Good day and welcome to the WPP 2019 Interim Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to the WPP, CEO Mark Read. Please go ahead, sir..

Thank you very much and good morning everyone. I'm here in Sea Containers House in London with Paul Richardson and Andrew Scott and our IR team. I think, I'll just start by really just outlining some key points from today's presentation. As you know, we don't go through the whole presentation today that's available on the webcast.

This is really to give people in the U.S. opportunities to ask questions.

So in terms of a summary at the beginning of the call, we set out a 3-year plan on December 11, last year to return WPP to growth in line with this pace, where 8 months into that three year plan I think the first 6 months of the year so good in a strategic progress against the plan.

It remains the case that our business this year was heavily impacted by client losses that took place really in it from the beginning of last year through until September and we said when we gave you our guidance for the full year of minus 1.5% to minus 2%, they impact the first half, more than the second half and we continue to see believe that's the case.

So we saw a first of revenues pass-through costs of minus 2% in the first half, which is made up of minus 2.8 in the first quarter, minus 1.4 in the second quarter. So a slightly better result in the second quarter than the first and slightly better than we were expecting at the beginning of the year.

We do have encouraging areas of growth in our Media businesses group and have performed extremely well.

We continue to see strong growth from our technology clients that make up in substantial part of our portfolio, and some of the faster growing economies in some choppiness in China, but Brazil and India where we have large businesses have done well. The U.S.

is our key area of focus is the part of the business most impacted by the client losses we had last year. And I'd just remind everybody that we last saw growth in the U.S. in the first quarter of 2016. So some three years ago.

So the issues there are really long-standing and we have started to take or have taken the initiatives that we believe we need in terms of bringing in new leadership, re-organizing or repositioning the company through the creation of VMLY&R, Wunderman Thompson, BCW, and we're starting to see a positive impact of those mergers and the business in the U.S.

declined by minus 8.8% in the first quarter, minus 5.4% in the second quarter. We remain truly a major focus for us. I think more reassuringly we've seen much stronger client retention. We haven't really had a significant client loss since around October of last year.

So for some sort of 7 or 8 months I think the new business environment generally has been a little bit subdued. But we have had a steady stream of new business wins and retentions. We retain the L'Oreal our business in the U.K.

with expanded scope, we won the eBay business, we have some business in Europe, we won the eBay business globally, and the Ogilvy awarded the Instagram creative business. So I think we have good progress in terms of plans new business wins. One of the key elements of our strategy has been really to find a financial and strategic partner for Kantar.

And Andrew really let that process which will complete by the end of the year. The transaction with Bain Capital where WPP will retain 40% interest in Kantar and will continue to accelerate its technological transformation.

You know the benefit is it further simplifies WPP's portfolio and a significant impact on our leverage, when we will hit once the transaction completes our leverage target for 2020 one year ahead of the plan we set out in December.

If Talent acquisition remains a key priority bringing new people into the group, promoting people from within and developing them and I think we've made more progress there and there will be continued to be more progress. So, that leaves us for the full year with our guidance unchanged at minus 1.5% to minus 2%.

I think that we had some questions about changing that. I think we feel that we should leave it where it is for now, they're off sort of the macro challenges that are well known, but I think really at this point we have greater confidence in making our full year targets.

We haven't seen any impact of the macro challenges on numbers to-date but I'd say we remain rightly cautious. So sort of summary of where we are, and I think from that perhaps we could take questions, operator..

[Operator Instructions] The first question comes from the line of Dan Solomon from BMO Capital. Please ask your question..

Good afternoon to everyone, overseas, and good morning to everyone on our side of the Atlantic. Mark, on your comments this morning, you spent a lot of time on the importance of technology and in particular, being a beneficiary of the major platforms growth. And as an ad spending vertical I think you noted that it was up 16%.

My question is, do you think that that can accelerate further. There's been a lot of focus on the big players in the space and they're arguably could still facing some of the biggest challenges to their consumer brand perceptions are launching a lot of new products. And you highlighted some of your biggest players in your top 20 clients.

How does that trend look down through the top 200? Are you seeing competitive reactions from mid-to-smaller consumer technology companies as well, and is that strength sort of broad-based? And then really what I'm kind of getting to is over the mid to long-term, do you think consumer technologies at a point where it should be considered amongst the most important advertising verticals level usually reserved for FMCGs and Auto’s mostly?.

Well, I think we focused on it because I think we need to be in the business of growing WPP for the next five years to 10 years, maybe even 20 years.

And if you look at consumer technology, Thomas explained to me, the other day it's a $4 trillion business, 10 years ago it was $400 billion business, in 20 year’s time, it will be a $40 trillion business. So I think we want to position ourselves amongst the sectors that will continue to grow for the long-term in a secular way.

So I think on Zacks 16%, I don't think we'll see that this site accelerate further, but I do think that you know, part of our job is to position ourselves with the faster growing clients and the faster growing parts of the economy.

And therefore, our work with those companies is very important to us and we may well see, when I think three, four, five of the world's largest companies are technology companies, it wouldn't surprise you that they may also be the world's largest advertisers. Google is WPP's third largest client today.

So we already have surpassed a number of the FMCG clients. So I think that we are seeing a shift in economic power and shift in spending and we want to be on the right side of that trend..

Great. Maybe just one quick follow-up. I also saw in your remarks you mentioned Zacks` was up 16%.

Can you just elaborate a little bit on the strength there?.

So I think broadly speaking it strength really outside of the U.S. more than inside the U.S. But I think even in the U.S., the business is done -- has done well, but we continue to deploy it around the world and it continues to get traction with clients, particularly outside the U.S. who are attracted frankly to its performance..

Thank you. Our next question comes from the line of Michael Nathanson from MoffettNathanson. Please ask your question..

Mark, I might go in the opposite place where Dan went. I want to ask you about FMCGs and if you think about it, that was probably the beginning of a major change for you. There is a lot of pressure on your business model.

So I want to, what do you see in your conversations –new conversations from those CMOs, is there more price, power within the model, is it 2G good results. So are you getting any sense or may there was a shun in their business prospects. Maybe you’ll just to reemphasize on marketing spend and so anything on that will be helpful.

And then to Paul, you’ve been CFO for long time, you have changed secularly the segment's changed, was breaking on these segments what was the rationale for that and what is that I imagine probably its going differently based on looking at it maybe preempting the data differently. So those are my questions..

I think Mark, you could repeat those questions but let me tackle the FMCG point first. I think that as you say there has been, FMCG companies do face disruption in the media channels and in the way that we expect consumers in the retail channel, the way they sell to the consumers and through sort of new kind of upstart brand.

So I think as a sector quite frankly like most of the economy they have been disrupted and obviously they’ve reacted I think in part by examining the spend in a more critical fashion and they are powered by shifting their spend into digital channels quite aggressively.

What we have to do is move our business to serve them in those new channels and we had I'd say some success in that and we expect to have more success in the future. I think we see probably a more mix passion across the FMCG companies and I think that there's more of them coming out, let's say, coming out the other side of some of those shifts.

But I think that those shifts sort of have persisted, and we've seen a fair amount in actually consumer care as well as FMCG. So if we look at it, we made a comment in the statement about a small number of our larger clients have had an impact on the revenue.

I'd say that's a prospect FMCG and consumer health and to some extent pharma clients where they’re really restructuring their spend more aggressively than others.

Now there are some clients coming out the other side and one client in particular, looking to invest much more in creativity, put creativity that much hard – much more of the heart of their model. So I think there are some moves in-house some services. I think in the long run the trend in business is not in-house.

But out house and we have to respond in a more effectively to that and help understand what it is that clients need and provide those services as WPP which I believe that we can do. So, I think it's the headline would be a mixed performance, but maybe some more coming out the other side of the shift they want to do.

Paul?.

So Michael let me I mean – a bit of history. As I have been around sort of a while, I mean we started off with these four categories of marketing expenditure and they held pretty well really until I suppose 2000 when we started to see digital emerge as its own independent category – will be fairly modestly.

And what's really happened this made us change this approach its two things, one there have been some genuine business combinations of what one would call traditional advertising agencies and traditional digital businesses such as VMLY&R and such as Wunderman Thompson of the Thomson.

And we have operationally merge the business, we have co-located the offices. We've merged the management teams and actually we are reporting say in London, just one P&L for the combined business and we are doing so – but now across the world for these two businesses.

So what was becoming clear is if we were to stick with the old sectors there is going to be too much approximation of the performance of one in the other factor. So and our approach has been to I suppose equip the businesses to grow.

And this way, I think it's unfortunate that we've ended up with one quite significant sector, the global integrated agencies, but it is how the businesses have evolved so Ogilvy that traditionally was spread across 3 sectors in our portfolio. So they had a healthcare business, they had a direct business.

So that would be one business specialized businesses, they had a PR business in public relations, public affairs and they had the advertising business and Ogilvy. Obviously now on the, the one Ogilvy approach it is impossible for us to estimate the individual performances of those disciplines within the Ogilvy portfolio.

So it's only right and proper that we put it into one of the factors. And really with the acceleration of these changes, such as the VMLY&R and Wunderman Thompson it really was time to make that change plus, our management here at the center are now looking at the businesses and managing the P&L.

So really it was just a function of this restructuring the acceleration how these businesses came together made a practical necessity to make the change to the sectors..

Our next question comes from the line of [Richard Eary]. Please ask your question..

Thanks just to, sort of follow up from just additional questions from answering this morning. Just the first one Paul, just on – in terms of as we look at the cash flow for second half – second half of last year was obviously impacted by the restructuring costs that came through.

I'm just trying to think about, where we are looking at cash flow and therefore net debt numbers for the full year and saying is there is any sort of puts and takes because it seems as though that net debt numbers were 4.2 billion, 4.3 billion for the first half, there obviously could be a sizable the de-gearing effect in the second half.

I'm just wondering if I'm missing anything on tool on that. That's the sort of first question. And then just the second question, just to pick apart sort of some of the negatives that were in the first – second quarter results such as China, GTB and also maybe the drag from P&G.

Would I be right, if I was to take those 3 negatives out and suggest that organic growth would actually be close to flat, if we adjusted for those 3 effects?.

Can't do this, next one..

Well, I don't really want to go into kind of individual client amount I don't really think it's the right thing to do. So, but I'd say directionally you could be can't go quite that far. And it’s probably more of an impact in the U.S. I don't think it will be just about in the U.S. we’ll get back to flat.

So it's sort of a little bit academic in your analysis really..

No, it's just some discharge sort of look at obviously, what was the drag in the second quarter, still and as we extrapolate that going through seem that GTB comes out with the numbers as we go into next year.

The drag from P&G may get less worse and your comments about China, hopefully getting an improvement in the second half with July up as we start those cycle out of those phase we can start to see some basically positive segue to put?.

I think, no I think I mean, one way to look about it is, I think we said back in December the drag from client losses would be about minus 1.5% that we saw was being kind of I mean that we won’t win business we won’t lose business.

Because the drag from really what we ended up within September was about minus 1.5 and that's relatively consistent during the year. I'd say that remains true. So you can sort of do with that – you can sort of do the math with that. We'll have to see where we end up next year in terms of underlying spend.

I think that's probably one way of thinking about it..

Okay, thanks..

Just around the second question. Yeah, just on cash I mean you're right, I mean there is some cash to be spent in 2019 from the restructuring. We mentioned on the day or Andrew mentioned the day that the total commitment is around GBP 300 million of spend and I think we identified last year that we had – actually only spent 50 last year.

We have budgeted a certain amount in our cash flow projections around the further GBP125 million this year, some of it spent in the first half some of it spent in the second half.

That really just doesn't make no material impact to the average net debt number it’s in our forecast, it’s one of many variables along with the CapEx and other commitments we have, which is the degree to fluctuate depending on performance.

The averages we give you I'd say so standing back on net debt – I think its two trends one, we are a seasonal business and our strongest quarter is the fourth quarter. And we do have strong cash generation in the second half and particular quarter four, which leads to a balance sheet debt on a point-to-point basis, which is lower.

The average which we give you obviously is over by the 6, 9 or 12-month period. The year-to-date performance which is after the six-month being down GBP 700 million is going to sort of let's say slowdown because the vast bulk of the disposals have happened in the last 12 months.

So the average is going to continue to decline, but not at the same rate it has declined in the first half of this year. So I do have a number in front of me that sort of shows an average net debt for the full year.

It is lower than it is at the half year point, which is a combination of both the seasonal factors and the full year impact of some of the disposal that happened late last year. So it's pretty much it is fairly modelable, it's never instant failure.

So we are looking for improvements in our gearing ratio at the end of the year based on what we see today on the average net debt and the earnings..

There are no further questions..

Okay, well thank you very much everybody for listening and we'll speak to you all again in a couple of months and not before..

Hopefully..

All right, thank you..

Okay, thank you..

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen, you may now disconnect. Have a nice day..