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Edited Transcript of WPP.L earnings conference call or presentation 1-Mar-19 2:00pm GMT

Full Year 2018 WPP PLC Earnings Call

London Mar 7, 2019 (Thomson StreetEvents) -- Edited Transcript of WPP PLC earnings conference call or presentation Friday, March 1, 2019 at 2:00:00pm 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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* Daniel Salmon

BMO Capital Markets Equity Research - Analyst

* Michael Brian Nathanson

MoffettNathanson LLC - Founding Partner & Senior Research Analyst

* Timothy Wilson Nollen

Macquarie Research - Senior Media Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's 2018 WPP Full Year Results Conference Call. (Operator Instructions) I must advise you that your conference is being recorded today on Friday, the 1st of March 2019.

I would now like to hand the conference over to your speaker today, Mr. Mark Read, CEO. Please go ahead, sir.

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

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Thank you very much, operator, and good morning to everyone in the U.S. I'm here in Sea Containers with Paul Richardson, our CFO; and Andrew Scott, our COO. And as we did last time, we're just going to take a short introduction and then really take Q&A and those of you that want can watch the presentation on our website from this morning.

I think the key points that we covered this morning were, for 2018, we came in at the upper end of the guidance that we gave you back in October and that we reiterated in our strategy update in December, with revenue less pass-through costs down by around minus 0.4% versus a range of minus 0.5% to minus 1%.

As we look at 2019, it is challenging due to the headwinds from some major clients that we lost in 2018. And those will have more of an impact on our budget -- on our numbers in the first half of the year than the second half of the year. So I think it's important that everyone understands the likely phasing -- or the current phasing of our revenue during 2019.

We have made good progress on the strategy we set out in December. We're really focusing on execution and, particularly, on our businesses in North America where we have had a tougher time. And you'll see that in the progression of the quarterly revenues in North America. Our Q4 2018 was our weakest quarter, and I think that's a pattern that we expect to continue into 2019, particularly as our number defined losses are probably more weighted towards North America than they are to the rest of the world. I just want to highlight that so there are no surprises.

But the focus of our strategy has been on simplifying the offer. I think that with the combination of VMLY&R, where we've seen good results from clients; Wunderman and JWT to create Wunderman Thompson, which is still, I think, somewhat less advanced; and the bringing together of Burson-Marsteller and Cohn & Wolfe into BCW. We were really seeing good initial progress we called out in the statement, VML won around $25 million of new business in the first 90 days.

We are strengthening our team, and we are delighted to welcome Jacqui Canney. Jacqui Canney is our Chief People Officer to WPP earlier this week. We're working through the restructuring, you'll see in the presentation. We are probably around 2/3 through the actions that we outlined, and we raised around GBP 849 million from 30 disposals in 2018 with a further 5 this year already. So I'd say that from a sort of top-down perspective, the initial signs that we see in terms of the response to the strategy and the execution we're making is very positive from our clients, from our partners and from people that we're trying to attract to WPP. But I do want to emphasize that we outlined in December a plan for 2021, which is really what we're focused on, and work does remain to be done. So I think that's what I'd like you to take away by way of introduction.

I think now Paul, Andrew and I will take questions, operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Michael Nathanson from MoffettNathanson.

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Michael Brian Nathanson, MoffettNathanson LLC - Founding Partner & Senior Research Analyst [2]

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Can you just focus on North America for a second? The results are really jarring just compared to your GDP growth, which has been pretty strong. So can you help us kind of get under the hood here? Of what's reported in the second half of revenue declines organically, how much would you attribute to pure client losses versus maybe client behavior changes, client spending pattern changes?

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

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So I think that there's a number of issues. And I think it's hard to break it out exactly like that. We look at competitive performance in North America, and we are aware that we're underperforming our competition, and to some extent, that gives us confidence that with the right actions, we can get our growth back in line. But I think there are a number of WPP-specific issues that relate to it. I think part of it is issues in our creative agencies. Although there are strong parts of our creative business, and as we pointed out, we had 6 commercials in the Super Bowl. I think we are -- there are creative strengths in WPP in North America. But we need to invest more in creative. I think part of it is we have specific issues in our health care businesses, where we brought the businesses together, and there are a number of leadership changes and then I think the absence of leadership over the last sort of 18 months. And that's being addressed by bringing the health care businesses back into line with the kind of core agencies. So GHG is being in line with Wunderman, Wunderman Thompson; Ogilvy Healthcare -- or Ogilvy CommonHealth backed with Ogilvy; and Sudler & Hennessey into VMLY&R Health. And I think that should help those businesses with strong leadership and a greater breadth of resource. So I think it's a mix of client reductions. And if I look at the numbers, the biggest mix is actually more reductions in spend or loss of assignments than its loss of overall clients, if you like. So I'd say just more general pressure on the business than a specific client loss.

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Michael Brian Nathanson, MoffettNathanson LLC - Founding Partner & Senior Research Analyst [4]

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And then interestingly, we would -- I would say most people would assume that conventional wisdom would be that media buying and planning would be under pressure. But you didn't call that out as a major source of revenue softness, right? So it's not maybe...

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

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Globally or with North America.

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Michael Brian Nathanson, MoffettNathanson LLC - Founding Partner & Senior Research Analyst [6]

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In North America?

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Mark Read, WPP plc - CEO & Executive Director [7]

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So I'd say that our media planning and buying business in North America is relatively stronger. But I'd say -- I would hope that we could improve the performance of our media planning and buying business in North America overall. So I'd say we have a -- we have the strength in the overall business in North America, and there are some specific parts that can be addressed. And it's a mixture of both of those things.

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Michael Brian Nathanson, MoffettNathanson LLC - Founding Partner & Senior Research Analyst [8]

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Okay. And then lastly, any update from -- on Kantar and progress there?

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

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Andrew, why don't you...

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Andrew Grant Balfour Scott, WPP plc - COO [10]

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Yes. So Mike, we're sort of virtually at the end of the preparation, intending to launch the process imminently. So that's kind of third or fourth week in March. We're still focused on a sort of second quarter resolution to the process if all goes to plan. So that's the overall timing.

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Michael Brian Nathanson, MoffettNathanson LLC - Founding Partner & Senior Research Analyst [11]

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Okay. And there's no change in the selling a piece of it versus the 100% of Kantar.

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Andrew Grant Balfour Scott, WPP plc - COO [12]

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Yes, our best-case scenario would be that we think for various reasons, it would be interesting to keep a significant minority stake in the business, so in the 30% to 40% range.

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Operator [13]

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Your next question comes from the line of Dan Salmon from BMO Capital Markets.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [14]

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Maybe, Mark, there's been a lot of focus, obviously, on the CPG vertical for some time now, came up again at one of your competitors this quarter. I'd love to ask a little bit more about a vertical that's been showing growth across the industry a little bit more in technology. What are you seeing in trends across your clients? Are you benefiting from growth there in that vertical specifically? And then second, just we saw reports about Walmart pulling its business from Triad. Would just be interested -- I know that's not a big business, but would be interested on a quick little update on that. And then maybe lastly, just to expand upon Michael's question on Kantar, just where you think you are in just sort of broader strategic review of assets, things like the Comscore stake, things like that. Is there still more work to go there? And I know it's a baseball expression, but maybe what inning we're in and just an update there would be great.

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

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Yes. I think on the client mix, I think each of the major companies has a slightly different client mix and a slightly different pattern of business, geographically and by client. I think we have a very broad mix of CPG clients. But even within that, I'd say performances differ. Some, I'd say, have gone -- some have gone through an element of restructuring and are starting to grow. Some continue to put pressure on us. Some are -- I wouldn't say just starting, but some are a little bit further behind. So I think you really -- you have to really look at it client by client, and it's hard to generalize. So I think that the Kraft Heinz news at the end of last week is a reminder to all of us of the value of investing in growth. On technology, I mean, you're right. We are seeing double-digit revenue gains on a number of our technology clients, and it will be good to have a stronger technology and even stronger technology portfolio across our business. We do have a number of technology clients, so Google, one of our top -- I think top 5 clients now. So I'd say that, again, there you see the patterns that you would expect to see given the revenue growth that those companies are enjoying, the competitive position that they're in. And it's interesting how many of them are going back to so-called traditional media, TV and outdoor. I think you can't move in California I understand without seeing a billboard for Netflix. On Triad, I think that -- we had an issue with eBay shortly after we acquired it. And then we've been working with Walmart on their desire to move the business in-house since toward the end of last year. And I understand their decision. It's really related to -- not that we haven't done a good job. I think we've done a very good job at Walmart. It's really related to this being a more strategically important part of their business, particularly in the context of Amazon, who have a very large advertising business. And I think we're working with them on the best way to support them in growing that business in the future and transitioning our expertise or transitioning our work -- let's say, transitioning our work to them and how we can work on the rest of the Triad business. I do think that those sort of single site rep businesses are always vulnerable to a decision by a client to bring ad sales in-house. So it's really an ad sales business, which is somewhat out of the ad buying business that WPP has traditionally been in. Kantar, Andrew, why don't you...

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Andrew Grant Balfour Scott, WPP plc - COO [16]

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So on -- I mean, in terms of the major global networks, it's only Kantar where our focus is, and there's no plans -- there are no plans relating to any of the other global businesses. As we outlined -- as we've outlined in the presentation, our focus is -- outside of Kantar is on sort of investment portfolio, our portfolio of associates and on subsidiaries, but only to the extent of kind of simplification and tidying up underperforming subsidiaries. So really, in terms of -- we've outlined our -- and as part of our capital strategy, our plans that the -- any acquisition spend would be at least offset by a disposal program. And I think where we'll be focused -- and we talked about GBP 200 million of acquisition spend per annum and GBP 200 million of disposals to offset that. I think where our focus will be is on the associate and investment portfolio, which, as of December '18, has sort of value of GBP 1.46 billion. It's around GBP 800 million in the associates and about GBP 670 million in the investments. And really, that's where -- like as we focused in 2018, our focus in 2019 will be on what are the right opportunities where we've had a good return or we've had -- where the right opportunity is to realize value where appropriate in that portfolio.

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Operator [17]

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(Operator Instructions) And your next question comes from the line of Tim Nollen from Macquarie.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [18]

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Three, I think, short-ish questions, please. First, on the phasing of the account losses from last year and the status of accounts in review right now. I think I understand that the revenue impact is heaviest in the first half. I guess it does continue into the second half, though. And I think you said in your press release this morning that the accounts in review have stabilized. I wonder if you could just provide a bit more color on the phasing of the revenues and the status of any accounts currently. Secondly, similarly, a phasing question about your restructuring. I think you have a slide in there, you said you had good progress on your reorganizational restructuring. But since I missed the comments this morning in London, if you could just give a bit more color around what can be done there. And then lastly, geographically, if you could please comment on China and the U.K. specifically. Looks like China is positive now, and I just wonder if you can tell us about the state of the market there. And then you, of course, being so close to what's going to happen there in a month with Brexit, what the status of the U.K. market is.

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

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Okay. So why don't I take the first two, and Paul can talk to China and the U.K. I think on the phasing of the account losses, I mean, I think we've said we expect the impact to be 1.5% for the year. I think it's a little bit more -- the impact, really, given the period of time when we lost the business and the time it takes to move the accounts is really for the whole year. But I'd say when we look at our budgets, they're a little bit more second half weighted than they are first half weighted. So we can't really break down those exactly for the year, but I think we've seen more impact in the first half than the second half. There's just too many moving pieces, and it's not even now entirely clear when some of them will take effect. They could shift things around. So I think broadly speaking, if you look where analysts are in terms of the first half, second half phasing, I don't think we'd violently disagree with the conclusions that people have come to. On the organizational structure, I think that we have addressed the major sort of network mergers that we wanted to take place to bring the creative and digital closer together. There's a number of other sort of smaller simplification that we've done on health care or in other areas that we're doing. And I think that we'll just continue to work through evolving the organizational structure to be simpler and more integrated and with fewer moving parts. So that, I think, is something that we'll work through over the course of 2019. Part of it is going to be how we increase in the organized -- in a more coherent fashion at a country level is something that Andrew is working with me on so that we can bring our experience to bear in particular markets. But I think at a global network level, we're really -- with the major mergers, we're really sort of through those now. Paul, do you want to talk about -- comment on China and the U.K.?

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Paul W. G. Richardson, WPP plc - CFO & Executive Director [20]

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Yes. So I think you see the patterns generally. Obviously, we had a weak 2017, which we kind of went through with you at the time and said it's slightly misrepresentative of how strong the fundamental business is because, actually, we were being held back by one of our own businesses in market research for a couple of years, which is a focus-based group that wasn't performing well, which we have actually remedied from internal solution. And with that, we've seen very good growth for most of the businesses across the board in China this year, albeit with a slight slowdown in the final quarter. And again, you sort of got the numbers that go through it. Next year looks encouraging. It's low single-digit growth. The good news is it's actually good growth across all 3 categories. And just to reiterate, so where we slowed down the most in the fourth quarter was our non-media, non-market research, non-advertising business, i.e. the other businesses that are present in China. We're seeing solid sort of low-digit growth across all disciplines in China for next year, but it's not the sort of high single-digit, double-digit rates we sometimes experience. So I think it continues to do well. It's a very good business for us. It's a large business. It's a high-margin business or a stable margin business, and it's strong. So that I have less worry about. U.K., obviously, is a bit more around the political environment here. The fourth quarter, slight disappointment, I guess, in the run rate of minus 2.7% did compare to a strong last year in '17, which is plus 4.8% and a very strong fourth quarter last year, which is 9%. So that is a little bit sort of one of the reasons why fourth quarter this year was negative. But I think we are reasonably cautious about the outlook in the U.K. for 2019. And I think after 3 relatively strong years in the U.K., we do seem to be in a more stable cautious environment. And I think also the uncertainty around Brexit and everything else, it pays to be cautious and take that approach to '19.

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Operator [21]

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There are no further questions at this time. Please continue.

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Mark Read, WPP plc - CEO & Executive Director [22]

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Okay. Well, thanks, everyone. Thanks for your questions, and thanks for listening. And hopefully, we'll see you soon. Thanks very much.

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Operator [23]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.