WPP plc (WPP) Q4 2020 Earnings Call Transcript

WPP plc (WPP 1.26%)
Q4 2020 Earnings Call
Mar 11, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2020 preliminary results conference call and webcast. [Operator instructions] Today's conference is being recorded. And at this time, I would like to hand the conference over to the WPP CEO, Mr.

Mark Read. Please go ahead, sir.

Mark Read -- Chief Executive Officer

Thank you very much, and good morning to everybody that's listening to us from the United States, and welcome to our 2020 results presentation. I'm here in London with John Rogers, our CFO; and Peregrine Riviere, who heads our Investor Relations department. And as is customary, we're going to have a few brief opening remarks and then open up the floor to questions. You should look at the presentation that we made this morning, including the cautionary statement that was included within that presentation.

I think to start, it's now been actually exactly one year to the day since we asked everyone at WPP, some 100,000 people, to work from home, if they weren't working from home already. And it's been quite a year. But I think overall, a very productive year. We entered 2021 in a good place.

It's clearly been an amazing effort from our people who have looked after each other very well. We've had a great degree of support from our clients, and I'm very pleased with our client satisfaction scores and the new business that we've won. And actually, as a company, we've done a lot to help our communities to manage their way through COVID. Overall, I think that the performance we've described is resilient.

And we've made significant progress on our strategic goals, and we highlight some of the key themes that perhaps we can touch on in the Q&A. And the first is the sequential recovery in our business that we've seen since initial lockdown. The second quarter, we're down 15.1%, down 7.6% in the third quarter and 6.5% in the fourth quarter. So we have seen an improvement throughout the year in our relative net sales performance on last year.

We have got major parts of our business that were growing well for the year overall, indeed, in Q4. So CPG, tech, pharma are about 57% of WPP's business, and they have turned to us for help and advice during this period. We're seeing growing demand for commerce services. We're working with 76 of our top 100 clients in that area.

And that extends both to the work we do in helping them build websites, but also the work they do in digital media, where group revenues in commerce media grew by 43% and the overall shift of GroupM's digital billings by 3.8% -- billings mix over the year. Our new business performance has been excellent. We've led all the new business tables, and I think it's going to be a busy year in 2021 for new business with both opportunities and challenges for all of us in our industry. I talked about our people, and we have really had a fantastic effort from our people.

We focus a lot as a company on their well-being more, as you would expect, as the year has gone on. And I think everyone is keen to get back into our offices, if not five days a week, for at least a fair part of the week. We have had a great degree of success in attracting top talent into WPP over the last 12 months. I've talked to a few people: Rob Reilly, who joined as our chief creative officer; Andy Main as CEO of Ogilvy; Kirk McDonald, running GroupM in North America; Devika Bulchandani, who's running Ogilvy in New York, heading up their advertising business; and also, the work we're doing with Barry Waxman's Nerodia back in Proto, their new digital transformation consulting.

And I think talent is at the heart of our business. But we're really pleased to be able to attract top talent into WPP, but also to be able to invest in the talented people who already work for us inside the company. So the work we've done on the sort of the front end, if you like, the client-facing process has been supported by the work that John and our finance teams have done. We've really showed, I think, this very strong financial discipline throughout the year.

So despite our net sales being down 2.2%, we saw a 1.4% decline in our operating margin. And very pleasingly, our net debt ended the year GBP 700 million, the lowest since 2004. So we've made a lot of progress, as I say, during the year. We laid out in our Capital Markets Day, our plans to accelerate our growth to invest in the company while building an efficient platform.

And we can touch on some of those topics during the Q&A. So I'm going to end these opening remarks just by thanking all of our people and our clients for the work that they've done. I now give you the chance to ask any questions that you may have.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Your first question today comes from the line of Dan Salmon from BMO Capital Markets.

Mark Read -- Chief Executive Officer

Hi, Dan.

Dan Salmon -- BMO Capital Markets -- Analyst

Great.

John Rogers -- Chief Financial Officer

Hi, Dan.

Dan Salmon -- BMO Capital Markets -- Analyst

Hi, Mark, good morning. Good morning, good afternoon to you guys over there. Mark, I wanted to just start by tapping in a little bit more on the continued focus on growing commerce services. And one of the things that you've talked a little bit more about lately is building more commerce services at the creative agencies.

And I just wanted to hear a little bit more of an update on that and the traction that may be happening there in the short term and more about how you think about that over the long term as -- should commerce see a certain mix of business at the creative agencies? I don't know if that's the right way to put it. And then just a follow-on to that, how you think -- or how your recruitment of young talent, right, maybe out of college and university is changing as commerce services. Do they require a different talent set? I'd love to hear more about that as well.

Mark Read -- Chief Executive Officer

OK. So I think, broadly speaking, at a group level, we have set targets to increase our commerce business is something that we're looking increasingly to track and to measure our investments to make sure that our investments are delivering revenue. I think our view is that commerce services should be an integrated part of an agency's offer. I mean what we're seeing in the market today is a confluence of communications and content and commerce on a device, largely the mobile device.

And I think clients need integrated solutions to do that. I'd say the two agencies that are probably most advanced would be Wunderman Thompson commerce, particularly on the web build side, and VMLY&R commerce where we brought Geometry to bear with VMLY&R to create VMLY&R commerce. But we do have some strong commerce offerings inside AKQA and inside Ogilvy as well. So as I said, I think it should be integrated.

I mean the services that we offer from a sort of inverted commerce creative perspective. And it's a very broad definition, quite frankly, of creative, is everything from helping companies to build their own website. So we built with the client -- I would add sainsburys.co.uk, net-a-porter.com. We're helping one of our top 10 clients with the rollout globally of a direct-to-consumer platform.

We're helping clients to merchandise their product on retailer websites, so how they would sell through Walmart or Target or other retailers. And then we're helping to think through how they take advantage of the marketplaces, Amazon, Alibaba, MercadoLibre, and we've invested in a number of companies in that area. Plus, commerce is part of what we do within GroupM. So our media business, we talked about a 40% increase in commerce billings.

So increasingly, clients are looking at their media budgets, whether brand or promotional sales in one kind of bucket, if you like. And that presents us with an opportunity to expand our trade media advice that we give to clients. So -- and then I think we have to work together and collaborate at a group level to bring clients an integrated solution. From a talent perspective, I don't think that the commerce part of business is where we need a different type of talent.

What I would say on the talent front is we're very focused on bringing different types of people into WPP. Over the summer, we ran this next-gen leaders program to bring in a new set of interns. We had 750 interns that joined it. We'll expand it this year.

From those interns, 57% came from diverse background. So we're attracting different types of people into the business. And I think naturally, commerce will attract somewhat different type of people, but I wouldn't say it's substantially different from those that WPP has had traditionally.

Dan Salmon -- BMO Capital Markets -- Analyst

And then if I can maybe sneak in one follow-up, just latest views on Apple and Google's platform changes and maybe how you're helping clients prepare, especially for Apple's ATT changes, which are expected to come into here shortly.

Mark Read -- Chief Executive Officer

Yeah. Look, I think that from our perspective, I don't think it changes the overall attractiveness of digital media, which still provides greater targeting, greater measurability, and great evaluation of creative assets than traditional media. I think by protecting consumers' privacy, we do help sustain the long-run viability of the media. So I think in that context, we would broadly welcome the changes.

But they do clearly have a different impact on different players in the value chain. They tend to benefit either those companies like Google and Facebook and Apple that have first-party relationships, and the cynics might say that's why they're doing it. I don't think [Inaudible] is doing it because it's the right thing to do. But they're less advantageous to smaller publishers and to intermediaries that don't have direct relationships with consumers.

I don't think that really applies to WPP. I mean our job is to help our clients activate their data in those channels. And to the extent that, that becomes a harder proposition, they probably need our advice a little bit more than they did in the past. So I think it's probably, at worst, neutral; at best, slightly positive to us to help our clients navigate what they're working through.

Dan Salmon -- BMO Capital Markets -- Analyst

That's very helpful. Thanks, Mark.

Mark Read -- Chief Executive Officer

Thank you.

Operator

[Audio gap] question comes from the line of Tim Nollen.

Tim Nollen -- Macquarie Research -- Analyst

Hi. I've got a couple of questions just on the numbers, following on the broader stuff that Dan was asking on. Just to be clear, you -- your guidance today is really no different from what you presented in December. I just want to make sure that if there are any differences in their first off, I don't think there are.

Mark Read -- Chief Executive Officer

John?

John Rogers -- Chief Financial Officer

No. No differences. I mean I suppose the only new news is the year-end net debt position of GBP 0.7 billion, which was better than we expected as a result of the strong working capital management. As we said on the call earlier on today, we would expect some of that upside to reverse out this year, about GBP 200 million to GBP 300 million or so, but we'll keep the vast majority of it.

So it's a positive outturn but would expect a small reversal in 2021. Aside from that, everything is consistent with what we said at the Capital Markets Day in December.

Tim Nollen -- Macquarie Research -- Analyst

And could you remind us, was there a -- is there any more restructuring to be done in 2021? Or has that all been taken care of in 2020?

John Rogers -- Chief Financial Officer

There's a little bit more to come through in 2021 and probably GBP 70 million to GBP 100 million or so, half of which will be the remainder of the restructuring program we announced as part of the 2018 strategy review. The other half will be COVID-19 related. So there's a little bit to come this year. And then going forward, 2022 to 2025, we anticipate up to another GBP 100 million to GBP 200 million or so spread over those years to reflect the transformation program that we're undertaking and that we announced at the Capital Markets Day in December.

But a significant drop-off from what we've seen over the last couple of years. So we've seen the -- if you like, the worst as the restructuring charges come through, we'll see a little bit in the future, but a lot lower than it's been historically.

Tim Nollen -- Macquarie Research -- Analyst

OK, thanks. And then -- and then one more on cash and use of cash. You mentioned, I think, in your press release, which is new news, reinstating the buyback. Could you just run through one more time for us your priorities on use of cash? You do mention M&A, I think you say 0.5 point to one point of acquisition growth per year.

Just in general, what are the targets you might be looking for in M&A? What type of activity do you think there might be? And how much might you spend?

John Rogers -- Chief Financial Officer

Yeah. So we said at the Capital Markets Day, we intend to spend between GBP 200 million and GBP 400 million a year on M&A. The likely targets, of course, are going to be in the areas of commerce and experience and technology, those areas that we anticipate high growth occurring in. In fact, the two relatively small acquisitions that we've done this year-to-date absolutely sit in those areas, a small acquisition up in Scotland of an e-commerce consultancy business and then a digital consultancy business in Brazil, both of which are in line with those high-growth areas.

But in terms of our capital allocation, we said that we will -- as I said, we'll do GBP 200 million to GBP 400 million in acquisitions. And then any capital above and beyond that, we'll intend to return to shareholders. And so if you apply the guidance that we gave at the Capital Markets Day in December, then it's easy to see in future years if we achieve those levels of growth and the cost savings that we've anticipated. There will be further opportunities for share buybacks in 2022 and beyond.

Tim Nollen -- Macquarie Research -- Analyst

OK, good. Thanks very much.

Operator

Thank you. [Operator instructions] Your next question comes from the line of Doug Arthur.

Doug Arthur -- Three Chopt Capital Management -- Analyst

Yeah, thank you. John, just -- I think you had reiterated at the Analyst Day that you expected to reach the upper end of GBP 700 million to GBP 800 million in cost savings for 2020. Just specifically, do you have an updated figure on your total employment level right now?

John Rogers -- Chief Financial Officer

Yeah. So in terms of number of employees, is that the question?

Doug Arthur -- Three Chopt Capital Management -- Analyst

Yes.

John Rogers -- Chief Financial Officer

Yeah. It's just under GBP 100,000.

Doug Arthur -- Three Chopt Capital Management -- Analyst

OK.

John Rogers -- Chief Financial Officer

And we delivered savings for 2020 of GBP 810 million, so slightly higher than the GBP 700 million to GBP 800 million that we guided to.

Doug Arthur -- Three Chopt Capital Management -- Analyst

OK. And I would assume going into 2021, I mean, you've talked about sort of the second round of kind of process rationalization. So there's more to go.

John Rogers -- Chief Financial Officer

Well, in fact, in headcount terms, we anticipate increasing headcount slowly over time because, obviously, we anticipate growth to take place over the next year and the years ahead. So we actually see our headcount going up slightly. However, obviously, an offset against that will be further efficiency savings that we think we can deliver, frankly, over the next three to four years. So we identified GBP 600 million of savings to deliver over the next few years.

That will net-net mean -- well, overall, will mean headcount reductions. But when you pare that off against the growth that we're going to deliver and the heads that we anticipate recruiting to deliver that growth, then the net-net position will be an increase in headcount over time.

Doug Arthur -- Three Chopt Capital Management -- Analyst

OK. And then just sort of off the beaten path per se, but it's not -- it's still pretty important to you guys. Any comments on how Kantar is doing?

John Rogers -- Chief Financial Officer

I think there's -- there was information in the public domain a week or so ago. I think they did an update to their debt holders. They had a reasonably -- had a slightly tougher year than WPP did in net sales terms, so I think it was about 10% or 11% down for the year in net sales, but did a good job, as you'd expect, to manage their cost base. And so their margin was down, but not by much.

So they've had a reasonably good year. And obviously, they've got plans to consolidate costs going forward.

Doug Arthur -- Three Chopt Capital Management -- Analyst

OK. And then finally, Mark, any -- you probably touched on this in the earlier conference call, which I haven't finished listening to, but any thoughts on China outlook for 2021?

Mark Read -- Chief Executive Officer

Yeah. I think just to add to what John said on Kantar, I think we're very pleased that we did the transaction. I mean I think navigating 2020 with both Kantar and the lack of reduction of debt, that would have resulted -- would have made a very different outcome. So I think that Andrew and the team that worked on with deals did a fantastic job getting that done just at the right time.

On China, I think that our business has been a little bit disappointing for us the last sort of 18 months. And we -- and I'd say our peers have probably been a bit more impacted by the pandemic than we would have liked. And I think we're soon to see recovery in 2021. But I think there's probably some business-specific and client-specific issues that we're going to work to address and invest in the business.

We think we've got a fantastic business in China, a number of very, very strong clients, both domestic and multinational. But we're probably a little bit overindexed to the multinational client than we would like. We're probably a little bit overindexed to traditional media than we would like. And while we've got a good commerce business there, we could probably invest a little bit more in that.

But we are looking at investing behind sort of a China-based, stronger China-based technology strategy because really, the technology footprint there is pretty much totally diverged from the rest of the world. So I think it does merit its own approach. And I'd say that's something that, given our scale in the market, we should be in a good position to take advantage of.

Doug Arthur -- Three Chopt Capital Management -- Analyst

OK, great. Thank you very much.

Operator

Thank you. We have no further questions at this time, sir.

Mark Read -- Chief Executive Officer

That's it. Well, thank you very much, everybody, and thank you for your questions. And we'll see you on the next call in a couple of months.

Operator

[Operator signoff]

Duration: 21 minutes

Call participants:

Mark Read -- Chief Executive Officer

Dan Salmon -- BMO Capital Markets -- Analyst

John Rogers -- Chief Financial Officer

Tim Nollen -- Macquarie Research -- Analyst

Doug Arthur -- Three Chopt Capital Management -- Analyst

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