Good day and welcome to the WPP 2019 Third Quarter Trading Update Webcast and Conference Call. Today's conference is being recorded. .

At this time, I would like to turn the conference over to WPP CEO, Mark Read. Please go ahead, sir. .

Thank you very much, and good morning, everyone. I'm here in London with Paul Richardson, our CFO; and Andrew Scott, our COO; and other members of the team. So thank you for joining us. Briefly, make sure people have read the safe harbor statement before we start. .

I think as before, in these quarterly updates, so the first quarter and the third quarter update, we do a call, and for the U.S., we really wanted to offer you an opportunity to ask questions directly. But we take it that you will have had the opportunity to listen to the presentation before and not want to have to go through that again. .

I think given the Kantar transaction, we will take a little bit longer to explain what's going on, and Paul will add some comments to mine before we turn to the Q&A. .

I think that we saw in the quarter a slightly better performance in Q3, actually slightly better performance than we had expected with like-for-like revenue up 0.7% including Kantar compared to, I think, consensus of negative 0.6%, and 0.5% excluding Kantar.

The results were really strong across both the geographic and functional areas of the company. And in the U.S., which is the key metric that I think you have been focusing on and we have been focusing on, the revenue performance improved. I wouldn't say we are happy with it being negative, but it improved from minus 5.9% in Q2 to minus 3.5% in Q3.

The U.K. held at 3.1% growth. And mainland China, which we had some discussion about in the second quarter, was really flat, effectively flat with minus 0.4% after declining by more than 10% in the second quarter. .

Mondelez creatively, eBay from a media perspective. And importantly, we retained our business at Wunderman Thompson post-merger with the U.S. Marine Corps. And an integrated WPP team, including The&Partnership, were successful in retaining and expanding the relationship we have with Centrica. .

Yesterday, the Kantar transaction was approved by 99.98% of the shareholders that voted. And so from now on, we are showing Kantar really as an asset held for sale, not just for this quarter but for the year. Paul will explain that. .

I think just to touch briefly on the guidance for the year ahead of the sort of inevitable questions before Paul's commentary. And we are holding our guidance for the year of minus 1.5% to 2% including and excluding Kantar. I think to some extent, the right way to look at that is excluding Kantar.

And those of you that can do the maths will see that we implied a negative quarter in Q4, which is what we are expecting, which is why despite the fact that we've had a good quarter 3, we're not declaring victory at this point. We really focused on our 2021 targets.

And also, the guidance that we gave you at the end of last year that the second half would be slightly stronger than the first half, which I think is the way to think about it. We really were trying to set ourselves up for a better year in 2020. .

So I think that's what I'll say sort of [ formally ] start. Paul will just take you through to some commentary on the numbers and the impact of Kantar. .

Thanks, Mark. So I'm actually going to refer to one of the pages in the deck if it's helpful to turn to. It's Page 6, which goes through the revenue costs, so the revenue less pass-through costs by quarter for the year.

So obviously, in the first half, before any deal had been signed, it was signed on July 12, we reported our business including the Kantar operations as normal. And just to give you the numbers, to remind you of the numbers that we did report, so in the first quarter, our like-for-like decline was minus 2.8%.

Within that, Kantar grew in quarter 1 by plus 0.3%. So on a -- what we call continuing operations basis, the first quarter will be restated to minus 3.3%. Likewise, in -- on a like-for-like basis, it's not a restatement, just really giving you the updated like-for-like number having to exclude Kantar for that quarter.

Likewise, in the second quarter, still under full ownership, we reported minus 1.4% like-for-like. Kantar grew again in the second quarter by plus 0.5%. And when you adjust for that, excluding Kantar, on a continuing operations basis, our second quarter decline was 1.7%.

So the half year stage, whilst we were still fully owning Kantar, we disclosed a like-for-like decline in revenues in the first half of minus 2%. Kantar in the first half had grown by 0.4%. So excluding Kantar from the first half, the decline was minus 2.5%. .

With the deal being announced on the 12th of July, not only do we have to take the Kantar numbers out formally for quarter 3 and quarter 4, we actually have to reverse out or take the numbers out for the whole year.

So in one sense, the way we'll end up reporting the full year will be on the continuing operations basis, i.e., the global integrated agencies, the public relations business and the specialist agencies, excluding Kantar in total for the full year.

So we are fortunate in being able to at least continue to disclose both sets of growth rates whilst the asset is held for sale. And in quarter 3, Kantar had a strong quarter. So the group, including Kantar, in quarter 3 grew by 0.7%. Kantar itself grew by 1.6%. So the group excluding Kantar, i.e., on a continuing basis, grew 1.5%.

And just to finalize, so on a year-to-date basis, I'm going to call the new basis or the continuing operations basis, excluding the Kantar operations, the decline for the year-to-date is minus 1.5%. And including Kantar for the 9 months, the year-to-date decline will be 1.1%. .

So it's really all I really wanted to say. A lot of the charts have reflected the group on the new basis of continuing operations.

We have disclosed to you in the quarter both the revenues of the continuing operations, i.e., for the third quarter, the continuing operations have revenue less sales (sic) [ revenue less pass-through costs ] of GBP 2.7 billion, and Kantar had a revenue less pass-through costs of GBP 492 million, making a total of GBP 3.2 billion.

We've also done exactly the same analysis for each of the 9 months. So you are going to have a pretty good idea of how the group is performing with and without Kantar for the full 12 months. So they're on a sort of statutory basis. We have to disclose the revenues on a continuing basis only. .

So that's really all I wanted to say. Obviously, at the year-end, we'll have to adjust the balance sheet as well assuming the sale takes place, and we'll have a net assets calculation to disclose on the discontinued operations, i.e., the assets held for sale. So we'll come more to that in February.

There'll be quite a few pro forma adjustments we want to give you about what the interest impact would be, what the share count impact would be once the sale is concluded. So that was really just a summary of how the Kantar transaction will affect this year's numbers. .

So with that, operator, maybe you would like to throw the lines open for questions. .

[Operator Instructions] We will now take our first question from Tim Nollen from Macquarie. .

I have one question, which maybe has a couple other bits embedded in it. It's about your North America growth getting much, much better in the third quarter, still negative. But I'm wondering if you could help explain why it has gotten to a better spot and what it will take to get that to a positive spot going forward.

I think the gist of the problem the last couple of years has been more on the creative than the media side. I think the FMCG sector has weighed on that in particular. I'm wondering if you can just discuss maybe broadly what it is that's getting better, what you're doing that has improved things and what it takes to get to positive.

Is it new business wins? Is it FMCG spending turning positive on a net basis, maybe that already has, and so forth? Kind of a broad question, but I think those all tie into that factor. .

Yes, okay. Let me try and give you some context. Look, I think the first thing to remember is that we last had a quarter of positive growth in the U.S. first quarter 2016. So this is sort of not a -- it's an issue that goes back some time despite growth in the media business. I think the issues were in actually a large number of parts in the business.

I think a year ago, only 1 of our 10 biggest businesses in the U.S. was actually growing a year ago. And so we had a fairly broad set of challenges, different but a fairly broad set of challenges across the business. .

I think you are right that one sense was in the so-called creative agencies, particularly the traditional advertising parts of the business where I think a mix of -- client mix, we did have a very heavy bias towards FMCG.

And I think an historic underinvestment in the creative capability had made those businesses less strong than they needed to be, and they suffered revenue pressure. I think the second challenge was that our health care businesses, the sort of combination of our health care businesses into a single entity had not been successful.

And we have now realigned them back with, in the main, the historic agencies with which they were aligned. So Sudler & Hennessey with VMLY&R Health, Healthworld or OgilvyHealth are back into Ogilvy and GHG into Wunderman Thompson. I think the third challenge was really within Kantar and the inside business, which had come under pressure.

And then we had some specific issues in our shopper marketing business and in the event space, I think, as have others. .

I think what has turned -- as you say, the media business, I say, has always been strong in North America. Perhaps not as strong as other parts of the world but has been a good business in North America but not strong enough to compensate for the challenges in the creative business. .

I think the improvement that we've seen in the quarter this year has been a couple of things.

I think the -- one is the client losses really started to impact the creative agencies towards the end of last year and into this year, will sort of run through the quarter this year but will be hit the first half, the last quarter of last year, the first half of this year, towards the end of this year a bit heavier than the other places.

So that's part of it. I think -- so that's the bit, I guess, you can say we have no control over. So through better retention and lack of review, that is in our control. .

I think secondly, bringing the health care businesses back in line with the agencies has sort of stemmed the challenges there, and it will take some time to turn it around. But I think we're seeing some of the challenges in our health care business -- seeing a stronger health care offer and greater success in health care reviews. .

I think a little bit that you see in the performance of Kantar overall, I think clients, particularly packaged goods clients, feel to some extent that they've cut their -- sort of their research budgets maybe too far or certainly as far as they would like, as with the CEO of one of our larger clients Friday last week, who said he felt that they had cut market research too much and that they'd like to invest more, a question whether they could afford to invest more, but they wanted to invest more.

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So I think that you're seeing that flow through the business, and -- but it will take some time. And we did lay out a 3-year plan to growth. As I said on the earlier call, in simplistic terms, it's kind of 9, 6, 3, in Q1, Q2, Q3. And I wouldn't draw the conclusion that Q4 is 0. That's not what we're expecting.

But as you think that we talked in terms of halves, and we expect -- we do expect the second half to be better than the first half. .

We will now take our next question from Dan Salmon from BMO Capital Markets. .

Mark, I had a couple of questions and wanted to go into one sort of specific area, not a region but a client vertical and just FMCGs. Any update on sort of current trends is great, but what I was hoping you could expand on a little bit more is sort of your longer-term view on that group of clients. Obviously, their industry is changing a lot.

We can talk about benefits of ZBB or otherwise, but what I'm thinking about more is how their business switches to more direct-to-consumer, how maybe trade promotion and vendor strategies start to look like online ads a little bit more.

So either through your media operations or e-commerce services, do you look at that client base and say that there's a real opportunity to actually change the way that you engage with them a little bit more and really become a deeper strategic partner as they sort of really go through some fundamental changes to their business? I'd love to hear just a little bit more about that.

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And then just one quick follow-up. Obviously, you announced Paul's moving on previously, and you announced John Rogers joining as CFO. Would just love to -- I'm sure your investors in Europe are a bit more familiar with him than those of us over here.

So just maybe a little bit background what you're looking forward to having him join the team in January. .

Okay. So on the packaged goods example, I think if we'd gone back a couple of years, then we'd have found the preponderance of our packaged goods clients spend was under pressure. And if you look to Q3 this year, the sort of 9 packaged goods clients in our top 30 clients, 6 grew in Q3 and 3 declined.

So I think you can see a little bit like you're saying, a shift towards a more expansive -- sort of more expansive budgets. I mean I thought actually you'd come to help us. I thought you've put it very well. What we're trying to do is shift the offer to work with those clients with a broader offer so -- and to position ourselves to grow.

So why did we -- if you think about the offer, if historically, we've been in the communications business, and today, we set up our office communications, experience, commerce and technology, the sort of the 3 new parts of our offer that -- to be fair, we've invested in for the last 10 years.

But to sort of call them out and focus on them more, I think those 3 areas are where we're going to be looking to grow with packaged goods clients. And we may be under more pressure in the communications area, certainly the traditional analog advertising parts of the communications area. .

But I think that our job, if we run the company properly, is to position ourselves in the faster-growing parts of the business. And I think that we can be a partner that helps those clients, we -- and should be a partner that helps those clients market in a modern way.

I mean the challenge we face, frankly, is not just that our business is being disrupted but that our clients' businesses are being disrupted. And when clients' businesses are being disrupted, they look to do things in different ways and look for new answers from us, and we have to provide it to them.

And the packaged goods clients face the disruption of mass media, they face the disruption of mass retail, and then they face the disruption of mass production with more organic and natural brands. So there's a lot of -- they've got a lot of things on their plate.

And I think while they focus from a ZBB person on -- focus on the cost line, we need to help them to grow the top line. So that's what I would like them to do. .

Turning to John, we hope he will start with us at the end of January. And Paul is sitting with me, says to spare his blushes and not to compare the 2 of them in any way. But I think what John will bring us is experience of an industry, a good head and a cooperative team player, with good experience of the finance side of a large complex business.

He has more international experience than you would sort of see at first glance. And he has strong experience in the technology area, most recently from his time at Sainsbury's Argos. And I'm pleased to have someone with sort of broader CEO experience coming into the CFO role as well.

So we're clear, we have a lot of transformation on our side to do in shared services, in technology. And I think that's the experience that we're looking for him to bring for the next 5 to 10 years. So that, I think, is -- we know you'll get a chance to meet him as soon as we can make that happen. .

We will now take our next question from Michael Nathanson from MoffettNathanson. .

Mark, in answering Tim's question and now getting Kantar separated out, I wonder, how do you think about future M&A? Is there a new set of companies that maybe you have to bolt on to as you move away from traditional analog communication skills? So how do you think about the next 3 to 5 years on M&A? And to that, are there more divestments that you can make, maybe on a small scale, to maybe trim the portfolio the way some of your peers are doing in the U.S.?.

No, I don't think we'll go as far as some of our peers. I think there's a little bit of tidying up that we can do. And -- but primarily, that will focus on the investment side of the business. I think that when we look then at acquisitions, depending on the outlook, I think our focus will be really more kind of bolt-on than major acquisitions.

And we're looking at those areas of experience, commerce and technology, to build out our capability. To some extent, I'd say we are in a very strong position in the U.K. and a fairly strong position in the U.S., but there are still opportunities for us in Latin America and Asia in those areas. .

And -- but I think the -- our real focus is going to be on acquisitions not for scale. We have 3 PR firms in the country. We don't need to have a fourth PR firm. It's really about differentiating our offer and buying capabilities that can add functionality and scale across the world. So that's very much the focus.

I think data and analytics is an important area. E-commerce is an important area. And really aligning -- we are, depending on the year, Adobe's largest or single largest partner. I believe we're the largest sales force partner in the marketing cloud area. We're one of Google's largest technology partners as well.

So I think part of it will be investing behind those relationships, which are already very strong but I think can be stronger. .

Okay.

And then can I just ask about the fourth quarter guide?.

Yes. .

Again, we've always heard about lumpiness about project revenue from some of your competitors.

How is the visibility in the fourth quarter? Is there just a lot of late quarter bookings that it's hard to get a handle on, and thus, the improvements you've seen, you just want to hold back until you get the fourth quarter under your belt? Is that why you're assuming more of a cautious view in the fourth quarter?.

Well, I think in part, we didn't want to get into the process of giving quarterly forecasts. I think secondly, we gave our guidance for the year. And if we had needed to change it materially, then we would have changed it.

I think that to some extent, we focus half by half, and at least we gave you guidance half by half, but I think you can do the maths. You'll see that, as I said in the beginning, we are -- if we grew in the third quarter, we are expecting a decline in the fourth quarter. To some extent, the comparators make things a bit tougher in the fourth quarter.

I don't think there's a particular sort of lumpiness. I just think forecasting to the precision we require, not to disappoint you, 1 quarter out, particularly when it's the fourth quarter, is not a straightforward thing to do, and I think so we'll prefer to stay where we are.

It's the point in time when I think people are naturally -- our people correctly are naturally conservative. And so last year, I'd say we outperformed our expectations a little bit in the fourth quarter. We'll see where we get to in this fourth quarter. .

We will now take our next question from Doug Arthur from Huber Research. .

I'm just looking at mainland China and Germany. It's been sort of up and down in 2019, but it looks like both markets improved here in the third quarter.

Perhaps it's impossible to say, but are you -- do you feel like you're on the right trajectory in both markets? I know there were some account issues in Germany, but it looks better, and I'm just wondering about your confidence of some kind of a continuation of that. .

Yes. And look, I think the second quarter was, in both -- ironically, in both cases, the second quarter 2019 year-on-year was a little bit the implications of the second quarter of 2018. We had a big transaction, M&A transaction in Germany in the second quarter of 2018. We had a strong performance in our media business in China in 2018.

So that made the comparators tougher, and I think that we explained to you we expected to get more back to normal business. So the challenges we face giving you guidance for 1 quarter are magnified when you go down to an individual country level, particularly when we have sort of businesses like financial M&A. .

So I think -- I feel that we're on, in both companies, broadly speaking, the right trajectory, though I would like in both companies to do better. I think if we were being tough on ourselves, we should grow more strongly in China.

And I think we have a good business in Germany actually, a number of strong creative agencies in Germany, thjnk and Scholz & Friends and Hirschen, and then some -- a little bit disconnected actually from the broader global agencies. And we have opportunities there. So I think I'd say in both markets, we're -- we should be doing better. .

There are no further questions at this time. I would now hand the call over to Mark Read for further closing remarks. .

All right. Well, thank you all very much for listening. And expect to see you soon over the next few weeks in the run-up to Christmas. Thanks very much. .

Thank you. .

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..