WPP plc (WPP) Earnings Call Transcript & Summary

Good afternoon to you all, and welcome to WPP's 2022 Annual General Meeting. I am Roberto Quarta, Chairman of WPP. I'm delighted to welcome shareholders, both virtually and in person at our offices today. Now we believe it is important to offer a range of options to shareholders to be able to access and participate in this meeting. And as always, we welcome your feedback on the experience. It's now just after 2:00 p.m., and I can confirm that a quorum is present, and I declare our Annual General Meeting open. Let me now turn to the business of the meeting. But before I do that, I'd like to introduce my fellow Board members, the majority of whom are physically present with us today. Turning to my immediate right, we have our CEO, Mark Read; next to him, our CFO, John Rogers; and to his right, Sandrine Dufour, Chair of our Audit Committee. To my immediate left, we have our Company Secretary, Balbir Kelly-Bisla; next to her, our Senior Independent Director, Nicole Seligman; and next to Nicole is Jasmine Whitbread, Chair of our Compensation Committee; and next to Jasmine, we have Keith Weed, Chair of our Sustainability Committee. Behind me and starting from my right to left, we have Non-Executive Director, Jacques Aigrain; followed by Cindy Rose. And next to Cindy, we have Tom Ilube. And next to Tom is Angela Ahrendts. And next to Angela, we have Dr. Ya-Qin Zhang; followed by Simon Dingemans, who joined the Board early this year in January. Unfortunately, Tarek Farahat was unable to join us in person today, but has joined the meeting virtually. Sally Susman, who is retiring from the Board at the end of this meeting, was also unable to join us today. Now before we proceed with the formal business of the meeting, I would like to make a few comments and to share my reflections on 2021 and ask Mark then to present an update on our business performance. So let me start with the Board. As we set out in the annual report and notice of the AGM, Jacques Aigrain and Sally Susman will not be standing for reelection at this meeting, having reached their 9-year tenure on the Board. On behalf of the Board and personally, I'd like to take the opportunity to acknowledge and to thank Jacques and Sally for their significant contribution to WPP and service to your Board. During 2021, we continued our proactive review of Board membership. And in January of this year, we announced the appointment of Simon Dingemans as a Non-Executive Director. And we're all very delighted to welcome Simon to WPP. His insights from a varied and distinguished career combining both operational and financial experience, including proven listed company experience, will be invaluable to the Board. His appointment will ensure that we continue to have the expertise, diversity and experience required to support the transformation and success of WPP. But before we turn to our performance in 2021, I would like to address events at the beginning of the year. I think it is fair to say that the world has once again changed in ways that we could not have anticipated. The invasion of Ukraine has, of course, had a devastating impact on our 200 people based in the country. And those who remain there and those who have been forced to leave have faced appalling circumstances with extraordinary resilience and bravery. The response of our people in the region and worldwide has been truly inspiring. And Mark will talk more about that and share in his presentation some of the actions that we've taken to support our colleagues in Ukraine, alongside our wider response to the crisis. Now moving on to our financial performance in 2021. WPP had a strong year, demonstrating both its enduring strength and its capacity to innovate against the backdrop of the COVID pandemic. Our financial performance over the year reflects the talent and broad expertise of our people, the durability of our client relationship and the resilience of WPP's business model and the long-term sustainability of the company. It also reflects the success of the strategy first announced in December 2018, which has set a clear vision and purpose for the company, modernized its offers to our clients, reinvigorated its culture and simplified the structure and indeed returned WPP to growth. Now we remain on track to deliver on our medium-term financial targets. And our dividend policy continues to be to grow the dividend annually and to pay out approximately 40% of headline earnings per share. Now the scale and breadth of our client and partner relationships, our presence in more than 100 countries and our understanding of consumer behavior globally means that WPP is in the privileged position of being directly and uniquely connected to many of the trends, issues and organizations shaping our world, including the pressing issues that we face today as a society. The Board and the leadership team are firmly committed to the ESG agenda. In April 2021, WPP announced an industry-leading commitment to achieve net-zero carbon emission across our value chain by 2030, supported by science-based targets. And in June, we hosted our first-ever ESG Investor Event. As the world leader in the buying of advertising space and production of advertising content, WPP has the potential to make a tangible difference, and I am pleased with our progress and leadership position in this area. Now while we still have much work to do, the company also made progress in diversity, equity, inclusion or DE&I. And for example, we were pleased to be ranked in the top 10 for gender representation among senior leaders and at Board level in the FTSE Women Leaders Review and to have exceeded the Parker Review target on ethnic diversity. Now during another uncertain year, our people once again demonstrated their commitment, talent and creativity. As well as meeting the challenges imposed by the pandemic and exceeding the expectations of our clients, they continue to address broader societal issues through their work and participation in company initiatives. Particularly in this current environment, to be able to continue to attract, retain and develop talented people, we need to be a place that offers modern, flexible working environments, a company that listens to its employees, enables career growth and fosters an inclusive culture that celebrates diversity and difference. Our people strategy is a primary area of focus in 2022, both for the Board and the executive team. And ultimately, it is the company's employees who will help build better futures for all our stakeholders. And on behalf of the Board, I want to thank each and every one of them. I now would like to finish by reiterating the significant progress the company has made on its strategy over the last year and since it was first outlined in 2018. The Board and management team remain fully committed to delivering long-term value creation for our shareholders, and the company's performance in 2021 gives us great confidence in its future. And now I will hand over to Mark.

Thank you. Thank you very much, Roberto. And it's good to see everyone back here in person and for our shareholders to have a chance to see us directly in person and those of you joining us on the video. So I'd like to give you a brief review of our performance in both '21 and 2022, the first quarter in '22. And first of all, please bear in mind the important caveats in this cautionary statement. But before I update you on the company's performance, I'd just like to take a moment to discuss our response to the events in Ukraine and in Russia. I think our main priority has been to support and look after our 200 people in Ukraine in the face of this horrific attack on their country. From the outset, we've been working with the local leadership to provide financial and other forms of support as well as job opportunities for our Ukrainian employees who are determined to work. As Roberto has said, we've all been inspired by the response by our people to this crisis. But first and foremost, the incredible courage of our colleagues in Ukraine and also the generosity of our people in the wider region and around the world in helping them. I was in Poland at the end of March and I spent a lot of time talking to our people. A number of them were Ukrainians, having been forced to flee their homes in Ukraine, had found a very warm welcome from their colleagues in Warsaw. I've been equally impressed by the spontaneous support from our people in other neighboring countries, who drove to the border to pick up people, provide them with accommodation and essential goods and services and really came together as one WPP family to look after their colleagues. As a company, we've been partnering with the UNHCR, the United Nations refugee agency, to run an emergency fundraising appeal. More than 4,000 of our 109,000 people around the world donated to that, raising over $1.3 million, which included our match funding with the broader public appeal run by our agency, Blue State, raising more than $150 million. It's fantastic to be able to make some small contribution to what's going on in Ukraine. Now on the 4th of March, we announced our decision to exit the Russian market, and I'm pleased to say that we've now sold all of those businesses back to the management. Our 1,400 colleagues in Russia have been dedicated and valued members of WPP for many years, and we regret the decision -- the impact of our decision on them. We are pleased to be able to find a solution that provides continuity for them, albeit outside of WPP's ownership. Now I'll cover 2021 in a little bit more detail. I think in summary, it's fair to say that 2021 was an outstanding year for WPP. We delivered very strong growth, driven by demand for digital services, e-commerce and technology. Our like-for-like revenues less pass-through metric, which is our key -- less pass-through costs, which is our key metric, grew 12.1%. That was more than double our initial expectations and is also ahead of pre-pandemic levels of 2019 by 2.9%. I'm really pleased with the broad-based nature of our growth with strong performances across all our businesses, sectors, integrated agencies, PR and specialist communications as well as across our major geographies. We also performed very strongly in new business, winning more than $8.7 billion of net new business in 2021, exceeding the $4.4 billion we achieved in the previous year. The standout moments were our extensive new partnership with the Coca-Cola Company, the expansion of our work with Google and the renewal of our long-standing relationship with Unilever. And these examples demonstrate the value that 3 of the world's leading marketing companies have placed in WPP and the services which we offer. But we continue as well to receive very high scores from our clients for customer satisfaction. We achieved strong recognition of our creativity and effectiveness, ranking us the most awarded company at the Cannes Lions Festival, and we ranked #1 across all 3 WARC rankings: creativity, media and effectiveness. Meanwhile, we continue to enhance our capabilities through further strategic combinations and new acquisitions to better serve our clients and simplify our offer. I'll say a little bit more about those later. And lastly, for our shareholders, we've returned over GBP 1 billion in 2021 through buybacks and higher dividend payments. So overall, we started 2022 well and continue to see strong demand for our service from our clients. However, we remain very mindful of the current uncertainties in the broader macroeconomic environment. But as we demonstrated through COVID, we're able to respond to the changing market conditions and client needs in a very agile way. During 2021, we invested to continue the modernization of our offer, spending around GBP 400 million on acquisitions during the year. We joint funded the acquisition of Numerator, a tech-driven market intelligence company within Kantar, resulting in a 40% equity stake. We acquired DTI in Brazil, which is around 600 software engineers and technologists, focused on application development, a new area for WPP. We bought Satalia, a leading AI solution; and invested in Made Thought, a very strong U.K.-based design business. We also acquired Cloud Commerce, a platform to help us invest more behind our Commerce as a Service space. We merged Finsbury Glover Hering and Sard Verbinnen, creating a leading global strategic communications firm, a real world leader. And we bought Choreograph, our global data products and technology company, which has been instrumental in many of our recent client wins, including Coca-Cola. Turning now to our purpose, which as Roberto said, is very important to the Board, to the executive leadership of the company, and particularly, to our people. Our purpose is to use the power of creativity to build better futures for our people, planet, clients and communities. And in each of these areas, we've made good progress during 2021. For our people, we launched Career Explorer, a new platform that empowers our people to move seamlessly to available open roles, wherever they are within the company. We nurture diverse, early career talent through our NextGen Leaders learning series, attracting 1,400 participants from around the world. And we continue to push for greater gender diversity. As Roberto touched, we ranked 8th in the FTSE 100 in gender representation among senior leaders and at Board level in the FTSE 100 Women Leaders review. And we continued to narrow our U.K. gender pay gap. At the beginning of 2022, WPP was named in the Bloomberg Gender-Equality Index for the fourth successive year. We're also acknowledged as one of the Best Places to Work for LGBTQ+ Equality in the Corporate Equality Index. Now moving to the planet. In 2021, as Roberto had mentioned, we've made an industry-leading commitment to reduce carbon emissions through running our operations in net zero by 2025 and across our broader supply chain or Scope 3 by 2030, which includes media buying and production. No one else in our sector has made such a wide-ranging or impactful commitment. And last year, WPP became one of a handful of companies globally to receive an A- rating on its environmental impact from the CDP. For clients, we've helped them communicate their stories, delivered higher customer satisfaction scores and supported them as they deliver their own purpose. And finally, we've consistently been helping our communities. For example, in partnership with the World Health Organization Foundation, we created and delivered the $5 vaccine campaign, encouraging people across the globe to spend the price of a cup of coffee on a donation to fund COVID-19 vaccines for lower-income countries. We also donated 10,000 vaccines on behalf of our clients, matched every vaccine bought by our people. We also made our first investments through our racial equity program, part of our wider antiracism commitments that we announced in June 2020. And I think this is a good point to move from telling you about our purpose to showing you. So please sit back and enjoy the short film of our work. [Presentation]

So you can see there many of the examples of the work that we do that brings to life the benefits of WPP to our people, the planet, our clients and our communities. And I think that type of work makes me proud to lead WPP, and I think it makes our people proud to work for our company. Now as a result of our good performance, we've been able to invest significantly in our business in 2021, particularly in our data and technology platforms while also investing in our talent, people, IT and our campuses. At the same time, we've maintained a strong balance sheet and returned over GBP 1 billion to shareholders in the form of dividends and share buybacks. This includes the proposed 18.7p final dividend, which together with the interim dividend paid in November 2021, is a full year dividend of 31.2p per share, representing a 30% growth year-on-year. So moving on to 2022. I think we've had a strong start to the year, continuing our momentum from last year with 9.5% growth in the first quarter. We had good growth in all of our business lines, including our global integrated agencies, particularly GroupM, up 12.8% in a strong media market and also strong growth in our public relations activities and specialist agencies. Against this background, we remain confident about investing more in our client offer to drive further growth. And you can see here some of the actions that we're taking. We simplified GroupM with the merger of MediaCom and Essence, delivering more integrated and broader solution to our clients. We announced the launch of Everymile, our dedicated direct-to-consumer commerce business, and The Metaverse Foundry, which brings together 700 experts in this area in Hogarth. We created the GroupM premium marketplace to bring more transparency and control to the premium digital media. And we continue to invest in our growth platform, with Xaxis and Finecast. We're investing in technology, innovation and product development and bringing those businesses together to provide scale where it's needed and support our agency brands inside [indiscernible]. Finally, we made 1 acquisition in the quarter, the purchase of Village Marketing, a New York-based influencer marketing specialist, around 150 people, which enhances our social media capabilities. In summary, I'd say a very good quarter, which despite the broader uncertainties in the world today, which we're all aware, enables us to update our growth guidance for the year to 5.5% to 6.5%. So if I were to summarize where we are, I'd say 2021 was a very strong year. It went well beyond a cyclical recovery. I see our strategy is delivering results for our people, our clients and our shareholders. We entered 2022 well positioned in high-growth sectors and markets. Importantly, we now have the financial strength to invest in growth through talent and capabilities, both organically and through M&A while also rewarding our shareholders today. Our transformation program gives us significant potential for further efficiency and reinvestment for growth and is critical to us. And we'll continue to make further progress on our purposeful agenda. So with that, I'll now hand back to Roberto.

Okay. Thank you, Mark. So moving on to the formal business of our Annual General Meeting. You have all received a copy of the notice of the meeting dated 31st of March 2022, which fully explains all agenda items for today's meeting. And as usual, I will take the notice of the meeting as read. But before dealing with the items of business contained in the notice, we'd like to address any questions which are relevant to the business of the meeting. Now for those shareholders joining virtually, if you've not already submitted a question in advance and would like to ask a question, you may submit questions via the live webcast. [Operator Instructions] For those shareholders in the room who would like to ask a question, please raise your hand so that a microphone can be brought to you. I would ask that you please state your name before proceeding with your question. May I remind you that only registered shareholders, duly authorized representatives or registered proxies may ask a question. Every effort will be made to give shareholders the opportunity to ask a question if they wish to do so. So let's start with a question from shareholders in the room, and I see that someone already has a microphone.

Yes. It's [ Scott Wallace, ] shareholder [indiscernible]. I thank you for giving us the opportunity to come to your lovely building. I don't know if we actually own this building, but would it not be useful to relocate in [ hot desk? ] The other question is addressed to Dr. Zhang over there. The BBC said there was a brutal treatment of a sizable minority of Uyghurs in China. And should we be withdrawing from China, Russia and selling to the local businessmen?

Roberto?

Yes.

Look, I think that we made the decision to pull out of Russia because operating there was not consistent with our values as a company. We weren't able to buy media, represent clients. And the work that we did was effectively funding Russian government propaganda and television. I think on balance, as we look at China, we feel we are able to operate there in ways that are consistent with our values, the work -- the clients we work with, the type of work that we do and the work we place on media. And so we've made a decision to have -- we would not be making a decision to pull out of the market -- made a decision to stay there. That's how we think about that.

I just -- your first point, I was trying to understand the first point you were making about...

About whether we owned the building.

Whether what? We own this building?

Yes.

We own the building. We lease the building, and I'm pleased to say that we're pretty busy. We've made very good progress getting people back into the office. And I think it's fair to say that they enjoy coming into this building. One of the reasons that they're here.

And as you've entered, you've probably seen on the wall, plaque on the walls, we've consolidated a number of agencies that, before, each and every one of them had their own space.

I mean, presumably, we won't be here next year because there'll be a sizable number of shareholders that'll turn up. So thank you for the opportunity to come and see where you work.

Thank you.

Thank you.

Yes, gentlemen in the front there on the left-hand side.

My name is [ Denexian ], I'm an individual shareholder. My question is rising inflation normally always leads to rising interest rates, which invariably leads to a recession. And during a recession, advertising budgets and marketing budgets are the first ones to be cut every time. So in view of these forthcoming problems, it seems that our response is to invest more in campuses, to make more acquisitions, to build foundries in the Metaverse, where it seems it might have been better to sort of batten down the hatches. So I don't know, if you could please clarify the way the Board is viewing this situation.

Look, I think that our clients come to us for innovation and new ideas and fresh thinking because we've made those investments in technology. I think it's fair to say we're as acutely aware of the financial outlook. We had a strong, I'd say, first quarter. We're acutely aware of the financial outlook. And we're being very careful about the areas where we invest. But I think we have to have strong investment in areas of the future to ensure that we remain relevant, and the offer remains very competitive to our clients. So it's a balance. And I think at the moment, we've got the balance in the right place.

I can also add that we had our Board meeting yesterday and again this morning before this afternoon's AGM and that was very much a topic of discussion. And the rest assured that this Board and management team will be very vigilant in terms of seeing how this -- the situation develops. As you know, there's a great deal of uncertainty here around the world today for all the factors who are well known, and we don't know necessarily where we're going to land. In many ways, sort of reminds you when the pandemic first started, we didn't know how long. But as you can see, the company rode out that pandemic very well and came back extremely strong. And we would -- we're looking at and have contingency plans that we're putting in place in the event the situation were to deteriorate further. Any more questions from the room? Gentleman at the top.

[ Frank Baseby ], private shareholder. Now my understanding of the company is that you're basically a people business and asset light. You don't -- so moving out of Russia shouldn't really be too expensive for you. I mean, it's not as though you're leaving a great manufacturing business behind which you spent millions on. And so any idea of the cost it's going to cost you to actually get rid of the business? Plus the Ukraine, obviously, that you're suffering. But hopefully, you can recover that in time.

John?

Yes, well, just to talk about the costs of exiting Russia, we anticipate that the cost will be in the order of $40 million recognized outside of our headline profit. But that, to date, will be the cost of exiting those businesses that we were operating previously in that geography.

Any other questions from the floor? No, I don't see any. All right. Any questions from the virtual?

No questions from the webcast, Chairman.

Okay, thank you. We'll wait another few seconds. Okay. So it looks like we have no further questions. So now let's move on to the voting.

The resolutions are set out in the notice of the meeting. And now I formally propose that each of the resolutions are put to the vote of the meeting. [Voting]

Resolutions 1 through 20 are proposed as ordinary resolutions and require a simple majority of votes to be passed. Resolutions 21 to 23 are proposed as special resolutions and require at least 75% of the votes to be cast in favor. As stated in the notice, all resolutions will be determined by way of a poll rather than a show of hands. And I now direct the company registrars, Computershare Investor Services, to act as scrutineers in relationship to that poll. Only the votes of shareholders present today or shareholders who have submitted their proxy votes in accordance with the details set out on the proxy form will be taken into account. Now when you came into the meeting, you were each given a poll card with all those resolutions that have been proposed at the Annual General Meeting. If you are a shareholder or a proxy for a shareholder, including a proxy for the U.S. depository with respect to shares represented by ADRs, please complete that card and sign it where indicated. In the case of a corporate shareholder, the card should be completed by its authorized representative present at this meeting or by proxy. The number of shares being voted should be entered into the poll card, and all details will be checked against the company's share register. Now finally, I should mention that those shareholders present here today who have already lodged proxies and do not wish to change their vote need not vote on the poll, unless they wish to do so. Place your completed poll card in the ballot boxes located by the doors as you leave the meeting. So I want to thank all those shareholders who took time to submit their proxy votes in advance of the meeting. Now proxy votes submitted already as of today in respect of which I, as the Chair of the meeting, have been appointed as proxy and have completed a poll card in respect of such votes, amounting to approximate average of 900 million votes per resolution, representing over 80% of the company's issued share capital in respect of each resolution. And based on the proxy votes received, I can tell you that the provisional results show that all resolutions have been carried. The poll will close in 10 minutes, and the results will be released by a stock exchange announcement and will be available on our website as soon as practically possible. So now that concludes the formal business of our meeting and this AGM. And there, on behalf of the Board, I'd like to thank shareholders for your participation today and all our stakeholders for their continued support. Refreshments will now be served in the Sunset area, which is just at the top of the stairs and to your right. Thank you very much. End of meeting.