Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2024 Interim Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions] Today's conference is being recorded. I would now like to hand over to WPP CEO, Mr. Mark Read. Please go ahead, sir.

Thank you, and good morning, everyone, and welcome to WPP's 2024 interim results. I'm Mark Read. I'm here with Joanne Wilson, our CFO. We're going to take you through our results for the first six months of the year and then take your questions. We have been extremely busy in the first half of this year against the plan we outlined at the CMD, and I'm very pleased with the strategic progress we've made since then. I'm confident it's going to make us more competitive as an organization in the market. It is absolutely my focus and that of our leadership team. We're going to market with fewer, stronger brands. We're embracing AI and new technology at great speed and leading the way in how we're deploying this and how we work and how we better serve our clients. We're delivering excellent work to our clients. And at the same time, we are making the company strategy more efficient to improve our profitability. So while we have undoubtedly more work to do, we've made a lot of progress, as I'm sure you'll see with the FGS transaction. We are very focused on value creation for our shareholders. So before we start, please read the important cautionary statement on Page 2. And on Page 3, turning to the agenda for the call. I'll go through the financial and strategic highlights, the details of the FGS transaction before handing over to Joanne who'll take you through the financial performance. I'll then cover the significant strategic progress we've made in the last 6 months, and we can get then straight into questions. Turning to Page 5 and our financial performance. We did see net sales decline by 1% for the first half of the year, really, due to a combination of factors. We…

Thank you, Mark, and good morning, everyone. So let me take you through some more detail on our financial results for the first half of 2024, and I'll start on Slide 9. Revenue less pass-through costs fell 3.6% on a reported basis. This included 2.9 percentage point headwind from FX due to sterling strengthening relative to last year and a 0.3 percentage point contribution from acquisitions. This is lower than prior years as we have not made any sizable acquisitions since acquiring the influencer agency Goat in -- obviously, in the early part of 2023. On a like-for-like basis, revenue less pass-through costs declined 1% with like-for-like in the second quarter down 0.5%, a sequential improvement versus Q1 like-for-like, which was down 1.6%. Turning to the headline income stated on Slide 10. Overall revenue less pass-through costs was GBP5.6 billion, a decrease of 3.6% year-on-year, with headline operating profit of GBP646 million, down 3% year-on-year. This resulted in reported operating profit margin of 11.5%, which reflects an adverse FX impact on margin of 10 basis points as a result of the strengthening of sterling. On a constant currency basis, our margin improved 10 basis points year-on-year. We continue to take a disciplined approach to cost management, balanced against investing in our proposition and absorbing the macro pressures impacting our smaller agencies and our overall business performance in China. Moving down the P&L. Income from associates is GBP7 million higher. And again, in compliance with IAS 28, this excludes any contribution from Kantar due to nil carrying value on our balance sheet. Net finance costs increased 6.3% year-on-year, and that was primarily due to the impact of refinancing bonds at higher rates, reflecting the tax rate of 28% for the half, which is in line with our guidance for the full…

Thanks very much, Joanne. So turning to our strategic progress. And on Page 23, back in January, we set out these four strategic objectives. And I'm pleased to say that we've made very good progress against each of them. While it's too early to see the impact of these actions directly in our top line performance, we do see them in our cost base and margin. On Page 24, our first objective is to lead through AI, data and technology, and we are seeing widespread AI adoption across WPP. While we believe that we're still in the early days of AI's impact, we have seen enough to be sure that AI is going to be fundamental to WPP's future as well as that of our clients. I'd like to spend that by looking at how as changing WPP is changing first how we work; secondly, how we produce work for clients; and lastly, the type of work that we produce, the different types of consumer experiences that we can create with AI. On Page 25, we are seeing rapid adoption in terms of how we work. We're seeing rapid adoption of AI use cases across WPP, and we're increasingly deploying our creative studio and media studio across the organization. WPP Open's Creative Studio was the first part of our new AI platform launch. It allows us to get to better creative ideas more quickly. For instance, it allowed clients to do research for briefs and write better briefs more quickly. It gives creative help in bringing our ideas to life and content instantaneously. We've added new functionality in the past six months, such as the ability to create Instagram post for any brand anywhere with just a few clicks. WPP Open's Media Studio is also being deployed into clients, integrating…

So you can see there some of the ways in which we're using AI to bring our ideas to life and some of the way some of our people are embracing this technology. Now we're not just using AI to make us work more efficiently, we're using it to create new and different consumer experiences. We're producing a lot of work across the company that's doing this. There are many examples we can choose, and these are three of them. I work with Mars, I work with The Coca-Cola Company and I work with Mondelez, three of our clients who are probably among the most forward-looking in embracing AI. And I thought we'd like to see how we're doing that work with Mars and their Sneaker brand. So could we play the second video, please? [Presentation]

All right. So some of the more entertaining ways one can use AI. On Page 30, turning to creative transformation and the core of our business. We're very proud of our performance at Cannes. We continue to believe that creativity is critical to our business and to our clients. It's what makes clients come to WPP. And while awards are not a goal in themselves, they are a reflection of the policy of the work that we do for clients. And study after study is showing between creative success and the effectiveness of work and the ROI for clients. So we're very pleased that Ogilvy were Network of the Year, and also that WPP was ranked at the Creative Company of the Year at Cannes this year. But more importantly, on Page 31, is the recognition of the work for our clients. Coca-Cola was Brand of the Year less than 3 years into their partnership with WPP. And Unilever, our longstanding client, was Market of the Year with much of the work that they are recognized for coming from WPP agencies. As I said at the start of the call, this has been a busy year on multiple fronts. And while the teams are busy delivering world-class work for clients, we've also been tackling three major structural initiatives across WPP. And together, these three businesses represent about 70% of our net sales. I'd like to give you some color on what these businesses are and what they're doing. Starting with VML on Page 32. So we launched VML in January this year. We are today the world's largest creative agency with a compelling and broad offer and the depth of resources to serve global clients across brand experience, customer experience and commerce. Jon Cook and Mel Edwards and the team…

Thank you, sir. [Operator Instructions] Our first question comes from Laura Metayer of Morgan Stanley. Laura, your line is now open.

Hi, Mike. Hi, Jon. Two questions for me, please. The first one is on the phasing of growth for H2. Could you please give us a little bit of color on what your expectations are? And then secondly, could you please talk about China? Obviously, you've seen a weak performance in Q2. Could you tell us a bit more about the actions you're taking there to improve performance and to win new business?

Right. Thanks, Laura. Joanne, do you want to talk about sort of the phasing of growth and expectations in China, and I will add anything on the end of that?

Yes, of course. Thanks, Laura. So just in terms of the phasing of Q3 and Q4, now we don't guide by quarters, but I'll just give you a sense of some of the things that we're seeing and what we've built into our plan. So obviously, the macro pressure still exists. We've seen that through Q2. We'd expect that to continue into Q3. And at the upper end of our guidance, we would expect to probably see those perhaps lift somewhere in Q4 versus what we have seen more recently in China. We saw a deterioration in Q2. I'm expecting the second half to remain very challenging in China. I expect for the full year that we will be down double digits. To what extent we'll be done will be determined by what we see in the macro really in that market. So I'd expect Q3 and Q4 to be fairly balanced from a China perspective. And then, of course, other levers to consider is our comps. So our comps obviously get easier in the second half. Q3 is our softest comp. It was minus 0.6% last year. And then on the tech sector, we talked about the stabilization that we have seen in Q2. And we would expect to see a movement into growth in the second half. But for the full year, we are expecting to be broadly neutral in tech, but those comps get easier again in Q3 and in Q4, a little bit harder than Q3. So those are some of the dynamics if you think about the phasing.

I think on China, we have made a number of changes to the business. I don't think we expect to see it improving in 2024. But I think we probably expect to see distribution stabilizing somewhat in 2025. We've appointed a new President of WPP in China from inside the business and a new leadership team at GroupM. I think that team are working in a more integrated way. One of the actually interesting changes we're making, we're moving -- we've opened a facility in Wuxi, which is a city of about two hours from Shanghai, enable us to produce work in lower-cost locations. So we're moving to sort of more dynamic and flexible model. I would say the team in China are very focused on a competitive offer, but we have had our challenges in the market. And I would say that they're compounded by the Western multi-natural nature of much of our client base and the presence we have in luxury and FMCG and automotive in that market as well.

Thank you.

Thank you. Our next question comes from Adam Berlin of UBS. Adam, your line is opened.

Hi. Good morning, everyone. Yes, Adam Berlin from UBS. I also got three questions. The first question is, can you give us an update on some of the key reviews, I think, of Unilever, Sky, Amazon? Mark, I think in your opening comments, you mentioned something about a win in Amazon media. I'm not sure that was related to the Colgate account or there's something that I missed around Amazon. Could you just clarify what you meant by that Amazon media comment you made in the opening remarks? Second question is, can you just talk a little bit through what the moving parts are in H2 to be at either the top or the bottom end of the guidance range you've now provided for the full year? And thirdly, do you still expect adjusted free cash flow to be flat year-on-year? I think it was down about GBP90 million in H1. And if so, can you just talk about why you catch up in H2? What are the drivers of that catch-up?

So in terms of the reviews, we are very focused on all three of those. You're correct that the Amazon review was Colgate appointing us to help manage their Amazon spend, but it's an important win nonetheless. I don't really, at this point, have anything to add, Adam. Unfortunately, we're -- part of those reviews and the client decisions will come when the client's decisions will come. I think we've done an excellent job in all three, but they're very competitive situations. Joanne, do you want to talk to H2 and the cash flow?

Yes, let me talk to the moving parts. So the minus 1% to flat implies in H2 will be at minus 1% at the bottom end and plus 1% at the top end. The bottom end is really in line with our H1 like-for-like, but of course, we have the softer comps. So it seems a more challenging performance if you look at it on a two year basis. And really, the drivers of that would be macro and China. So a continued challenging macro environment, which is weighing particularly on our -- some of our smaller agencies and that project-related work. And then, of course, on China, we've seen a significant deterioration in Q2 and really that continuing through the second half. The other variable within that is the tech recovery. So we are assuming that we continue to see a sequential improvement in tech through Q3 and Q4. But at the bottom end, that recovery would remain and would be quite slow. And then at the top end, Adam, we really assumes a step-up. And again, that reflects the comps. It would assume that we see some of those macro pressures starting to lift a little bit at the back end of the year. And then on China, as I said, we are expecting a challenging year in both scenarios, so double-digit decline, but perhaps a lower extend, and that tech recovery contributes to growth in a more meaningful way. And then on the -- sorry. Can you just repeat your question on cash? So it was around the adjusted free cash flow.

Yes. Just the question was I think you've guided in the past for free cash flow to be broadly flat this year with last year overall. And obviously, it was down about GBP90 million, I think, in the first half. So I'm just wondering what makes it catch up in the second half.

Yes. So obviously, we'll have a little bit more profit coming through in the second half. We are still holding our guidance to flat on adjusted free cash flow. That's still the expectation. And working capital has been an outflow to the full year. We're expecting that to be flat. We've seen some of those restructuring costs taken in the first half, but we're very much in line with our guidance on this for the second half. And our cash and tax, everything is very much in line. So it will really just be phased in between the first half and the second half.

Can I just follow up? Are you factoring in, in the downside case, at the bottom end of the guidance, any kind of slowdown in the U.S. macro environment?

Yes. I think what we have seen, as we've talked about, I'm encouraged by the improved performance that we saw in Q2. Much of that for us was tech-driven, and we expect that to continue. So that will continue to support U.S. growth in the second half. We've also seen good growth across CPG, auto, telcos and as well as a stabilization in tech. Our H2 forecast, as you'd expect, is balanced and it really reflects just the macro and the election uncertainty that we're seeing. And of course, we'll continue to have headwinds from some of those client losses in the U.S. So I would say, yes, they're taken into account in our forecast, but it's a balanced forecast for the second half.

Thank you so much

Thank you. Our next question comes from Julien Roch of Barclays. Julien, your line is now open.

Yes. Good morning. First one on China, I'm trying to gauge much of your full year organic downgrade is linked to China. So by how much -- can you give us an indication of how much you downgrade your organic expectation for China in the second half? Second question, two-part on Kantar. You sold FGS for a very good price. So what about Kantar and also progress on the disposal of Kantar Media? And lastly, any other assets that might not be core? So you still have a stake in Imagina, I believe. What else in the associate line or in the fully consolidated entities you could crystallize value from? Thank you.

Yes. Thanks, Julien. So look, I think sort of starting at the end, there are a number of investments that we would have, that we would look at. I don't think there's anything in the fully consolidated line. But if I look at the investments in associates, there are a number of things that are at the right price we would look at. That includes Kantar. I think on Kantar, we're very aligned with Bain Capital, and the likely outcome is we will exit it at the site the same time as them. We do view it as a financial investment, and we'd exit at the same time as them. We hope for an attractive evaluation as FGS Global. I think on Kantar Media, it is not really best to comment on this call on that. So I think we're sort of focused on sort of the balance sheet and the realization, I'd say, where we can and continue to be. Joanne, do you want to tackle the China question?

Yes. Julien, China in the first half, I talked about it being 120 basis point drag on GroupM's like-for-like. And for WPP overall, it was an 80 basis point drag in the first half. It was significant. I've talked about expectations for the second half to be double-digit decline. And therefore, it could be up to 80 basis points for the full year as well. It is really hard to think about it.

Okay. And then maybe, Mark, you said a number of investments that we have. Can you highlight what are your biggest investment that are noncore apart from Imagina?

I would -- I don't want to go through the list. I just think that they've been there, and we've continued to hold them under review. We've done a few over the years. We've sold our investment in Two Circles early this year. So I just think it's that sort of continuous process of review. And at the right time, we would look to continue to realize value from those balance sheet investments.

Great. Thank you.

Thank you. Our next question comes from Adrien de Saint Hilaire of Bank of America. Adrien, your line is now open.

Thank you. Good morning, everyone. I've got a few questions, please. So how much of the second half weakness do you think spills over into 2025, number one? And number two, you're doing well to keep the margin steady for 2024, despite the revenue shortfall. So perhaps, can you explain a bit what extra initiatives you've taken to keep the margin where they are, despite the revenue shortfall? And maybe related to this, I know it's a bit of a theoretical and early question. But if we assume that next year is another challenging year of low to no growth, would you still be in a position to keep the margins steady or even up versus 2024, again theoretically?

Joanne, do you want to tackle that?

Yes, yes. So let me talk to 2025. And of course, I'm going to say it's far too early to give guidance on 2025. But as we think about the 2024, we've had a number of headwinds. So we've talked about the 2023 client losses, which really only impact us this year. We've talked about China, and that has been a significant headwind in 2024. Tech, we think will be broadly neutral after being a big drag in 2023. And then we've talked as well about we're seeing a big impact on our smaller agencies and the macro. So some of those have dropped out, some will stabilize and even some may turn into a tailwind. I would expect some of them to turn into a tailwind in 2025. We've talked today about the strategic initiatives that we're undertaking, strengthening our offer of VML, Burson and GroupM, and those are all built around contributing to accelerated growth. And we're seeing very encouraging growth from our largest clients. So really, those are some of the moving parts, and we'll have to see where we exit 2024 before we can really give a better guidance on 2025. And then your second question was on margin in 2025 and how we're delivering this year. So what I'd say on margin this year is we are incredibly pleased with how the three teams are delivering those against their strategic initiatives. We are on target to deliver the annualized cost savings of GBP125 million. We'll actually see an accelerated saving in 2024. So previously, we talked about 40% to 50% in 2024. I think that will be closer to 60% this year, and that's really supporting -- getting structural cost saves and helping us progress the margin in a year where the top line is flat to slightly down. We've also -- as you will have seen in the first half, we've been very disciplined around cost actions on those agencies where we have seen a softer top line and more significant impacts. We have been quick to take headcount actions and really address the discretionary cost, which is some of the benefit of our high level of variable costs across the business. So really, those are the drivers of 2024, and it's definitely too early to talk about margin in 2025.

Thank you. [Operator Instructions] Our next question comes from Joe Thomas of HSBC. Joe, your line is now open.

Good morning. Thanks for taking the question. A couple, one of which follows on from the last question, actually, which is, how you're thinking about operational gearing in the business at the moment? Obviously, you brought forward the cost savings, but the -- for this year, but the margin guidance is unchanged. I'm just wondering what the interplay is. And also you talked about reduced -- I think you were talking about reducing bonuses or the bonus pool. And I wondered how persistent that could continue for or how persistent that could be. And then just turning to GroupM. I was interested in what you're saying, Mark, about the various measures that you have taken there. It would just be useful if you could just kind of go through them and identify what the issue was that you feel was there in GroupM and how these measures rectify what the problem was and hopefully drive growth in the future. Thank you.

Yes. Look, why don't I start with GroupM? I think we've had a -- we have not been as successful in winning new business in North America as we would like, and I think that's down to a number of factors. Some around leadership, probably more around the complexity of the old population, and there's a few -- there's quite a lot of noise in the background. Do you want to go on mute? I think other people will hear it. Quite a lot around -- some around leadership, quite a lot around the complexity of the structure that's not enabled us to get our best people in front of our biggest opportunities, and then some around our base and technology platform, which, because it was fragmented, was not always resonating with clients. I think over the last year, we've made a lot of progress. We have a new CEO, GroupM in North America. We've restructured, and we brought our new business team. We've integrated our technology and launched WPP Open Media Studio that's resonating. I think this made us much more competitive. So I think all of that brings us, let's say, to parity. I think we need to now demonstrate that success in the market and win new business. So I think there's a discussion to be had around the use of proprietary media. And I think there's a number of, I would describe them as, black box media models in the market that perhaps WPP has not offered. And I think some of those black boxes are not that transparent. I'm not sure in the long run that they're going to work in a market that's transparent like America. But we are looking at our proprietary media products and trying to -- and looking at how we can innovate to be more competitive. We do offer some proprietary media in the market in the U.S., but much less than a number of our peers. Joanne, do you want to get the other questions?

Yes. So just on -- well, let me talk with -- start with the bonus pool and the incentives. So what we've seen in the first half is incentives dropping year-on-year. That's both our annual incentives on our long-term incentive plan, and that's really mechanical, reflecting the performance in the first half. As I said today, I do expect us to rebuild the annual incentives in the full year. And so I think that's really phasing of delivery of the target for this year. To your question on the past few years of incentives, we have some very strong years on incentives and they came off a little bit last year, reflecting performance. And then in those agencies where we're seeing a more challenged performance, obviously, that means that those incentives are coming down again. So -- but as I said, I would expect it to be flat to slightly up for the full year. In terms of the operational gearing, look, we have a very high level of variable cost in our business, which means that we have quite a level of flexibility when we see the soft line deteriorating and to offset that in some markets that's easier to do than in others. In the first half of this year, how to think about it is in China and the smaller agencies, we've probably seen more of that impact from the soft top line and flow through to the bottom line, which has been a strain on the margin. But we're offsetting that, as you said, with the structural cost savings that we are seeing coming through -- start to come through in the first half, and we'll see more of those come through in H2. So good gearing, more challenging in smaller agencies and in China this year, but hopefully offset that by structural cost initiatives.

Thanks very much.

Our next question comes from Steve Liechti of Deutsche Numis. Steve, your line is now open.

Yes. Thank you. Steve Liechti from Deutsche Numis. Thanks for that. Three for me, please. First of all, just on FGS sale, can you just talk us through why you're not giving any money back to shareholders, no cash returns rather than paying down debt? I hear about your debt corridor, but just your thoughts there on even a partial return. Secondly, on the media business. Brian -- the Brian Lesser appointment, you kind of touched on it. But I wonder if you could flesh out that a bit more in terms of what he brings to the party and whether you think that perhaps you haven't done enough previously and he's a new catalyst there. And then lastly, on the tech side, just anything on green shoots visibility there? Obviously, there's been a lot of noise about the big tech companies spending a lot of money on AI but not getting that much on it. And does that mean that the products are not really coming through that you see? Just anything on the pipeline that you can see going forward there.

Yes. So on the proceeds of FGS, we're going to use them to reduce -- to pay down debt, and it will take our leverage for this year buying it in the middle of our range. And I think given that, it's right to sort of stay at that point. And we'll keep that under advisement as we go through this year and into next year. On Brian, he worked for WPP for 10 years. He came in through 24/7. He and I worked very closely on the creation of what was then the media innovation group and then Xaxis, and Xaxis was really the first proprietary media business run by agencies in our sector. He's -- he understands technology. He understands product. His last role at GroupM was running GroupM in North America. So he's very familiar with the organization. And the people in GroupM, though some people have changed, many people are still with us from when Brian run a business in North America. He went from there to run Xandr, which is the AT&T ad sales business, as he again brought together advertising, technology, media; and then most recently, InfoSum, which is really a data-driven technology business. So I think you can see in his background, he combines what GroupM needs. And that's certainly not to say that Christian didn't, but Brian brings expertise in product, expertise in technology, good relationships with clients, and he's a leader of a business. So I'm positive about the impact he'd had on the business. This is not about a single person, but I think he brings a lot of skills that we need. In terms of AI, I think we said in the statement, I think AI is still, I'd say -- I'd describe it as we can see the impact that it's having, but it's a little bit too early for a lot of the products to be used in finished work. And I'd say that's true across industry more broadly is through WPP. Now at a recent event with a number of CEOs, they are talking about -- many of them have individual ways of using AI in their business. I don't think it's fully scaled to its full potential, nor do we see a lot of consumer models that are driving widespread sort of revenue lines for technology companies. I think technology companies are being a little bit more cautious on investing, though we did win two or three weeks ago an assignment with one technology company to promote their AI services to consumers. So I think we are starting to see the market there. So thank you for your questions.

Our next question comes from Thomas Singlehurst of Citi. Tom, your line is now open.

Thank you. It's Tom here from Citi. Just a couple of questions, if that's okay. One is, Joanne, I think you mentioned the structural cost savings in the context of China. I just want to double and triple check that, that means that from here on in, you're going to be a bit tougher on the margin in China. Because I know that's been an area where you've tolerated a bit of drag sort of pending an upturn in the past. So a clarification on that would be great. And then the second question, on the sale of FGS, if we look back when FGS was created, I think you indicated that the margins for that asset were a lot higher than the peer group sort of -- or the segmental average, at least. Does the sale necessitate any change in the sort of medium-term margin guidance?

So just on the China question, Tom, and the structural cost savings, yes, absolutely, we look across all of our businesses in the markets to make sure that we are optimizing the P&L. And for China, what we have done this year is we have appointed a President of China, and he is working with all of the CEOs of the agencies to really optimize our talent and our proposition in that market. And as part of that, we are looking at our cost base. So we have taken headcount actions in China this year. And as I said, we have -- we are opening a hub in Wuxi, which will -- which is just outside of Shanghai, and that is intended to have a lower cost hub than what we have. And we'll continue to do that through the second half. China remains a strategically important market for us, and we are taking all of the actions that we need to. I think, as I said, it will continue to be tough this year. But I would hope that we would see some stabilization in 2025. And then in terms of FGS, the question was does it change our medium-term guidance, no, it doesn't. FGS was a great business. It was a fast-growing business, a good margin business. But overall, it's not a material impact for us, and very much still confident in delivering those medium-term targets that we set out in January.

That’s great. Thank you.

Thank you. We currently have no further questions at this time.

All right. Well, thank you very much, everybody, and thank you for your questions. As I said at the start of the call, it's been a busy first half to the year. And we took you through much of what's going on across the company. This can be a busy second half. There's a lot to go for in terms of new business to convert there. So we're very focused on. So thank you all for your questions, and we'll talk to you later.

This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.