WPP - Earnings Call - H1 2025

Transcript

Speaker 4

Good morning, ladies and gentlemen, and welcome to WPP 2025 interim results conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. At that time, if you wish to ask a question, please press star one on your telephone keypad. Today's conference is being recorded. Now, I would like to hand it over to WPP CEO, Mr. Mark Read. Please go ahead, sir.

Speaker 1

Thank you very much, and good morning, everybody, and welcome to our 2025 interim results earnings call, and thank you for joining us. I'm on today's call with Joanne Wilson, our CFO, Brian D. Lesser, the CEO of WPP Media, and Tom Singelhurst, our Head of Investor Relations. Before we get started, please do look at the cautionary statement, which you can see on slide two, and read that, Kath. Turning to the highlights on page five of the presentation. First, in terms of the first half performance for 2025, when we updated June and early July, we went through how a more challenging macro environment, coupled with a slower net new business environment, had weighed in our performance in the second quarter, in particular in June.

Joanne will take you through the details shortly, but the performance in the first half is in line with those revised expectations, with H1 organic net sales growth of -4.3%, consistent with the second quarter, down 5.8%. As we said on July 9th, note that the second quarter was impacted by several one-off factors that negatively impacted our growth rate. Even excluding those, H1 growth was -3.8% and -4.8% in the second quarter, below our expectations at the start of the year. In the face of this, however, we are maintaining strong financial discipline. Headcount has come down by 3.7% since the start of the year, brought in line with the organic growth trend. In addition, we continue to take out structural costs and focus on back office efficiency, underlining our disciplined approach to managing the cost base.

As a result, headline operating margin was 8.2%, down by 290 basis points on a like-for-like basis, but this includes the cost of severance action taken in particular at WPP Media, which has not been treated as an exceptional. We expect margins to improve in the second half of the year. As importantly, the operating environment we saw in the first half hasn't stopped us from taking significant action against our strategic goals. In February, we talked about three strategic specific priorities for 2025: driving adoption of WPP Open, getting GroupM, now WPP Media, back to growth, and winning more new business. We've made progress on those that I'll talk about in a minute.

More broadly, I want to emphasize it has been a period of intense activity across the group, whether that be the release of new products, for example, Reputation Capital and Decipher Tech at Burson, or the signing of new partnerships, for example, collaborations with Vercel, TikTok, and Kateo, the latter being particularly important in terms of further strengthening our retail media offer within WPP Media. It's also been a very busy period as we've worked with top talent for the organization, for instance, Beiju Shah, who joins us from Accenture and Accenture Song as CEO of AKQA. We have had some more success in AKQA in the past few months in terms of winning new business. I think we will see a continued turnaround in that business, which is reassuring.

Daniel Mouraque, who joins us from RGA, is a global creative and innovation lead working on a very important client source with a focus on AI and technology. Coming back specifically to the 2025 priorities on slide six, and those three, taking those three in turn. First, in terms of adoption of WPP Open, it's growing fast, with over 80% of our client-facing people actively using the platform. With adoption running ahead of our expectations, we're now pushing for greater engagement per user. Just to give you some statistics, to put in context what we're doing, in the last month, our teams created more than a million images, 240,000 videos on the platform, and we now have more than 50,000 agents active across WPP, helping our people to use AI to deliver work for clients. The second priority was media.

One of the drivers behind the increased adoption of WPP Open has been rapid expansion in Open Media Studio, which is encouraging in itself, but more important to the progress made by Brian D. Lesser and his team. He'll take you through that in a few minutes. An enormous amount has been achieved in the first half, not only in terms of re-engineering the operational model, making WPP Media a much more client-centric organization, but also in terms of bringing its AI-enabled technology platform to market via the acquisition and rapid integration of InfoSum, launched Open Intelligence, the data performance offering that powers the Open Media Studio. On the third priority in new business, I would say this has been a source of relative disappointment.

Now, to be clear, we have had some significant wins, whether that's the Hero, MotorCore, and Media, L'Oréal Influencer, TK Maxx and PR, Heineken and Commerce, or IKEA and Creative. There have been setbacks, and overall, there has been a much slower new business environment, with, as the chart shows, new business running at less than half the typical rate at this point in the year. My view is that clients have been dealing with a lot of short-term issues, whether that's pressure on consumer spend or the impact of tariffs or commodity prices, and these have delayed pitches and prolonged decision-making. I'm sure we'll discuss that in the call and the Q&A. For now, I'll hand over to Joanne to take you through the detail of the first half performance. Joanne.

Speaker 5

Thank you, Mark, and good morning, everyone. Let me start by taking you through where our performance has landed relative to the revised guidance we set at the beginning of July, and you can see this in slide eight. Like-for-like revenue less class three costs fell 5.8% in the quarter, which was in line with the anticipated range. This leaves the first half organic decline at 4.3%. As mentioned in our July trading update, there were some one-off factors which did weigh on the second quarter performance. Excluding this, the like-for-like decline would have been 3.8% in the first half and 4.8% in the second quarter. Turning to headline operating profits, this came in at £412 million in the middle of our range.

This is consistent with a margin of 8.2%, with a 290 basis point like-for-like decline driven by a combination of the impact of negative operating leverage on lower net sales and higher severance, in particular at WPP Media. Moving on to slide nine and looking at performance across our business. Global integrated agencies saw a like-for-like decline of 6% in the second quarter, a step down from -2.8% in the first quarter. Within this, WPP Media was down 4.7%, which saw the U.S. decline against a tougher comp and reflecting client losses. Trends remain tough in the UK as we continue to be impacted by prior year client losses, and Western continental Europe was impacted by one-off factors, amplifying the effect of a more challenging media environment. Excluding one-off factors, WPP Media declined 1.6% in H1 and -2.3% in Q2.

Like-for-like for other global integrated creative agencies fell 7.2% in the second quarter and compares with the decline of 4.4% in the first quarter of 2025. Within this, the main moving part is Ogilvy, which declined high single digits in the first half and was down double digit in the second quarter, impacted by cuts in client spending, in particular in CPG, tech, and government. We continue to see an impact from weakness in project-based work. However, AKQA saw a slight sequential improvement quarter on quarter on easier comps. Turning to PR, like-for-like declined by 7.8% in the second quarter, a slight step down from 6.6% in the first quarter. This performance reflects a more challenging environment for client discretionary spend, in particular in Europe and across smaller local clients. Looking forward, we are encouraged by improved momentum on new business in North America.

Specialist agencies saw a like-for-like decline of 1.9% in the quarter, with continued double-digit growth from CMI, our specialist healthcare media agency, and a return to growth at Design Region Partners, offset by continued other moderating declines at Landlord and other smaller specialist agencies. Turning to performance by region on slide 10, North America declined by 4.6% in the second quarter, following a decline of 0.1% in the first quarter. While there was a toughening comp, the performance was impacted by cuts in client spend, particularly impacting Ogilvy and the ramp down of a Q1 client loss. The UK declined by 6.5% in the second quarter, a slight deterioration on the 5.5% decline in the first quarter despite an easing comp. Performance continues to be impacted by its higher weighting towards project-based work and the impact of client losses at WPP Media, although Ogilvy posted positive growth.

Western continental Europe saw an overall like-for-like decline of 6.5%, again versus an easing year-on-year comp and reflecting the impact of one-off factors. The rest of the world declined 6.8% in the second quarter, largely driven by persistent pressures in China, which declined 15.9%. As discussed in the first quarter call, we expected performance to continue to be challenging in China in the first half of 2025, with some improvement later in the year. Against this, we saw a relatively better performance in India, which was flat at 0.1% in the first half, driven by WPP Media. Central and Eastern Europe saw a robust performance, up 2.4% in the second quarter. Slide 11 shows Q2 performance across our client sectors. Having been stable in the first quarter, CPG saw a step down in the second quarter, declining 8.3%.

Cuts to client spending and the loss of a large client in North America were key factors. Performance in the tech client sector moderated in the second quarter, showing a decline of 1.2%, having seen Q1 growth continue to improve at 4.5%. Geographically, the U.S. saw the biggest delta driven by client spending cuts, with trends elsewhere more robust. Healthcare has continued to stabilize with broadly flat growth in the quarter as 2023 client losses start to roll off. Automotive and financial services, which both started the year well, saw a step down in the second quarter. The performance of our top clients continues to be relatively more robust than for the group as a whole, with our top 25 clients growing 0.1% in the first half, albeit this is consistent with a low single-digit decline in the second quarter.

The waterfall chart on slide 12 bridges our headline operating margin from 11.5% in the first half of 2024 to 8.2% in 2025, a 3.3% decline on a reported basis and a 2.9% move like-for-like, adjusting for FGS and FX. The main moving parts are the impact of negative operational gearing on the reduced like-for-like net sales, as well as the impact of severance. To put some numbers to this, although our overall staff cost, excluding severance and incentives, is down £261 million, given the decline in net sales, this is still consistent with the 250 basis points decline in margin. This reflects a 6% reduction in headcount when compared to the 30th of June 2024 and reduced usage of freelancers, but also the impact of the FGS global disposal.

Severance and other associated costs are up to £59 million year on year, and this takes another 130 basis points of margin. This is primarily driven by actions at WPP Media, and we expect to pay back progressively through the second half and into 2026. As we discussed in July, we estimate the annualized gross savings benefit associated with these actions will be at least £150 million, and we anticipate margins in the second half to improve as a result. While total IT costs have remained broadly flat, this represents back office savings and enterprise tech offset by our continued investment in WPP Open, AI, and data. Total IT costs were a 0.6% drag on margin.

On slide 13, we look in detail at restructuring costs and to note ongoing severance action, both in reaction to the weaker top line as well as the more strategic actions at WPP Media are included in headline operating profit. Restructuring costs associated with historical programs are coming down, and in the first half were £45 million compared to £153 million in the first half of 2024. £40 million of the restructuring costs are cash and primarily related to the ongoing IT transformation, as well as property-related costs from historical impairments. We are running below the previous school year modeling assumption of £110 million, and we have reduced our full year expectation for restructuring costs to £90 million. We pull this all together to headline P&L on slide 14. Overall reported revenue less pass-through costs was £5 billion, a decrease of 10.2% period on period.

FX contributed to a 2.4% drag, with M&A a further 3.5% headwind, leaving a like-for-like decline of 4.3%. Moving down the P&L, a reminder that income from associates excludes any contribution from Kantar in accordance with IAS 28 due to nil carrying value on our balance sheet. Net finance costs of £129 million was down year on year, reflecting the lower average adjusted net debt. Our effective tax rate at 18.3% is down year on year, principally driven by the benefit of credits from the successful resolution of a tax matter. Given the impact from a lower level of profit based on our revised guidance, our modeling assumption is that the full year effective tax rate will be 31%. Non-controlling interests of £26 million were down significantly year on year, largely reflecting the impact of the disposal of FGS Global.

Headline diluted EPS of 20 pence is down 35% in reported basis, a 10.9 pence move, consistent with an 8.8 pence decline like-for-like, and a 2.1 pence impact from FX and M&A. Turning to the dividend, the board recognizes the importance of dividends to shareholders and also the importance of retaining financial flexibility for the business. With a new CEO starting imminently, alongside a review of the strategy, we will evaluate our capital allocation policy to ensure we align our financial resources and distribution policy with our strategy and our priority to drive sustainable growth. As a result, and after careful consideration, the board has declared an interim dividend of £0.075. Moving to slide 15 and the reconciliation between our headline and reported operating profit, headline operating profit of £412 million is adjusted for a goodwill impairment of £116 million, which relates to AKQA and Grey.

Gains on disposal are fairly minimal at £2 million in the first half, while amortization and impairment of acquired intangibles is also lower year on year. As already discussed, we've seen a fall in restructuring and transformation costs to £45 million from £153 million a year ago. Putting these items together, that leaves a reported operating profit at £221 million in the first half, with the decline slightly lower than the move in headline operating profit. Slide 16 looks at our adjusted operating cash flow and bridges the year-on-year movement in adjusted net debt to June 2025. Our 12-month adjusted operating cash flow before working capital to June 2025 was £1.2 billion. While we continue to focus on working capital management, we saw a working capital outflow of £175 million in the 12-month period.

We saw a net outflow of £118 million, comprising the net impact of dividends from associates and to minorities and including M&A earnings. Net interest and tax contributed to a £633 million outflow, with the cash tax including £43 million of tax associated with the FGS Global disposal. Net M&A and disposals was a £383 million inflow, primarily reflecting the disposal of FGS in the second half of 2024 and the acquisition of InfoSum. Cash dividends paid in the 12-month period was consistent with prior year, while buybacks and other items amounted to an outflow of £104 million. Moving now to slide 17, which shows the movement in net debt to the end of June, with adjusted net debt at £3.3 billion, down year on year but up from year end, reflecting our typical cash cycle.

Average adjusted net debt better captures the normal pattern of working capital moves across the year, and this is slightly down through the first half at £3.4 billion. Despite a reduced net debt balance, the average adjusted net debt to headline EBITDA ratio at the 30th of June is outside our 1.5 to 1.75 times target range, given the lower profit. Our expectation is that we will be above our target range for the full year 2025. Our balance sheet, however, remains robust. The weighted average maturity of our £3.8 billion of bond debt is 6.4 years, and this is an average coupon rate of 3.5%. Meanwhile, our total available liquidity across the group stood at £3 billion at the 30th of June 2025, including a $2.5 billion committed RCF, which matures in February 2031.

Neither our bond debt nor our RCF have any covenants on our credit remains invested yet. Finally, for me, turning to slide 18, which shows our guidance for the full year. At our July trading update, we shared a revised guidance for revenue and operating profit, with a like-for-like decline in the range of -3% to -5% and a headline operating margin decline of 50 to 175 basis points. Looking beyond the net sales and margin guidance and reflecting the change to both revenue and margin guidance, we now expect adjusted operating cash flow before working capital to be £1.1 to £1.2 billion. As already mentioned, the lower level of anticipated profitability in 2025 drives changes to our assumption for the effective tax rate. We also expect a lower level of CapEx and cash restructuring costs than our guidance at the start of the year.

Elsewhere, neither the impact of FX or of M&A has materially changed since the first quarter results. Thank you, I will now hand over to Brian.

Speaker 0

The world is changing, and media is changing with it. In a future reshaped by artificial intelligence, media will be everywhere and in everything. This new era demands new thinking. Brands need a strategic partner to help them navigate change and drive their business forward. That's why GroupM is now WPP Media. One company, one vision, one platform integrated across the WPP network. To accelerate growth in the AI era, to deliver unparalleled intelligence, to lead our clients' growth, it's time to realize the power of data and unlock signals others miss. By harnessing trillions of data points using AI-powered intelligence, we transform real-time insights into real-world solutions. We don't just promise growth, we deliver it with proven performance, smarter activations, and measurable outcomes for the world's leading brands.

While others react to what's in front of them, we're deeply invested in the future of media and see the opportunity to reimagine what's possible. We bring together the best people, platforms, partners, and ideas to lead what's next. We are the global media collective. We are WPP Media.

Good morning, everyone. That reel you just watched captures just a glimpse of the energy and momentum behind what we're building at WPP Media. It's been almost 11 months since I rejoined GroupM, now WPP Media, and about four months since we formally introduced the market to the scale and scope of the transformation underway. This morning, I want to go beyond what's changing to focus on what's already taken hold, how we operate, what this organization looks like today, and why we're in a strong position to win. In February, I laid out our five strategic priorities. Today, I'll walk you through the meaningful progress we've made, particularly in how we've evolved our data, technology, and organizational design. I'm pleased with the collective progress we've made in the first half of this year.

From launching Open Media Studio in our largest markets to debuting Open Intelligence, restructuring our teams, and centralizing leadership, we're laying the foundation for a stronger, more agile organization. We've also accelerated our data strategy with the acquisition of InfoSum. This is a reflection of the collective effort of thousands of people working toward a common goal. It's progress worth acknowledging and momentum we're committed to building on. We know that transformation at this scale doesn't happen quietly. It takes clarity of vision, conviction in execution, and above all, commitment from our internal teams. As you know, we made bold decisions to overhaul our operating model, integrated marketing services that focus on one team, one process, and one platform. One team, we've broken down silos to operate as a single global organization with local relevance.

Whether you sit in Mindshare or Wavemaker, in London or in Vietnam, you're part of a connected system with shared goals, led by a newly reorganized leadership team solely focused on driving results. One process, we've streamlined how we plan, activate, and optimize campaigns. This alignment not only increases efficiency, it reduces friction for our clients. One platform, this is where it all comes together with the culmination of several years of development. WPP Open is the operational backbone of our business that is powered by Open Intelligence. This platform is more than workflow automation. It's how we deliver media, infused with AI and supported by one of the most advanced data models in the industry. We now have more data than any of our competition, reaching 5 billion consumers, connecting intelligence of all forms, including IDs across a vast federated ecosystem.

Our platform connects hundreds of data sources, publisher, retail, platform, client structured and unstructured, and extracts insight through federated learning and AI-native tools. That's how we move from reactive to predictive by optimizing hindsight to anticipate what's next. It's what will separate us from our competitors and allow us to operate at speed for our clients. This isn't theoretical. It's live, it's adopted, and it's already delivering measurable value for our clients. For our brand in a highly impulsive category, our platform used behavioral signals like commuting patterns and content consumption habits to identify moments of peak buying potential. That campaign drove a 10x improvement in reach to high propensity buyers. In another case, we doubled in-store sales for a CPG brand by predicting exactly when and where to engage Gen Z shoppers near retail hotspots. Technology without people is just potential.

Since our last update, we've reshaped our organization around this vision. Today, WPP Media is a fundamentally different company than it was a year ago, not just in name. We centralize leadership where it matters and empower local markets where it counts. We've restructured teams to focus on transformation, growth, and client experience. We've added world-class talent from tech, consulting, and media who bring new thinking and challenge old assumptions. The result? Clients no longer see a network of agencies. They see one WPP Media with a unified vision, a modern capability set, and a consistent global offering. Since we last spoke, we've moved from strategizing to operating, from talking about change to leading it. We have a simplified, aligned organization. We have a world-class platform, AI-enabled, future-proofed, and live today. We have a client value proposition that is stronger than it's ever been.

We've built a global platform that meets the unique needs of multinational advertisers while unlocking the benefits of those investments for clients in every market and creating more opportunities for value-added proprietary offerings within that platform. Now, our focus is execution at scale, growth with discipline, leadership through performance, and as always, the client at the heart of everything we do. We have the team, the process, the platform, and the opportunity. I'm incredibly proud of what we've built and excited about what's ahead. Thank you, and I look forward to continuing this journey together. Now, I will hand it back over to the team in London, and I look forward to your questions during the Q&A.

Speaker 1

Thank you, Brian. As we all know, the work that you and your team at WPP Media are doing is critical to getting us back to where we need to be in terms of growth and also strengthening our long-term competitive position. We wanted you here today so that the financial community can see the strategic focus on data and technology within our media business and the progress that you're making. We have great confidence that WPP Media will not just catch up, but in time lead the market in terms of a data-driven media operation. Turning to the summary, as you know, I announced in June that I plan to stand down after seven years as CEO, and I'm delighted to be handing over to Cindy Rose to be taking over on the 1st of September. I have to say, WPP is an incredible company.

While I know well that we have immediate challenges, we also have tremendous assets, not least our people and our clients. I thought it'd be helpful for me to end my last call of many, I must say, with my reflections on where we are as an industry and as WPP, and what I am positive about the outlook both for our industry and for WPP. Taking a step back from the United States, I firmly believe that what we do collectively is critical to our clients, the world's largest companies, and in WPP's case, four of the world's five most valuable businesses. These global organizations rely on us to help them build their brands, manage their reputation, sell their product, get high rankings in search engines, sell in retail channels, design their packaging identities, and produce their work.

Yes, increasingly to advise them on how to adapt to an AI world and how to take advantage of it in their marketing to drive higher returns and reduce cost. We said for more than two years that AI is no doubt going to fundamentally change what we do and how we do it. It's also going to give us new opportunities, as technology has always done in the past. I'd say that at least half of the jobs in WPP today were not in the company 10 years ago, and that will be increasingly true in the future. I still believe our clients will need the creativity, the strategic judgment, the objectivity, and insights that we and our industry bring them if they're going to successfully differentiate themselves from competition and navigate an increasingly complex media and technology landscape.

That's what our industry does, or what I believe it will continue to do in the future, even if it is in a very different form and with much more data and technology. Just as we've adapted in the past, we will adapt in the future. Yes, AI will change how we work, but if we embrace it fully and use it to enhance our people and human expertise, then I believe we'll make it stronger, bring new business opportunities, and create more value for our clients, and in the long run, more value for our shareholders as well. I believe the critical question is, how ready is WPP for this AI-powered future? There are the answers. I believe we are very well prepared and certainly as well, if not better prepared as anyone in our industry. Let's go through that on slide 25.

To start with, we're a much simpler company. Today, six brands make up close to 95% of WPP's business. That's important as we're much more integrated, no longer organized in analog and digital silos. Its importance goes beyond this, though, because a simpler company allows us to move faster, take out structural costs, to focus our resources on clients, and to deploy technology much more quickly across the business. The work that Brian D. Lesser and his team have been doing in WPP Media this year may have been disruptive, but it's been necessary work, and will set up WPP Media as a much stronger organization to deliver to clients in the future. Behind the scenes, we've not just been adapting our client-facing organizations. We've also brought together our technology teams and dozens of teams across WPP, and it's effectively one product organization with a common vision.

Similar work has been done in production with Hogarth in our offshore development teams in India and our global development centers and our commerce capabilities in WPP Commerce, which as a unit won the Unilever Media and Shopper Award last year. Secondly, we have a transformed offer. When we use the word creative to describe our agencies, I don't think it captures the work that they do that goes way beyond television ads. Our agencies like VML and Ogilvy have completely transformed the work that they do, developing great ideas that work on TikTok and YouTube as well or better than they do on NBC or ITV. We now lead our industry, in my view, for our creative reputation. Here I should call out the efforts of Rob Reilly and our creative leaders.

While awards are a side product of great work, not an end in themselves, our clients who work in WPP, being awarded Creative Company of the Year at Cannes, come to us because of the creative quality of the work that we do for them. I continue to believe that will be even more critical in an AI-driven future where creativity is what will differentiate companies. Despite its challenges this year, WPP Media remains the world's leading media industry. We've heard from Brian, and with new leadership, a new AI-led approach to data aimed to lead productivity systems, I firmly believe that when a new business environment picks up, they will convert strongly. We've also built a strong technology service offer.

VML Enterprise Solutions is now a $1.5 billion business offering e-commerce, CRM, marketing automation operations capabilities around the world, with strong practice with Adobe, Salesforce, Braze, and the other marketing technology companies. Similarly, AKQA combines creativity, innovation, and technology, now with new leadership joining us, as I said, from Accenture. Our production business, Hogarth, is now the market leader in production globally. I don't think it always gets the credit that it deserves. It's actually been the fastest growing capability within WPP, all of it delivered entirely organically and in partnership with our agencies. There's also Burson, now the world's second largest public relations company, with new leadership and now beyond the merger with Hill & Knowlton, starting to win some major client assignments. Finally, and where necessary, and with discipline, we've invested early in new areas like influencer marketing, making acquisitions of agencies like Goat, Village, and Obviously.

As a result, our client satisfaction scores have improved and are now at the highest level since I became CEO. We see that in the growth of our largest clients in the first half of this year, which continues to grow despite the overall disappointing performance. We can get better at telling the story to prospective clients, in my view. Thirdly, WPP is on a much more solid financial footing. We've moved from a situation where we're heavily indebted to a significantly firmer financial footing while returning over £5.5 million to shareholders. We shouldn't forget the role that Kantar played in this to sell at a $4 billion valuation to Bain Capital, giving us financial security to navigate COVID. We still have a valuable and sometimes overlooked 40% interest in the company.

There's FGS Global, which we created with Roland and his management team, sold to KKR, creating close to $1 billion in value for the whole company. My fourth and final, most important reason being positive is our investment in AI. There's no doubt in my mind or that of our board that AI will be fundamental to WPP's success in the future, or even investing significantly in that. If I can be competitive and highlight what I believe are our strengths, firstly, we've taken a very broad strategic approach to AI. We haven't looked at it just as a data opportunity or just in our media or our production business. We've considered the impacts of AI on the end-to-end marketing process. Over time, the comprehensiveness of our approach will be a source of increasing competitive advantages in the disciplines integrated.

Secondly, we built into WPP Open a single AI-powered marketing platform that spans the whole of WPP, something we struggled to do for many years. WPP Open now powers our work, delivering the best AI solution at the right time. As I said earlier, we have 69,000 people using AI in their work. I don't believe there's many companies of our size or scale that have deployed it at that size. Finally, our acquisition of Starly has been critical to our efforts, and the expertise that they bring in the application of AI, I think, has really helped us build this differentiated platform. I know that for many, AI is a source of concern for WPP. There's a fear that as an hour-based business, many people, it's going to be value-destructive.

I take a somewhat different position, which is that if we embrace it and we make our people use it, we'll add more value to our clients. If we can create more work more quickly, that will create additional value. It's going to open up new opportunities and new horizons for WPP. Overall, my observation would be that those parts of our business that have best embraced technology, our media and production business have been the strongest, and AI offers the opportunity to bring data and technology to all of WPP, particularly our creative businesses. I believe that that will make us collectively stronger. Turning to slide 26, I do believe that WPP is making significant strides in getting ready for the future. That said, there's absolutely no doubt in my mind or that of our management team that we have work to do.

We have to strengthen WPP Media and deliver on the promise of WPP Open and Open Intelligence that Brian outlined. Clients need to see the power of our new data approach and how we can use it to drive stronger returns. We have to improve our new business conversion so that new clients can see the strength of our offer, quality of our work, and our ability to work across WPP to deliver integrated solutions that our existing clients see is reflected in our client satisfaction scores. As I said before, we have to embrace the opportunities and challenges of AI. I firmly believe that we come at those challenges with an extremely strong set of capabilities, a well-balanced offer of creative productions and media. We're a leader in AI and technology. We have a unique global footprint.

We partner with the world's largest clients, four of the world's five most valuable companies. We have an extremely strong bench of talent and culture that takes us into the future. To wrap up, I'd like to end by thanking our people. You are, I think, what I will miss most in the next chapter, and I wish you all the best. I know that the past six months have been challenging, but if we approach the future with the same determination we did in COVID and the many other challenges faced, we will succeed. It has been, I would say, a privilege to lead this great company, and the successes that we have fall down to you. I'll be handing over to Cindy in a few weeks, and I'm sure that you and our clients are in very good hands.

Thank you all very much for listening, and now we're ready to take your questions.

Speaker 4

Thank you. If you would like to ask a question at this time, please press the star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you are also watching the webcast, please make sure to mute the computer volume to prevent feedback through the phone while asking a question. If you find that your question has already been answered, you may remove yourself from the queue by pressing star followed by two. Again, press star one to ask a question. We will pause for a moment to allow everyone to signal. We will now take our first question from Laura C. Metayer with Morgan Stanley. Your line is now open. Please go ahead.

Speaker 3

Hi, Mark, Joanne, and Tom. Mark, it's been a pleasure to interact with you, and my best wishes for the next step in your career. Three questions for me, please. The first one is on the pricing environment. What are you seeing in terms of pricing in this challenging macro environment? Would you say there are some pressures or it's been relatively flat? Second question is, can you tell us a little bit more about your product offering in influencer marketing? One of your competitors acquired a relatively large influencer's platform, so I was wondering if you believe you need to make more acquisitions in this space or if you have already the required capabilities, and how do you see this market evolving more broadly? Lastly, can you tell us a little bit more about the one-off that you mentioned that negatively impacted H1 2025? Thank you.

Speaker 1

Thanks, James. Thank you, Laura. Thanks for your wishes. I'll take the first two questions, and then Joanne can add anything she'd like to talk about pricing and talk about the one-off. I think our industry has always been very competitive, and it remains competitive. I think to some extent, the larger the review, the more competitive it becomes. That has, I think, been perhaps in a slower new business environment, a slightly tougher financial environment. I think our job is to respond to that. I think we do find that as we win clients and expand scopes, we can address some of the pricing issues that inevitably come. I think we will see with AI, and one of the things we're doing is using WPP to demonstrate to clients how we can deliver work more quickly and more efficiently.

I think that will be a source of competitive advantage for us in responding to some of the pricing challenges. In terms of influencer marketing, I think we're very confident in the strength of the offer that we have. We run a number of assignments. I would call out L'Oreal and other clients. We acquired three businesses I mentioned actually earlier on Goat inside WPP Media that focuses on using influencer marketing to drive business success for clients to have a global platform and some scale. We acquired a smaller business Village about three or four years ago into what's now VML, and an extremely talented team. They do all the work for Kamala Harris around the DNC, and while ultimately she wasn't successful, obviously, in the election, I think that work was recognized as at least starting her campaign in a very positive position.

We have obviously another strong influencer business, and actually Ogilvy has built one of the strongest influencer businesses totally organically. I don't think we're in a situation where we need to make acquisitions. I think clients can get everything that they need for us from an influencer position in terms of the capabilities that we have today. We've probably been slightly ahead of some of the competition in terms of making those acquisitions. Joanne, can you take back the financial questions?

Speaker 3

Yeah, Laura, thanks for the question. One of the factors is that they're related to contractual obligations in our media business and in Western continental Europe. Given the nature of them, we don't expect them to repeat in the balance of year. We've called them out because it was meaningful in Q2 and therefore helpful to understand the Q2 relative performance. From a full year perspective, they will obviously be less meaningful.

Speaker 1

Thank you.

Speaker 4

Our next question comes from Adam Ian Berlin with UBS. Your line is now open. Please go ahead.

Speaker 1

Hey, good morning everyone, and I want to also wish Mark the best for the future. A few questions if I can. The first is on Hogarth. You talked, Mark, about how that's been a real source of growth, but I did notice that in the first half it was only flat. I think given people's concerns about AI and the progress people are making using AI to do production, could you explain a bit more about why Hogarth was flat and why we've seen that deceleration in Hogarth? Is there an AI impact there, or is it just to do with the overall market slowdown? That's the first question. Second, I want to ask Brian about his comments around data within WPP Media. I think you said that you have more data than your competitors.

I think people would find that surprising because obviously Publicis have Epsilon and IPG have Acxiom, which seem to be kind of large data assets. Can you talk a little bit about what you mean by that? What data do you have that they don't have? Where do you get this data from that they don't have access to? Just try and unpick that comment a little bit because I'd just like to understand better what you mean. Thirdly, I'll ask, you cut staff incentives in H1 by about 60%. I know some of that was M&A. Is that the right way to be thinking about H2 as well? Just to understand the plan there. Thank you on the current guidance. Okay. I'll take the Hogarth question.

I think Joanne can take, because she's in the room with me, the second and third question, and we'll leave Brian to end on the data. I think in terms of Hogarth, we have seen continued structural growth. There are, as I mentioned, in a very volatile client environment, and we've seen lots of clients. I don't think I've ever seen an environment where I've seen divergence in performance of the clients, some growing and some cutting back. Hogarth has been, to some extent, the victim of some timing issues on product launching to such clients. I don't think there's anything there. There's nothing there in terms of impact of AI. I think the impact of AI in Hogarth's business would only be positive. I'll give you a good example.

We recently took a client, I can't tell you what, a client's Super Bowl commercial that they shot, and we remade it using Google VO2 inside Hogarth. If you run the two commercials side by side, people can't tell, people don't know which one was done with AI and which one was done in a real shoot. I think that's an example of a tremendous growth opportunity for Hogarth. Currently, we don't produce television commercials, but actually this gives us the ability to produce even more work. We did actually, for Core Reef, create a commercial entirely in AI that they ran on network television in the U.S. I think AI will be a source of growth for Hogarth. What we're seeing is really just largely a timing issue on projects within their business. Joanne, do you want to tackle the question and then we'll go to Brian?

Speaker 3

Yes, look, on the incentives, we are a performance-based business. In the first half, the result of incentives is really mechanical and reflects the performance in the first half. I would expect for the full year, based on our outlook, that incentives will be down, you know, will confirm by how much for the full year. We are very sensitive to the importance of motivating and retaining our top talent. We do review our incentives on a discretionary basis when we have the full year results. This is reflected in our planning assumptions.

Speaker 0

Hi, Adam. On your question about data, what I would say is we have more data than other holding companies because we think about how to incorporate data into our performance models differently. The business for 20 years has focused on how much traditional legacy CRM data you can collect in a database. That notion of collecting legacy data is increasingly under pressure as what we do evolves to go beyond just paid media on traditional channels to include things like content development, influencer marketing, retail media. Our model, which is called Open Intelligence, has the same amount of traditional identity data, but also includes hundreds of other partners, including data companies and media companies. We use InfoSum and a technology called federated learning to learn from those sources of data so that we can more accurately predict the performance of campaigns before we run those campaigns.

We have the identity data for the traditional approach to digital advertising, and we also have hundreds of data partners that help us better understand consumer behavior to drive performance. We've seen that outperform our competition on existing campaigns.

Speaker 1

Can I just ask Brian, if you could just give an example of what one of those data providers would be, just to bring it to life a bit more?

Speaker 0

Sure. There are providers like Google, like Amazon, like TikTok, traditionally considered walled gardens of information. If you were to ask many media companies to send data into a central database, of course, they would be reluctant to do that. Using InfoSum and technologies like federated learning, we can learn from those data sets without having to centralize the data and own it and broker data, which is a business we'd rather not be in.

Speaker 1

Thank you.

Speaker 4

Our next question comes from Annick Tonie Maas with Bernstein. Your line is now open. Please go ahead.

Speaker 2

Good morning. Thank you very much. My first question, maybe it's a bit too early, but can you just talk to us potentially about what the dividend reset means for the dividend strategy going forward? My second one is on staff turnover. I guess in recent months, you've also seen some senior staff departures. I want to understand, with these senior staff, staff people usually come very high, come to a good client relationship. How have you accounted for potential client losses because of the senior staff departures? My next question is for Mark. If you take a step back and if you think about what you knew when you started, what you know today about AI, about the industry, about tariffs, how would you have differently approached WPP when you became CEO? Thank you.

Speaker 1

Okay. Why don't I start there? Look, I think looking back seven years, there's obviously things I would do differently. I mean, you wouldn't be human to say that you wouldn't do some things differently. I think, like most CEOs, every CEO I've ever spoken to, they always do all the things that work more quickly and none of the things that didn't work. I think in my case, I'm sure there are things that I would do differently and things I would do more quickly. As I tried to summarize, I think that the direction that we have taken in the business, to integrate it more, to integrate analog and digital, to put technology at the core, to focus on the quality of the work, have all been the right steps.

Probably, as you say, inevitably, one would want to have done those things more quickly, particularly ones that have been particularly successful. I do think that the brand structure that we have has been effective. I think that they still remain important. I think they need to be more brands, less companies. They need to be more there to manage talent, not to manage the organization. I think there's all directions in which, I'm not going to set the strategy for Cindy or ever comment on it in any way either. I think there's all directions I'm sure that she will look at as she takes the company. I do think that the acquisition of Starly will stand out as being an excellent move that we made. Many people, not just me, were involved in making that decision.

I think it's given us now close to 200 people who are world-class AI experts able to build a platform that will power what we do. We're really just on the cusp of seeing what the impact of AI and beyond business. Probably that's the thing I'll, other than, beyond the people and the clients, the thing I'm missing most is seeing how we can manage it. Joanne, do you want to tackle the question?

Speaker 3

Let me just start with the dividend one. Where I would start is the Board and management's top priority is to drive sustainable growth. In the context of our current performance, reducing the interim dividend gives a greater degree of financial flexibility to support that growth. Cindy's starting on the 1st of September, and we will review the strategy alongside her. That will include an evaluation of our capital allocation policy and our distribution to shareholders. The reduction of the interim dividend by 50% gives that greater flexibility. It also reflects the importance shareholders put on the dividend. I think it'd be premature to assume that the payout based on the half-year earnings will be the basis for the ongoing policy. Of course, we will update in due course alongside the strategy. Sorry, you had a second question just on staff turnover.

I would say on that, there's been some staff turnover, yes, but also we have attracted very senior, strong talent into the business as well. I think it's no higher or lower than what it has been historically. Specifically to client losses, the short answer is no, it's not driving client losses. We have a very strong team of client leaders, but our client relationships are not really based on any one individual. They are very long-standing and deep partnerships that we have across many parts of the business.

Speaker 2

Perfect. Thank you very much.

Speaker 3

Thank you.

Speaker 4

Our next question comes from Adrien de Saint Hilaire with Bank of America. Your line is now open. Please go ahead.

Speaker 1

Yes, good morning everyone. First of all, again, extending the gratitude to Mark for all those years and best wishes for the future. A few questions, if you don't mind. First of all, there was a piece in Campaign that discussed a potential partnership between Accenture and WPP. Can you provide any comment around that? Maybe some questions for Joanne. Can you comment a bit on Q3 trading to date versus the underlying -4.8% that you had in the second quarter? Can we talk also about where you expect average net debt to land for the year? What's the underlying working capital outflow assumption? It was -168 for the last 12 months, as you highlighted. What are you baking in for the year? I've got a last financial question. You set your tax rate at 31% for the year, given a lower profit before tax.

Do you think that's the new sustainable level going forward, or should we go back to 29% as you rebuild profitability looking out? Okay. On Campaign, it's an excellent publication and one I look forward to continuing reading, but it's not always entirely accurate. I wouldn't comment much more beyond that. Joanne, do you want to take the financial question?

Speaker 3

Yeah, so just starting with Q3 trading to date. Look, it's early in the quarter. The trading environment does remain challenging. I'd want to avoid getting into month-by-month detail, but there's nothing that we're seeing that would change our revised guidance range. In terms of the average net debt, the average net debt has been coming down, and that partly reflects the use of the FGS proceeds to reduce debt last year. In terms of where we expect average net debt to be this year, we have guided to adjusted operating cash flow before working capital. We've guided on tax, interest, restructuring costs. We don't guide on working capital, and that's consistent with our peers. Our working capital can fluctuate at the end of the year.

We have $50 billion plus going through our balance sheet, so a $200 million to $300 million movement either way is not unreasonable on that. We are very, very focused on continuing to reduce that average net debt as we move forward. In terms of the ETR, it was very much the 31% really is mechanical, reflecting the lower level of profit and the impact of non-deductible expenses. The share price reduction had a bit of an impact as well on deferred tax assets. Going forward, the tax rate will really depend on business mix and level of profits, and we'll update on the 2026 rate interventory.

Speaker 1

Thank you.

Speaker 4

Our next question comes from Julien Roch with Barclays. Your line is now open. Please go ahead.

Speaker 1

Yes, good morning. First of all, Mark, best wishes in your next chapter. I think people underappreciate how much you have transformed WPP. I'll start with you. In your minus 5% to minus 3% organic guidance, what did you put in for new business and macro? If you were to lose, I hope not, all the $1 billion of billings you are still defending, could it be worse than minus 5%, or would the impact be mostly next year? If the macro is worse than Q4 in December, could it be worse than minus 5%? New business and macro parameters to land within minus 5% to minus 3%. That's my first question. The second for Brian, your single media platform is live in the U.S. and the UK, so not globally, which means you are not done in terms of transforming WPP Media.

When do you think you'll be mostly done? Are you going to every pitch with the solutions and products you want? Is it end of 2025, sometime in 2026? Was WPP Open fully operational when you pitched for Mart and PayPal? Lastly, probably for Joanne, how much was Hogarth of net sales in full year 2024? Thank you. Joanne, do you want to tackle those in the next round?

Speaker 3

Yeah, let me tackle one and three, Julien, and then if Mark wants to build on anything, he can. On Hogarth, it was about 5% of total net sales last year. In terms of the guidance, as we described in July, the revision of guidance is really split roughly equally between the macro impact that we're seeing, some facts we talked about that seeing that be in media. The only 50% are net new business. Within net new business, it's really incremental client losses since the start of the year. Again, that's really in media, and then a weaker new business performance driven by conversion, but also just the lower volume of new business that we're seeing. Conversions talked about media pitch volumes being a third of what they were in the first half of 2024, so there is a lower volume of that.

In new business specifically, at the start of the year, we were expecting it to be broadly flat. We're now expecting a two-year drag of 100 to 150 basis points for the reasons I outlined. If you look at it from a gross client loss perspective for the full year, we're probably expecting around 3 to 4% of a drag from that. Hopefully that gives you some of the levers within it. In terms of the range, it is a wide range, and I think that reflects the volatility that we're seeing in the market. At the lower end of that range, it assumes 0.7%, which is worse than the first half, and also deterioration in the underlying second quarter performance. At the top end, it's at a flat 7%. The variabilities within that are the macro and the continuing new business performance. Brian, I'll hand to you.

Speaker 0

Yeah, Julien, thanks for the question. In terms of the implementation of Open Media Studio, we will be substantially done with the deployment of the platform by the end of 2025. We're prioritizing by market and by client, but that rollout is happening as we speak. In terms of Mars, we were in the process of deploying Open Media Studio for Mars. In terms of PayPal, we did not pitch for PayPal. We resigned the PayPal business.

Speaker 1

Thank you.

Speaker 4

Thank you very much. Our next question comes from Steve Lecci from Deutsche Numis. Your line is now open. Please go ahead.

Speaker 1

Thank you very much, guys. Can I just focus on the media side? Sorry if this replicates Julien's last question, actually. Just on Open Intelligence rollout, just to confirm, U.S. and UK, it's with existing clients. Have you got any evidence in terms of pitches that you are using it for where you've had success or not at this stage, or is it just too early where we are? Second question is on the media changes and the sort of consolidation there. Clearly, a lot of disruption in the first half. Can you just confirm that that disruption is being contained, or is there a further drag into the third and fourth quarter? Are things happening that perhaps you weren't planning for in terms of you cut too hard here or there?

Just to give us some comfort that, when does that media business stabilize and get back to where you want to be, I guess, in terms of operationally? I'll leave it there.

Speaker 0

Thanks for the question.

Speaker 1

Go ahead.

Speaker 0

Anytime you transform a business as dramatically as we have, you're going to experience some disruption. We did see that in the first half. We are substantially through that transformation, and I don't expect any lingering effects in the second half. We restructured the company. We put new leadership in place. We are consolidating onto one platform. I feel very good about going into pitches in the second half of 2025. In terms of the Open Intelligence rollout, Open Intelligence is our data model. It underlies Open Media Studio, which is our platform. Yes, we have seen success already on some of our longstanding clients in terms of outperforming traditional identity-based approaches to performance.

Speaker 1

Very good. Brian, can you actually give me—sorry, go on, Mark. Sorry, you go. I'm going to just add to Brian's point. You know, the U.S. and the UK, the two most important markets.

Speaker 4

which we need to implement Open Intelligence. They're the most sophisticated data markets and the area where we have, let's say, the biggest gap versus the competition. I think that has to be the priority. I think the brand is correctly focused on that, and the rollout in the other markets is taking place. I think that does close the gap in an important way. You're asking one further question now.

Speaker 1

Sorry, the follow-up really was, you know, when we were in Cannes, it kind of felt like you were still really introducing Open Intelligence to clients. I just really wanted more comfort that, you know, you're actually out there deploying it and it was being successfully used in pitches. Anything you can just say on that, please, would be helpful.

Speaker 4

Frankly, I wish there were more pitches, but it is being successfully used on pitches. We're towards the tail end of some pitches now. I expect it to produce great results on pitches, but as you know, we can't necessarily control how many pitches there are in market. What I can tell you is, as we adopt Open Intelligence for our incumbent clients, we are seeing performance gains that are substantial as compared to traditional approaches to identity.

Speaker 1

Great, thank you.

Speaker 5

Thank you very much. We currently have no further questions at this time. I would now hand the call over to Mr. Mark Read for further closing remarks.

Speaker 1

Thank you very much. If there's no more questions, I think we'll leave it there. Before I go, I just want to thank our clients and our people for their ongoing trust and support. I also thank all of you, the analysts and investor community, for your interest in WPP and engagement. I've enjoyed, I think I've enjoyed these calls over the years. Maybe the thing I will miss the most, why not? It's a continuing challenging environment out there, and I think we're under no illusions about that, as you say. I think we have made some difficult decisions and some of those decisions will be made today. I am positive about the future, and I look forward to seeing what comes next. I end by thanking, you know, in particular, it's in video to me to thank particularly.

Thank Joanne, who's here in them for her support, and with Scott, his support over the last seven years for the board. I wish Cindy all the best in taking over the reins, and thank you all very much, and goodbye.