate Pettem, Rathbone Unit Trust Management Limited - Investment Analyst [25]

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So H2 about the same sort of movements?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [26]

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[It is all linked]. So I think H2 is going to be -- we saw plus 1.6% in the first half and around plus 4% if current exchange rates prevail for the remaining 6 months could impact -- could benefit us in the second half.

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Mark Read, WPP plc - CEO & Executive Director [27]

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Yes. Over there.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [28]

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It's Richard Eary from UBS. Just 3 questions. The first one is just looking at the second quarter revenue that's pass through like-for-like revenue growth by the new breakdowns. Obviously, the big weakness in there is specialist agencies, which I presume is mainly GTB. I mean can you give us a bit more color? Because it seems as though that a lot of the weakness in the second quarter could be specialist agencies, and therefore, GTB. So I don't know whether you can call that out a bit more for us.

The second question is that -- I don't know whether you can talk about what's happening in terms of the pipe for H2 in terms of contracts potential in terms of what your pipeline in new business is looking in H2. Obviously, you talked about defending Vodafone, Novartis. I'm just wondering whether you can sort of elaborate on what that pipe looks like.

And then the third thing is that you put up some slides earlier about calling out sort of a momentum in key parts of the business like Xaxis, tech clients. But I don't know whether you can talk through what's happening on the FMCG, the consumer good side as well.

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Mark Read, WPP plc - CEO & Executive Director [29]

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Okay. Paul you can start.

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [30]

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So on specialists, obviously, I'll say the impact of the loss of the Ford omnichannel work is the major element of the decline in year-on-year, like-for-like growth in net sales in the specialists category. It is not the only agency that's having a tough first half. And I think a number of agencies, again, with changed leadership are going through some quite significant changes. I think we have seen already that, again, it's hard to quantify the benefit of putting our health care businesses back into the integrated agencies. And that obviously was a feature in prior years. We have, as mentioned, a number of agencies in addition to the GTB agency. But some of those have had a slow start to the first half. They are expecting to have a better second half coming through. So it is not exclusively as a result of just the GTB agency by any means.

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Mark Read, WPP plc - CEO & Executive Director [31]

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So in terms of the pipeline, I think the pipeline remains good. I wouldn't say -- I think it's been a slightly subdued year for new business overall, certainly compared to last year. And if you remember, we came into last year, I think, with $3.2 billion of business under review. We came into this year with about $800 million of business under review. So a much smaller amount of business under review and that's why we had a good performance in client retention. The major sort of outstanding decision will be Vodafone, and we're putting everything into that and working with them closely.

On Novartis, we're -- and we're one of the incumbents but not the major incumbent. Inevitably, other business under review around the world. But I'd say net-net, if we do a good job, we'll be more of a beneficiary to new business trends for the rest of this year than anything else. But I'd say there's not -- there's nothing major yet.

In terms of FMCG clients, I think we said the performance is probably more varied than it has been in the past. I think we still -- we continue to see some packaged goods companies look at how they can further restructure their spending. But others, I'd say, are taking more of a expansive approach and one, in particular, really looking to sort of restructure its roster, invest much more in creative capability than perhaps they have done in the past. So I think the -- I'd say there are generally more reassuring trends than negative trends, but it's still a mixed picture across packaged goods companies in terms of how they're thinking about their spend, which is no surprise as their market is disrupted and they're trying to shift their budgets from traditional analog television into newer, sort of, digital channels. So I think that's kind of really the major picture we see, and there are probably no -- there's no difference there.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [32]

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Sorry, can I just ask a follow up? Just you called out specifically a better performance or good growth out of GroupM. And obviously, you put some numbers out there for Xaxis. Can you quantify, obviously, what the media performance was like in the first half?

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Mark Read, WPP plc - CEO & Executive Director [33]

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No. We don't break that down, I'm afraid.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [34]

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It's Adrien from Bank of America. So actually, I just have a follow-up on Richard's question. Would GroupM be growing ex Xaxis? That's the first question.

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Mark Read, WPP plc - CEO & Executive Director [35]

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Yes.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [36]

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Yes? Okay. During the presentation and during the Q&A, you've talked about parts of the businesses getting better, but are there any parts of the business getting worse you think in the second half? That's one question.

And perhaps one other question is about the 2021 targets. When we had the Investor Day in December, you said you expect it to grow in line with the industry. Back then, the industry was growing 2%. In the first half, it seems the industry is growing 1%. So if you were to grow at 1% in 2021, would you be happy with that performance? And then...

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Mark Read, WPP plc - CEO & Executive Director [37]

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Would you be happy?

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [38]

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Well, you tell me. And then maybe an easy one for Paul is or for Andrew is can you tell us the value of the remaining portfolio of associates and minority investments in the first half?

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Mark Read, WPP plc - CEO & Executive Director [39]

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Yes. So look, I mean is anything getting worse? I think in the business of WPP, scaling practically isn't -- there's always parts of the business that are getting better and some parts getting worse. But I'd say there's nothing material that's getting worse in general. Things are either better or the same.

In terms of the targets, we have made a review that we'll grow in line with our peers by 2021 and we'll, as you said, I know you pushed this in December. You'll push this again today. To give you a concrete number, I think we look at the average in 2021 and look to be there or above the average by 2021. Andrew, do you want to talk about where we are in 2021?

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Andrew Grant Balfour Scott, WPP plc - COO [40]

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Yes. So on the balance at June is [GBP 740 million] on associates. But out of that, part of that is in Kantar, so you could sort of deduct [GBP 50 million] from that, which will go along with the Kantar transaction. And on investments, [GBP 575 million] is where we are at June.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [41]

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Well I'll pause on working capital. So it was down GBP 600 million, I think, outflow in the first half. I know it's a very difficult number to guide on, but Paul do you have any sense on where we land for the full year?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [42]

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So I think please break it out between the trade and nontrade. So it is hard in the first half because we have this season outflow. The actual June-to-June position on trade were actually better by about $18 million. So our expectation on the full year is to have to be at least the same or better on trade working capital year-on-year.

The nontrade we've been adverse, the best part of [$100 million] for 4 years in a row, which doesn't seem logical. And it is a very small number of changes on other creditors and accruals in many markets, so it's kind of difficult to predict. At worst case, we should probably assume the trend of the last 4 years of $100 million , but we don't understand -- we don't believe that to be a valid excuse for why it shouldn't be neutral, to be quite frank with you. So our expectation and some of our bonuses are based on actually improving working capital year-on-year. So we have every incentive, as one of the global CFOs, to have -- meet our targets of working capital at June, September and December. So we have every incentive to ensure a better balance sheet position, December '19 than December '18.

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Mark Read, WPP plc - CEO & Executive Director [43]

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Should we put Tom out of his misery over there on the left?

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [44]

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Tom from Citi. I had 2 questions. One operational, one financial. On the operational side, you alluded to that Vodafone win with Accenture in the -- as a sort of not -- or failing to win it, I suppose. But the -- I suppose, not necessarily a direct question about Accenture, but I'm conscious that at some point, one of the consultancies is going to win something meaningful. But for the moment, they're not. Can you just explain what you think are the factors that are driving that? Is it because they don't have necessarily a full media capability? Is it just purely because of the creative point? Or is there any sort of material difference on a sort of cost -- on the cost side in terms of sort of per head pricing or anything around that? So that would be very much appreciated.

And the second question, I suppose, for Paul, on the balance sheet with the Kantar proceeds -- I accept that it will take quite a long time for them to come through. But you -- I mean on one level, it's quite sort of perverse for us to try and force you to reduce leverage because you've actually got quite a lot of cash on hand and a sort of long duration balance sheet. So is there anything that you can do to sort of make the balance sheet more efficient in terms of debt buybacks or anything along those lines?

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Mark Read, WPP plc - CEO & Executive Director [45]

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So on the consulting question, I sort of vowed to myself that we sort of talk positively about WPP and not negatively about other people. I'm sort of a little bit fed with people that are trying to grow their businesses by criticizing other people's businesses. But -- so I think if you look at why do we win, we win because we understand what CMOs want to achieve because we understand consumer behavior and changes in consumer behavior, and I think because creativity is important and it demonstrates how we can envision the future. And clients -- if you look at -- if you drive everything just off the data, then everything ends up just being the same. And growth comes from differentiation with consumers. So I think that -- what -- as I refer to it, it's WPP secret sauce. I think it is the case. Our ability to envision the future and envision a different future from client A to client B is what helps clients grow.

So I think marketing today is definitely a creative and technology problem. But it's not just a technology problem, and it's not just a creative problem. It's about the ability to bring those 2 things together. So I think that is why we win. And I think a number of other companies that look increasingly like WPP in terms of sort of structure and granting the way they're integrating. So I think there are advantages to our model. So I think that sort of maybe help you understand kind of where we are.

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [46]

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So on the balance sheet, Tom. You're right. We have a sagging maturity profile, and we only really get the benefit from the deleveraging on the interest line if we do retire the bonds that are out there. We have GBP 700 million of bonds coming up for maturity before May 2020. So that will be a good chunk of, let's call it, $1 billion put aside for that. And then we have the right under the clauses that are other bonds to call them early, obviously, for a price. And so we'll look at what makes the most sense in terms of retiring other bonds that are out there from a price interest coupon perspective. But the intention is actually to reduce the balance sheet fixed debt obligation by the amount of the proceeds coming in, in the majority of cases.

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Mark Read, WPP plc - CEO & Executive Director [47]

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Okay. Next? Anyone else? No?

Well, thank you all for listening. I think as we said, this is sort of a solid start to the year and a good execution of the strategy, but work remains to be done.

Thank you all for listening. See you soon.