WPP - Q3 2024 TU

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to WPP 2024 third quarter trading update, conference call and webcast. At this time, all participants are in listen-only mode. 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.

Mark Read (CEO)

Thank you very much, and good morning, everybody, and welcome to WPP's third quarter trading update. I'm Mark Read, and I'm here with Joanne Wilson, our CFO. We're going to take you through our results for the quarter and then answer your questions. Back at the interim results presentation, always, I said we've been extremely busy in the first half, and that's very much continued in this third quarter.

We're making good progress against our strategic objectives, but we're starting to see concrete benefits with a return to form in recent new business outcomes and encouraging growth in our top clients. Our offer, based around fewer, stronger brands, underpinned by AI and new technology, is making us more competitive while making the company structurally more efficient to improve our profitability. There's more work to do, but I am very pleased with our progress.

Before we start, please read the important cautionary statement on page two, and on page three, in terms of the agenda, I'll just go through the financial and strategic highlights before handing over to Joanne to take you through the financial performance. We'll then briefly cover our strategic progress in the third quarter before we get into questions.

Turning to page four and our WPP Open, the highlights for the quarter. I think our third quarter delivered, you know, a return to growth, which is important, with 0.5% growth in net sales, led very much by GroupM.

We saw growth across four of our top five markets and a broad-based improvement across most client sectors, including the technology sector, which has weighed on us by 9% in Q1, 1% in Q2, return to growth at 1.3% in the quarter. For the quarter, Group M grew 4.8% after 1.9% growth in the first half. It is a slightly easier comparative last year, and a slightly tougher comparative coming from Q4, but the performance in the third quarter was encouraging.

Our integrated creativity declined 3.1%, driven by three factors: the impact of Pfizer, the macro and business conditions in China, and declines in project-based work against a more challenging macro backdrop.

We continue to make strong strategic progress against the objectives we laid out for you at the beginning of this year, driving adoption of WPP Open, our intelligent marketing operating system, and leveraging our simpler structure. That progress drove tangible benefits in the third quarter with good growth in our top 10 clients.

Our top 10 clients actually grew 7% in the quarter, despite the drag from the loss of a healthcare client. I think you can see really very good performance with our key clients. In terms of new business, we had a much stronger quarter. We said last quarter, we wanted to be more competitive in new business. We are seeing that coming through.

We won Amazon's media account outside the Americas, with a pitch built around WPP Open and led by a team drawn from across GroupM and WPP, leveraging our unmatched global footprint. It's the world's largest advertiser, so a very important win for us. At Unilever, we've consolidated the creative work with additional key beauty brands, and expanded our media relationship in the U.S., in particular with retail media and activation.

We remain Unilever's most significant media partner by some way. Q4 also started well with our creative win at Starbucks, at a pivotal moment for that business, and a retention of Honor's Global Media account, winning additional work, including within China.

We're encouraged by performance within the quarter, but with recent new business wins primarily impacting 2025 and continued macro pressures, our expectations for the full year remain unchanged, and I'm sure we'll get into that in the Q&A.

We are reiterating the guidance we gave you back in August for like-for-like net sales of -1.0% to flat, with 20-40 basis points in margin improvement, driven very much by our structural initiatives and cost discipline. Joanne, if you take us through the financial performance.

Joanne Wilson (CFO)

Thank you, Mark, and good morning, everyone. So let me take you through some more detail on our financial results for the third quarter, and I'll start on page 6. Revenue less pass-through costs fell 2.6% on a reported basis and was up 0.5% on a like-for-like basis. Reported growth includes a 2.9 percentage point headwind from FX due to sterling strengthening against a number of currencies.

The contribution from M&A in Q3 was a small negative, reflecting some small disposals and the discontinuation of a profitable business in smaller markets, which were an offset of small contributions from acquisitions. Like-for-like growth of 0.5% reflected a sequential improvement versus Q2, with Q3 lapping the softest like-for-like comparative. Now moving on to page 7 and our performance by business. Global Integrated Agencies grew 0.5% in the quarter.

Within this GroupM, our media planning and buying business grew 4.8%, with broad-based growth in all major markets, partially offset by continued weakness in China. GroupM saw good growth from both existing and new clients, with some benefits from a softer comp of 1.6% growth in Q3 2023. Across our integrated creative agencies, we saw a like-for-like decline of 3.1%.

This is broadly consistent with our first half. Hogarth continued to grow well, benefiting from new business wins and growing demand for its technology and AI-driven capabilities. Ogilvy grew well in the U.S., benefiting from recent client assignment wins. This is offset by weakness in China. VML continues to be impacted by the loss of a healthcare creative assignment, partially offset by growth in spending by auto and tech clients.

As in recent quarters, AKQA's performance was impacted by macro pressures weighing on project-related spend. Moving on to PR, revenue less pass-through costs grew 0.2% in the quarter, and within this, Burson declined mid-single digits as the business continued to be impacted by the loss of Pfizer assignments and the impact of macro uncertainty on some areas of client spending. This is offset by continued growth at FGS Global.

Finally, our specialist agencies grew 0.8%. Within that CMI, CMI Media, our specialist healthcare media planning and buying agency, continued to grow well. Landor and Design Bridge performance declined at a similar level to the first half, also impacted by pressures on project-based spending. This was partially offset by stabilization in some smaller agencies against easing incomes. Page eight highlights performance across our geographic segments.

North America grew 1.7%, reflecting good growth in GroupM and across the auto and financial services sectors, offsetting a weaker performance in healthcare. UK net sales were stable year on year in Q3, with strong year-on-year growth at GroupM benefiting from an easier comparative, offset by weakness in project-based spend at smaller agencies. By client sector, CPG delivered good growth, offset by weaker spending from healthcare, retail, and automotive clients.

Western Continental Europe improved sequentially with 2.2% growth in Q3, reflecting growth in Germany, France, and Spain. CPG and automotive were the strongest performing client sectors. The rest of the world declined by 2.2% in the quarter, with growth in most markets offset by a decline of 21.3% in China on client assignment losses and persistent macroeconomic pressures impacting both our media and creative businesses.

Central and Eastern Europe and the Middle East and Africa grew mid-single digit in the quarter, with LatAm growing low single digits. Now moving to trends across our key client sectors on page nine, where we saw an acceleration across most sectors. We continued to deliver strong growth in consumer packaged goods, our largest sector, which grew 7.6% in Q3, reflecting continued brand investment by our largest CPG clients.

The technology sector saw further stabilization, with growth of 1.3% in the quarter, which, although modest and against the soft comps, is encouraging. Automotive grew 5.8% on strength in the U.S. and Germany, and financial services grew 5.3%, helped by new client wins and growth in our largest clients. Telecom, media, and entertainment declined by 2.3% as we anniversary 2023 new business wins.

Healthcare and retail continued to decline, impacted by past client losses, however, at a slower rate than in the first half. Turning now to page 10 and the movement in adjusted net debt. As of the end of September, adjusted net debt was around GBP 300 million lower than September last year. We continue to expect adjusted net debt at year-end to be broadly flat, and this excludes the impact of expected proceeds from FGS.

As part of that, we continue our focus on disciplined working capital management as we work towards our target for a flat working capital movement for the full year. The lower level of adjusted net debt in September versus last year also reflects a lower level of M&A spend in the last twelve months.

For the full year, the benefits net debt from lower M&A spend will be partially offset by some accelerated earn-out payments and higher year-on-year cash restructuring costs, which we expect to be in line with guidance. Moving on to guidance for twenty twenty-four on page 11, we are reiterating our guidance for like-for-like revenue less pass-through cost growth of -1% to flat for the full year. The midpoint of this range implies Q4 like-for-like of -0.5%.

Q4 is always the largest quarter, and there remains uncertainty with regards to client spending plans in the balance of the year, reflecting a continued uncertain macro and political environment. This environment, together with the tougher comparatives in Q3, will likely weigh on Q4 relative like-for-like, and of course, our recent new business wins will not impact until twenty twenty-five.

We are also reiterating our guidance for improvement in headline operating margin of 20-40 basis points at constant currency, despite the short-term costs of staffing up for new business wins and continued investment across our business. This margin improvement reflects the strong execution of our three strategic initiatives, which, as well as setting us up for accelerated growth, are also reducing structural costs in our business.

We expect a 3.2 percentage point headwind to reported net sales from FX over the full year and expect to have an adverse impact of 20 basis points on full year margins based on current FX rates. This is based on an FX rate of 1.3 sterling to US dollars as at mid-October 2024.

The impact of M&A on the full year is likely to be slightly negative, with some sensitivity to the timing of the disclosure of the closure of the disposal of FGS Global. This also reflects the small disposals and portfolio optimization actions mentioned earlier. So thank you, and I will now hand you back to Mark to update on our strategic progress.

Mark Read (CEO)

Thanks very much, Joanne. So, turning to our strategic progress on page 12, and I think I'd overall describe it as a time we've been very busy. We continue to make very good progress on building a simpler, more efficient company through the simplification of GroupM, the creation of VML and Burson.

At GroupM, you can see the results of the simplification, greater sharing of resources, and the impact of WPP Open in terms of new business performance. There were two important strategic wins for GroupM and for WPP that I highlighted at the beginning of the call. The first was Amazon, where we led an integrated global approach, and were awarded the media business outside the United States.

I'd say that the factors that contributed to this win were, you know, a very strong team with top talent sourced from across GroupM, the demonstration of WPP Open and how it helped Amazon to improve its media effectiveness and its operations.

A very close collaboration with VML throughout the pitch, demonstrating both how we can bring creative ideas to life through media, and also the VML shopper capability in the United States and in Luxembourg, reflects the acquisition of the Amazon Marketing Cloud, Amazon marketing expertise, Marketplace Ignition in 2017 in Seattle, and two SaaS in Luxembourg in 2018. And finally, it is to demonstrate the depth and breadth and strength of GroupM's media business globally.

I think we saw the same factors come to play at Unilever, where we're the incumbent on much of the business, and after a very competitive review, we came out, broadly speaking, ahead of where we started. Most importantly, we consolidated the retail media and retail activation business in the United States that we lost two years ago. We demonstrated a very strong integrated approach across media and commerce, and how we can help Unilever to win in retail, which is really where it matters.

Secondly, for VML, the merger is now behind them. You know, they have been impacted by the loss of a healthcare client in 2023, so they have had very good wins. They're part of the key WPP win of the U.S. Starbucks creative work, along with a number of our other agencies, and Burson have been working through the merger this year.

Corey and the team have done a very good job of bringing the two organizations together. I think I'd say it probably had more of an impact than we anticipated on the top line, but they have been able to attract some very, very strong talent into the company. Excellent, and, will further strengthen the business for next year.

While we're discussing the performance of our individual brands, I would like to recognize Ajaz Ahmed and AKQA. Ajaz founded the company thirty years ago. It's an amazing business. I'd like to thank him and recognize the creative excellence and reputation of the company that he built in AKQA. The strategic process is WPP Open and the adoption of AI across WPP. As you know, we do believe AI will be fundamental to WPP's future.

We can see its potential to make our people more productive, to produce more work at higher quality and lower cost, and to make our work more effective by delivering campaigns that are more targeted and relevant to consumers and drive higher ROI to our clients. We're investing more than GBP 215 million in WPP Open, some of that incremental, and all of that investment really focused on the scaled adoption of AI across WPP's agencies.

We're using WPP Open to deploy AI tools into the workflow. For example, I now have WPP Open on my iPhone, allowing me to demonstrate the power of AI in the creative process to clients. The other benefit of WPP Open is to allow us to streamline how we work together across the company and to bring creative, media, and production activities together more seamlessly.

It's being architected in a way that allows work to flow across the company, and also importantly, data. This is gonna be critical to delivering both efficiencies in production as well as more effective media plans and driving data into the creative process. As we roll out WPP Open across the organization, we are seeing continued steady growth in adoption across the enterprise.

Monthly active users are up 107% since the start of this year, and LLM usage up 300%. So not only are more people using it, but they're using it more often. And I would make one more comment on AI, while it's fundamental, I still think that 2024 is a year of, let's say, proof of concept, where we're seeing what AI can do and its potential.

Next year, we very much start to see its impact more fundamentally on the business. That said, where we are seeing the impact is in new business, where clients are starting to look much more at technology usage and adoption. I said at the start of this year, client RFPs barely mentioned AI. That's starting to change, and clients are looking for partners who have strong capabilities and platforms powered by AI.

The third area of strategic approach to highlight the sale of our stake in FGS Global to KKR. It's a strong company, and we're very pleased with our partnership with management, allowed us to create more than $500 million in value for WPP shareholders over the last five years. The sale was a very strong valuation and allows us both to strengthen our balance sheet and give us more financial flexibility over the medium term.

As you answer, we expect the transaction to close before the end of the year, and we'll be using the proceeds to reduce debt and leverage. We also acquired NCA in the U.K., a very strong creative and experienced agency led by James Murphy and David Golding, being brought together with Ogilvy in the U.K. and will further strengthen Ogilvy's offer here in this important market.

So in conclusion, on page fourteen, I'd say it's been a very productive quarter. We've made continued progress on our strategic objectives, returned to growth in the quarter, which while it was expected, is a positive step. We've won significant new assignments, but we are reiterating our guidance given the impact of those assignments will start in twenty twenty-five. So perhaps I can close on why, I am, and our leadership team is positive for the future for WPP.

I think to start with, you know, it hasn't been an easy twelve months, with pressures from technology clients, a very tough market in China, a softer macro environment weighing on some of our more project-related businesses, as well as the painful loss of a healthcare client. We've also had to be more both internally focused on the furthering restructuring that's been needed to prepare the company for the future, and externally focused with major clients to defend and to pitch.

I'd say the leadership time we've had, the leadership team have had a busy time, but that's the reality. We're not making excuses. I do think in that context, the last quarter is important when we go into twenty twenty-five with more confidence and more external focus on being more competitive.

It's early days, but I do believe we can see how we can be more externally focused now. We have much of the restructuring behind us. We're winning more new business, critical pitches with two of the world's top ten advertisers. We have a strong new business pipeline. There's some at risk, but no more than at any time. We won't win everything, as we have strong competitors, but I do believe we're in a much better position than we were this time last year.

We have a very well-balanced business in media, production, and creatively and geographically in the United States and internationally, with real strength for major global clients. And most importantly, I believe that AI is a once in a generational shift, just like the internet was thirty years ago. Sadly, I'm old enough to remember its impact, but it's very reminiscent today of that time.

Look, where we are now is very similar. The early adopters, and I believe we are an early adopter, can see the potential. It's not quite ready, but it will be. The critical task ahead of us is to focus on delivering that and staying the course. That's certainly what we're going to do. Thank you very much for listening, and now we'll take your questions.

Operator (participant)

Thank you, sir. 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's 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 two. Again, please 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 Metayer with Morgan Stanley. Laura, your line is now open. Please go ahead.

Laura Metayer (Media & Entertainment Analyst)

Good morning, Joan and Mark. Three questions for me, please. The first one is: what would need to happen in Q4 for you to reach the top end of your full year twenty twenty-four guide? Second question is on the recent wins. So first of all, congratulations on your recent wins.

Could you give us an idea of the impact of the net new business on twenty twenty-five growth, and when do you expect your recent wins to impact your revenue? Last question on GenAI. You mentioned you expect GenAI to be a revenue contributor in twenty twenty-five. Do you expect the pricing model of ad agencies to evolve with more GenAI products being leveraged, or is that too soon to know yet? Thank you.

Mark Read (CEO)

Okay, why don't I take the GenAI question, and then Joanne can take the two questions on the guidance in 2025? But I think that we are seeing the impact of our investments in our new business and in assignments with clients. I think it's too early to say how it will impact the pricing model.

I think we talked before that we do have significant parts of our business that are on fees, relatively smaller parts on commission, and a number of parts of our business we do within GroupM and Hogarth have output-based pricing. I think broadly speaking, we can expect GenAI to lead to more output-based pricing. I think we'll have to see what happens over time.

There's also the opportunity, we said before, for us to earn technology license fees and other technology fees that are linked to those investments. But I think broadly speaking, I think we will start to see more of an impact of GenAI on our revenues in the next year. I think there's nothing to suggest so far that will be, you know, negative, and certainly at the moment is sort of contributing positively to our revenues. Joanne, do you want to talk about guidance in the next year?

Joanne Wilson (CFO)

Yeah. So thanks, Laura, for the question. Look, our full year guidance of minus 1 to flat would imply a range of minus 2.3% at the bottom and 1.4% growth at the top end for Q4, and the midpoint of that is minus 0.5%. And where I'd probably start with is the differential in the comp is about 90 basis points between Q3 and Q4, so that is going to be a factor within that.

Then other factors to consider, I think, perhaps most importantly, is the macro. Q4 is our biggest quarter, and therefore it does tend to be a little bit more volatile. And we're not seeing an easing in that macro.

You know, there remains a lot of uncertainty across the economic and geopolitical landscape, so, you know, that will be a factor. We would need to see an improvement in China. You know, at this point, the central cases will see continued trends as we've seen in the last couple of quarters in that market. And then, of course, there's tech.

So we're encouraged by the stabilization, the further stabilization of tech in the third quarter. It is a tougher comp in Q4, so we were down almost 13% Q3 last year for tech, and in Q4, it was down 5%. So those are some of the factors to think about, and all of those will need to move in the right direction to hit that the top end of that range.

And then to your second question on the impact of net new business on twenty twenty-five. Look, we've said before that in any year, net new business tends to have a plus or minus one and a half percentage points on like for like.

Now for 2025, we're certainly not expecting to have the same drag on the top line for net new business as we had in 2024. You know, most notably, that healthcare loss will largely fall away in 2025. We are encouraged by, you know, the wins that we've seen in Q3. At this point, we're probably neutral on the impact of net new business, and so to move that into positive territory, we'll need to continue to build on the recent new business success that we've seen in Q3.

Laura Metayer (Media & Entertainment Analyst)

Very helpful. Thank you.

Operator (participant)

Thank you. Our next question is from Nicholas Langlet with BNP Paribas. Nicholas, your line is now open. Please go ahead.

Nicholas Langlet (Stock Analyst)

Hello, good morning, everyone. I've got three questions, please. The first one on GroupM. So we are now a couple of months after the nomination of Brian Lesser as new CEO. Curious if there have been any new key initiatives that have been discussed for GroupM, and when do you expect the benefit of those actions?

Secondly, on M&A, this year will likely be a light year. Anything in the pipeline that could impact two thousand and twenty-five? And are there any specific areas you are looking at, at the moment? Finally, on the midterm margin, at the Capital Markets Day, you mentioned steady improvement beyond two thousand and twenty-four.

Considering the current market condition, the disposal of FGS Global and the current level of reinvestment, do you still expect this steady improvement, or it's more back-ended in your midterm plan? Thank you.

Mark Read (CEO)

Okay. So I'll cover GroupM, and Joanne will take the other two questions. Look, I think Brian's been with the business, I think, five or six weeks, and it's too early to be specific. What I would say is that, you know, I think he's, I think he would say, and we would feel that the simplification of GroupM that we started last year is very much a step in the right direction. So it's very much about continuation of that process. I think he's focused on, you know, talent, technology, data, and the product. I think the product is important.

You know, Brian came from Xaxis and 24/7 Real Media that we acquired in two thousand and seven, and he was the, you know, founding CEO of Xaxis. I worked very closely with him at that time, and I think, you know, we led the way at that time in, you know, new media models and new media products for clients. And I think that's something that very much he plans to continue. So I think we'll update you as that progress goes, but I think there's nothing more to say at this point. Joanne?

Joanne Wilson (CFO)

Yeah, Nicholas, just starting with your question on M&A. Look, at the start of this year, we said that the focus this year would really be on organic parts of the business. That's the three strategic initiatives on our investment in WPP Open, and as Marcus shared, we've made really good progress on those.

I wouldn't read too much into M&A being a light year. I would expect that from next year, we'll get back to more normalized levels. And of course, you know, there has been some M&A activity in the market, and we have looked at those opportunities, as we do, and there's nothing significant that we have in the pipeline currently. In terms of your question on midterm margin, the...

You know, nothing really has changed since setting that financial framework in, in January this year at a Capital Markets Day. We remain confident that it's the right financial framework for us, and, and we will deliver against that.

The three big drivers of that margin improvement, first one was the cost out, and we're absolutely on track to deliver that net saving of GBP 125 million, which we'll fully realize in 2025. We then talked about efficiencies across the front office and the back office, which we are getting on with, and also operating leverage as we move towards that medium-term growth target of 3% plus. So those all still stand.

We talked about the 16%-17% range being really reflective of the investment that we already make in our business and will continue to make, with the priority being around open and AI, as you've seen and heard. With regards to FGS, you know, we the impact on margin will probably be about 20 basis points. It'll be broadly neutral on EPS because we fully consolidated that business, so it's not material enough to have a significant impact on that medium-term guidance of 16%-17%.

Nicholas Langlet (Stock Analyst)

Okay, thank you.

Operator (participant)

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

Adrien de Saint Hilaire (Director and Head of European Media Research)

Yeah. Thank you. Good morning, everyone. First of all, can you just remind us, like, what was the headwind from account losses in twenty-four? I think you called out the healthcare loss being a one-point drag, but was there anything else for twenty-four? And then, Mark, recently there's been a number of profit warnings in the automotive sector.

Some consumer goods companies have also been talking about lower growth. I'm just curious, across these two groups, like, what's been the tone of conversation with these two companies? Are they still keen on investing more on marketing, or are you seeing the usual, I would say, knee-jerk reaction, that when sales go down, they tend to reduce marketing spending? Thank you.

Mark Read (CEO)

Yeah, I think on the question on headwinds, you know, I think Joanne said, you know, it's plus or minus one and a half, and if... You know, we always win business, and we always lose business, but I'd say... if you said this year was minus one and a half beyond what we would expect, given it was not a good year, I think that's not an estimate to be a million miles away.

I think on the second point, look, I think we're seeing companies continue to invest in what I would call ongoing marketing, you know, brand building, sales, things that drive consumer demand and build brands. I think where we're seeing pressures is on the more discretionary elements of the marketing mix. That means within CPG and auto.

Look, if you look at our top 10 clients and the growth, you know, it's very, it's very strong. It's up 7% in Q3, despite, you know, the impact of Pfizer. So I think you can see that in the numbers. Where I think we're seeing more pressure is sort of more, you know, smaller clients, more discretionary business.

Yeah, I think automotive, it's definitely competitive. I don't see companies, you know, certainly not slashing spending or pulling back. I think it's really about getting the right balance between, you know, price and volume and innovation. But I think the general tone we've seen from clients is, particularly in CPG, you know, return to, you know, since COVID, consistent investments in marketing, and I think you see that across the sector. Okay?

Adrien de Saint Hilaire (Director and Head of European Media Research)

Yep, thank you.

Operator (participant)

Thank you. Our next question is from Tom Singlehurst with Citi. Tom, your line is now open. Please go ahead.

Thomas Singlehurst (Managing Director)

Yeah, thank you. Tom here from Citi. You specifically called out the impact of Media Studio within WPP Open in winning new business. Can you talk a bit more about the broader impact of Media Studio on existing clients, you know, how broadly deployed it is and what the benefits are for advertisers? That's the first question.

Then the second question, if it's okay, you know, other big holding groups have sort of thought again about the role smaller, more project-related networks play, and have even considered sort of sales or disposition of the route to go down. With respect to WPP, is there any chance this might be something you'd consider for AKQA, given its challenges? Thank you.

Mark Read (CEO)

Yeah. I'd say on Media Studio, you know, what we've really been building is taking the existing systems that we're using at GroupM, and as part of the Synergy project, really building one new system within WPP Open called Media Studio. So many clients, you know, the clients that run on the business today use many elements of Media Studio, and we're deploying it gradually, you know, with a focus on the U.S. and the U.K. across the organization, and that's, you know, started this year and will continue next year.

I mean, the benefits to all clients will be, you know, an improvement in media effectiveness in ROI, greater speed of work, more efficiency, I think, more visibility. I think the real benefit is more visibility into, you know, what's happening in real time.

But we do, we do have strong technology products that are being used across GroupM. In terms of the role of project business, look, I think businesses like AKQA and Landor and Design Bridge, you know, are very strong companies, and there are times when they're more impacted by sort of macro pressures.If you remember coming out of COVID, they all bounced back very strongly. So I think we see them as critical and differentiating parts of WPP, and would expect them to remain so.

Thomas Singlehurst (Managing Director)

One quick follow-up for Joanne, if it's okay. I mean, obviously mainly focused on net revenue, revenue less pass-through costs, but feels like there's a little bit of a gap opening up with organic revenue. Can, you know, are there any factors that are particularly driving that? Is that just GroupM, or is there anything else at play there?

Joanne Wilson (CFO)

I think that's really just the relative growth of GroupM in the quarter that you're seeing, Tom. You know, a bit more production as well, some more pass-through costs going through the result of that growth.

Thomas Singlehurst (Managing Director)

Super clear. Thank you very much.

Operator (participant)

Our next question is from Joe Thomas with HSBC. Joe, your line is now open. Please go ahead.

Joseph Thomas (IT Project Manager)

Good morning, and congratulations on the results. A couple of questions, please. Firstly, some success in winning new business, which is great. I just wondered if you could... And you've called out the impact of WPP Open on that.

I just wondered if in the feedback, what you were getting from clients, in terms of what they were valuing about your AI and WPP Open solution versus what they're able to access elsewhere, and just try and draw out some differences there, if possible. And then secondly, China. The remains weak in that geography. Can you just perhaps talk about how you're gonna turn that business around, and at what point we might see it stabilizing? Thank you.

Mark Read (CEO)

Yes, I think in terms of new business, I think clients look at WPP Open in two respects. You know, the first is, can we deploy AI into the work, into the workflow? Can we deploy AI tools to our people, enable them to do, to use them doing work in a safe and secure way?

Then the second is, does it help with the workflow within WPP? Because we're the people using it, and with the clients, and to some extent with broad adoption across the enterprise. I think both of those things are important, and I think when we talk to clients, they would say that our ability to deploy AI and then the breadth of the vision would be, let's say, the things that they see as positive within WPP Open.

On China, you know, I don't think we expect the business to, you know, expect Q4 to be very much in line with the patterns of this year. And I'd say we see some stabilization going into 2025. You know, the macro environment remains challenging. We've seen results overnight and in the last week that do talk to that. And, you know, given our, you know, our client mix is very skewed towards the luxury, FMCG, and automotive, you know, they're three sectors very linked to consumer confidence and consumer demand.

You know, we have brought new leadership into the business from within China, from without China. I was there six weeks ago. I'd say that the mood in China remains, you know, subdued. I was there before the stimulus. I don't think the stimulus has changed people's views greatly of China.

I think if we look at 2025, we don't expect it to be a repeat of 2024, and I'd say we expect stabilization over the course of the year. I think that's the way to think about sort of modeling the business, if that's what you'd like to do.

Joseph Thomas (IT Project Manager)

Yeah, thanks. I also wondered if there's been any incremental client losses in China?

Mark Read (CEO)

No, I don't think so. I mean, we were pleased to win the Honor business. I think that's important. So I don't think we've seen anything beyond that, beyond the ordinary. You know, we do have a $500 million business there, so there are always things that are positive and negative.

You know, I think the Chinese market, it's a highly competitive market, highly priced competitive market. And you know, I think what we're looking for the people to do is probably, you know, collaborate more to drive growth. We have got important and growing Chinese clients and Chinese clients with ambitions beyond China. So I think we're looking at, you know, everything we can do to, you know, support the team.

I mean, within China, they've built, you know, I wouldn't say a Chinese version of WPP Open, but effectively a Chinese version of WPP Open because the tech stack and tech partners are different there, so they're enabling the business with AI as well. And, you know, I was impressed by the meetings I had with our people and our clients there. So I think we will, you know-

Operator (participant)

It's from Steve Leahy with DB Numis. Steve, your line is now open. Please go ahead.

Stephen Leahy (Director Of Green Technology Research)

Yeah, good morning, everyone. Three quick ones from me. One is, can you just remind us in terms of project-based business skew in the fourth quarter? I know Omnicom always talks about, you know, a big number that makes it very volatile. Just remind us, your views on volatility there.

Second, on AKQA, highly regarded CEO gone. What does that actually mean for the business here? I know it's been underperforming. Are you gonna continue the business as it is? Consolidation possibilities, rationalization possibilities, what are you thinking there? And then I just wanted to confirm, what you said on the new business net effect in twenty twenty-five. I think you said it was roughly flat now, and you'd have to win further stuff to get a tailwind there. I just wanted to confirm what you said there. Thanks.

Mark Read (CEO)

Yeah. So I think, why doesn't Joanne take the first and third question? You know, on AKQA, as I said, it's a very, it's a highly differentiated business. I think it has had a tougher time like other businesses in its sector over the last 12 to 18 months. And I think we're very much, you know, working with the team there on the leadership.

There'll be an announcement on that, in due course, and we don't anticipate, you know, restructuring it or changing it, you know, in other, in other significant directions. We want to, you know, build on the legacy and successes that of the company that the Ajaz created. Joanne, you want to take the question on?

Joanne Wilson (CFO)

Yeah, I'll take the last one first, 'cause it's an easy one. Yes, Steve, the impact so far would be, you know, net neutral on twenty twenty-five, and, you know, so let's keep up the momentum that we've seen in Q3 and shift that into positive for twenty twenty-five.

In terms of the project-based businesses, look, it's most useful to think about it as, you know, AKQA is more exposed to that project-based work, just given the tech nature of the work that it does, and then also our brand agencies, Landor and Design Bridge and Partners. All three of those have, you know, seen a significant impact from just client caution, I would describe it, around those discretionary projects.

And that has resulted in, you know, quite a significant impact on their performance in the last couple of quarters. Now, we expect that to continue into Q4, so it's not getting any worse, but it's not getting any better. So I think the way to think about the project-related spend on Q4 is similar to Q3 and Q2 for us.

Stephen Leahy (Director Of Green Technology Research)

Great. Thank you.

Operator (participant)

Our next question is from Simon Baker with Bernstein. Simon, your line is now open. Please go ahead.

Simon Baker (Senior Media Analyst)

Yeah, thank you for taking the question. So reiterating the congratulations on the results. Two quick questions. One is in terms of following through to the net new business impact for 2025, you mentioned, Mark, the strong net new business pipeline that you have right now, and you did mention some at risk.

I just wondered what, how you feel about that strong pipeline compared to, say, year on year, you know, where you were this time last year. Does it feel better? Have we got a bit more that you may be able to add to 2025 at this stage rather than be at risk? So that was the first question on that.

And secondly, on the tech clients, I mean, tech spend coming back a little bit in the third quarter seems good to see, although I recognize what you say about the comps getting a little bit tougher maybe in the fourth quarter. But, how do you feel about the sort of green shoots of product cycle spend flowing through into increased marketing spend and the potential for that actually to be more of an increase going forward? Thank you.

Mark Read (CEO)

Yeah, look, I think on the new business pipeline, yeah, I think. Look, it was strong this time last year, but I think there were a lot of opportunities that I think in part that was because a lot of things sat in it for a long time. So if something sits there for six months, it feels big, but actually, things take a long time to work through, and I think that's a little bit the story of twenty twenty-four.

I think if I look at it today, you know, there's some sizable opportunities, but also things that will close, you know, over the next one, two, three, four months. You know, we had a major win in the U.S., actually about four or five months ago, and we won't start delivering revenue until twenty twenty-five.

So I think that some things have been slower to come through, and I sort of feel that the clients that are determined to make a move are perhaps moving a little bit more quickly now than they were a year ago, or maybe that's sort of instinctively how I feel about it. On tech spend, you know, I don't want to sort of get everyone carried away.

You know, I think it's positive, it's in positive territory. I was with you know, a leadership of a big tech company this week, and I think they're looking at doing more. I do think that we will see, you know, some more spend in twenty twenty-five in that area.

I'd say broadly, you know, we do believe that our strengths in that area are long-run competitive strengths for WPP, both in terms of, you know, the clients and, you know, their importance. You know, clients like Google, which is one of our top three clients, you know, are critical to our future and critical to the future of marketing.

In working with them, we learn a lot about, you know, what's important, what, where things are going, and it's a great credential for other clients. So, you know, we have got those important technology partnerships with companies like Google, and that's, you know, that is important to us. So, you know, I think that, again, I'd say they'll be positive in 2025, in line with our, you know, in line with our overall performance.

Simon Baker (Senior Media Analyst)

Thank you.

Mark Read (CEO)

Thank you.

Operator (participant)

There are no further questions at this time. This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

Mark Read (CEO)

Thank you.