Wpp Plc · LSE:WPP
Wpp — FY2018 Earnings Presentation
60 slides from Wpp's earnings presentation, Mar 1, 2019
Slide 1: 2018 Preliminary Results
2018 PRELIMINARY RESULTS London 1 MARCH 2019 2018 PRELIMINARY RESULTS 1
Slide 2: Safe Harbour Statement
SAFE HARBOUR STATEMENT In order to utilise the ‘safe harbour’ provisions of the United States Private Securities Litigation Reform Act of 1995 (the ‘PSLRA’), WPP plc is providing the following cautionary statement. This presentation contains certain forward-looking statements – that is, statements r
Slide 3: Overview
OVERVIEW 2018 FINANCIAL RESULTS STRATEGY UPDATE CONCLUSION AND Q&A 2018 PRELIMINARY RESULTS 3
Slide 4: Introduction
INTRODUCTION • 2018 at upper end of guidance in October • 2019 challenging due to headwinds from client losses in 2018, with greater first half impact • Good initial progress on strategy, with a focus on execution and North America – Simplifying the offer – Strengthening leadership team – Implementi
Slide 5: 2018 Financial Results
2018 FINANCIAL RESULTS 2018 PRELIMINARY RESULTS 5
Slide 6: Full Year Highlights
FULL YEAR HIGHLIGHTS • Fourth quarter like-for-like revenue less pass-through costs down 0.7%, improved on third quarter down 1.5% • Full year like-for-like revenue less pass-through costs down 0.4%, ahead of guidance • North America continued weakness with like-for-like revenue less pass-through co
Slide 7: Summary Unaudited IFRS Income Statement
SUMMARY UNAUDITED IFRS INCOME STATEMENT Δ CONSTANT YEAR TO 31 DECEMBER 2018 £M 2017¹ £M Δ REPORTED² CURRENCY³ Revenue 15,602 15,804 -1.3% 1.5% Gross profit 2,939 3,175 -7.4% -5.0% Operating profit⁴ 1,431 1,908 -25.0% -22.2% PBIT⁵ 1,475 2,022 -27.0% -24.4% Profit before tax⁵ 1,463 2,109 -30.6% -28.1%
Slide 8: Summary Unaudited Headline Results
SUMMARY UNAUDITED HEADLINE¹ RESULTS Δ CONSTANT Δ LIKE-FOR- YEAR TO 31 DECEMBER 2018 £M 2017² £M Δ REPORTED CURRENCY LIKE³ Revenue 15,602 15,804 -1.3% 1.5% 0.8% Revenue less pass-through costs 12,827 13,170 -2.6% 0.2% -0.4% Operating profit⁴ 1,962 2,154 -8.9% -6.6% PBIT 2,047 2,267 -9.7% -7.4% EBITDA
Slide 9: Revenue Less Pass-Through Costs Growth vs 2017
REVENUE LESS PASS-THROUGH COSTS GROWTH VS 2017 Q1 Q2 Q3 Q4 FULL YEAR Like-for-like -0.1% Like-for-like 0.7% Like-for-like -1.5% Like-for-like -0.7% Like-for-like -0.4% Acquisitions 1.1% Acquisitions 1.1% Acquisitions 0.6% Acquisitions -0.1% Acquisitions 0.6% FX -6.1% FX -3.9% FX -2.0% FX 0.1% FX -2.
Slide 10: Impact of FX on Revenue Less Pass-Through Costs
IMPACT OF FX ON REVENUE LESS PASS-THROUGH COSTS 2017 FY ACT 2018 Q1 ACT 2018 Q2 ACT 2018 Q3 ACT 2018 Q4 ACT 2018 FY ACT 6% 4% • 2018 Q4 minimal 2% 4.6% currency impact • 2018 full year headwind 0% almost 3% 0.1% -2.0% -2.8% • 2019 full year headwind -2% -3.9% c. 1% at budget -6.1% exchange rates -4%
Slide 11: Revenue Less Pass-Through Costs by Region
REVENUE LESS PASS-THROUGH COSTS BY REGION Δ CONSTANT Δ LIKE- % GROUP 2018 £M 2017¹ £M Δ REPORTED CURRENCY FOR-LIKE North America 34.9 4,474 4,794 -6.7% -3.5% -4.2% UK 13.2 1,691 1,688 0.2% 0.2% -0.5% Western Continental Europe 21.3 2,736 2,631 4.0% 4.1% 2.0% Asia Pacific, Latin America, Africa & Mid
Slide 12: Revenue Less Pass-Through Costs Growth by Region
REVENUE LESS PASS-THROUGH COSTS GROWTH BY REGION 2018 LIKE-FOR-LIKE % C. & E. Europe % Q1 Q2 Q3 Q4 FY 5.6 3.1 4.9 12.7 6.9 UK % Q1 Q2 Q3 Q4 FY 1.6 1.4 -2.0 -2.7 -0.5 North America % Q1 Q2 Q3 Q4 FY W. Cont. Europe % -2.4 -3.3 -5.3 -5.7 -4.2 Q1 Q2 Q3 Q4 FY -0.2 3.9 -0.4 4.1 2.0 Asia Pacific % Q1 Q2 Q3
Slide 13: Major Markets
MAJOR MARKETS USA UK Germany Greater China² France REVENUE LESS PASS-THROUGH COSTS GROWTH¹ 2018 FY -4.2% -0.5% 0.0% 2.1% 0.1% 2018 Q4 -5.7% -2.7% 1.1% -1.0% 4.0% 2018 Q3 -5.3% -2.0% -1.0% 1.8% -4.5% 2018 Q2 -3.3% 1.4% 5.5% 6.5% -0.1% 2018 Q1 -2.2% 1.6% -5.7% 2.1% 0.7% 2017 FY -3.2% 4.8% -1.3% -3.2%
Slide 14: BRIC Markets
BRIC MARKETS Mainland China Greater China² Brazil India Russia REVENUE LESS PASS-THROUGH COSTS GROWTH¹ 2018 FY 2.6% 2.1% 5.6% 5.5% 1.3% 2018 Q4 -3.0% -1.0% 2.2% 7.4% 13.2% 2018 Q3 2.5% 1.8% 9.0% 12.9% -0.8% 2018 Q2 9.0% 6.5% 5.9% 1.4% -9.3% 2018 Q1 3.6% 2.1% 6.0% 0.3% 0.6% 2017 FY -1.8% -3.2% 1.6% 1
Slide 15: Revenue Less Pass-Through Costs by Sector
REVENUE LESS PASS-THROUGH COSTS BY SECTOR Δ CONSTANT Δ LIKE- % GROUP 2018 £M 2017¹ £M Δ REPORTED CURRENCY FOR-LIKE Advertising, Media Investment 43.1 5,530 5,889 -6.1% -3.3% -1.2% Management Data Investment Management 15.3 1,966 2,052 -4.2% -1.3% -1.8% Public Relations & Public Affairs 8.9 1,136 1,1
Slide 16: Like-for-Like Change in Headline PBIT Margin
LIKE-FOR-LIKE CHANGE IN HEADLINE¹ PBIT MARGIN² 17.2% -0.5% -0.1% -0.1% -0.4% 16.0% -0.1% -1.2% Staff Costs ex Incentives Establishment Associate Income 2017 Proforma³ Incentives Other Operating Costs 2018 Actual 1. Figures before goodwill and intangibles charges, gains/losses on step-ups, gains/loss
Slide 17: Headline PBIT and Margin by Region
HEADLINE PBIT AND MARGIN BY REGION HEADLINE PBIT¹ £M HEADLINE PBIT MARGIN² YEAR TO 31 DECEMBER 2018 2017 2018 2017³ North America 804 937 18.0% 19.6% UK 245 280 14.5% 16.6% Western Continental Europe 372 376 13.6% 14.3% Asia Pacific, Latin America, Africa & Middle 626 674 15.9% 16.6% East and Centra
Slide 18: Headline PBIT and Margin by Sector
HEADLINE PBIT AND MARGIN BY SECTOR HEADLINE PBIT¹ £M HEADLINE PBIT MARGIN² YEAR TO 31 DECEMBER 2018 2017 2018 2017³ Advertising, Media Investment Management 972 1,109 17.6% 18.8% Data Investment Management 301 350 15.3% 17.1% Public Relations & Public Affairs 184 183 16.2% 16.1% Brand Consulting, He
Slide 19: Trade Estimates of Assignment Wins (1)
TRADE ESTIMATES OF ASSIGNMENT WINS (1) MEDIA (M)/ WPP AGENCY CREATIVE (C) INCUMBENT ACCOUNT OFFICE BILLINGS $M MediaCom M PUB/OMC Mars Global 930 Wavemaker/Mindshare M DEN Mondelez EMEA, Asia Pacific 500 MediaCom M DEN Sky Europe 425 MediaCom M DEN/PUB Adidas Global 300 Essence M PUB T-Mobile N Amer
Slide 20: Trade Estimates of Assignment Wins (2)
TRADE ESTIMATES OF ASSIGNMENT WINS (2) MEDIA (M)/ WPP AGENCY CREATIVE (C) INCUMBENT ACCOUNT OFFICE BILLINGS $M Team Amplify M IPG Bose Global 80 MediaCom M PUB Ally Financial USA 70 MediaCom M PUB Hilton Hotels USA 68 Mindshare M OMC Unilever India 65 MediaCom/VMLY&R M/C OMC Office Depot NAFTA 62 Wa
Slide 21: Trade Estimates of Assignment Losses
TRADE ESTIMATES OF ASSIGNMENT LOSSES SIGNIFICANT MEDIA (M)/ WINNING ASSIGNMENTS WPP AGENCY CREATIVE (C) AGENCY ACCOUNT OFFICE BILLINGS $M RETAINED? GTB C OMC/IND Ford Global 800 MediaCom/Mindshare M PUB Glaxo SmithKline Global 600 Mindshare M IPG American Express Global 400 Mindshare M OMC HSBC Glob
Slide 22: Free Cash Flow and Free Cash Flow Conversion
FREE CASH FLOW¹ AND FREE CASH FLOW CONVERSION YEAR TO 31 DECEMBER 2018 £M 2017 £M Operating profit 1,431 1,908 Depreciation & amortisation charges 728 489 Non-cash compensation 85 105 Working capital and provisions 166 (532) Net interest paid & similar charges (162) (170) Tax paid (384) (425) Capita
Slide 23: Uses of Cash Flow
USES OF CASH FLOW¹ YEAR TO 31 DECEMBER 2018 £M 2017 £M Free cash flow 1,103 809 Net disposals/(acquisitions) ex earnout payments 560 (30) - Disposal proceeds 849 296 - Net initial payments² (289) (326) Net cash inflow before distributions 1,663 779 Distributions to share owners (954) (1,256) - Divid
Slide 24: Disposal Proceeds
DISPOSAL PROCEEDS 2018 £M Globant 254 AppNexus 169 Imagina (return of capital from associate) 108 Fullscreen 41 oOh!media 38 Teledirect 21 DA & Search Link 20 Other 198 Full Year 849 2018 PRELIMINARY RESULTS 24
Slide 25: Net Debt – 31 December 2018
NET DEBT – 31 DECEMBER 2018 YEAR TO 31 DECEMBER: 2018 £M 2017 £M Δ £M Average net debt on constant currency basis (4,966) (5,125) 159 Average net debt on reportable basis (4,966) (5,143) 177 Net debt at 31 December on constant currency basis (4,017) (4,622) 605 Net debt at 31 December on reportable
Slide 26: Uses of Free Cash Flow
USES OF FREE CASH FLOW TARGET FY 2018 FY 2017 (Disposals)/acquisitions (excluding earnouts)¹: Acquisitions C. £200M £288M £326M Less disposals C. £(200M) £(849M) £(296M) Net (disposals)/acquisitions NEUTRAL £(561M) £30M Share buy-backs: - £207M £504M % of issued share capital - 1.3% 2.5% Balance She
Slide 27: Debt Maturity Profile at 31 December 2018
DEBT MATURITY PROFILE £M AT 31 DECEMBER 2018 TOTAL TOTAL CREDIT DRAWN £M £M 800 £ bonds £400M (2.875% Sep ’46) 400 400 US bond $450M (5.625% Nov ’43) 353 353 700 US bond $272M (5.125% Sep ’42) 213 213 600 Eurobonds €600M (1.625% Mar ’30) 539 539 Eurobonds €750M (2.25% Sep '26) 674 674 500 Eurobond €
Slide 28: IFRS 16: Overview
IFRS 16 : OVERVIEW • Pre IFRS16. Historically disclosed future minimum amounts payable under all lease commitments. For 2017, total of £3.9B¹. No discounting factor applied • IFRS16 effective 1 January 2019: – All leases treated the same, no finance and operating designation – Primarily real estate
Slide 29: IFRS 16: Headline P&L Impact
IFRS 16: HEADLINE¹ P&L IMPACT • No cash impact • Estimated 2019 P&L impact based on 31 December 2018 leases: Operating expenses - although higher total expenses as interest front loaded Operating profit Operating profit margin +0.4 to +0.6 margin points PBT Diluted EPS -1.3p to -1.6p • PBT and EPS n
Slide 30: IFRS 16: 14 Largest Leases
IFRS 16 : 14 LARGEST LEASES REPRESENTING C. 45% OF PORTFOLIO EPS -1.3p to EPS -1.6p EPS Negative Neutral EPS Positive Pre-transition Post-transition 2001-2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030-2039 Lease #1 11.8 Yrs 21.3 Years Lease #2 8.4 Yrs 15.4
Slide 31: Outlook
OUTLOOK • Our 2019 financial targets are: – Like-for-like revenue less pass-through costs down 1.5%-2.0%, with stronger headwinds in first half, due to client losses in 2018 – Headline operating margin down around 1 margin point on a constant currency basis (excluding impact of IFRS 16) 2018 PRELIMI
Slide 32: Progress on Strategy
PROGRESS ON STRATEGY 2018 PRELIMINARY RESULTS 32
Slide 33: Radical Evolution: A Strategy for Growth
RADICAL EVOLUTION: A STRATEGY FOR GROWTH VISION AND DATA AND CREATIVITY OFFER TECHNOLOGY SIMPLER STRUCTURE CULTURE 2018 PRELIMINARY RESULTS 33
Slide 34: WPP is a creative transformation company
What we do WPP is a creative transformation company Our offer to clients Communications Commerce Experience Technology Clients Companies Countries Empowered leadership Stronger operating brands Deeply connected, diverse Structure to deliver seamless solutions, covering each discipline, communities w
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Slide 36: Clients Responding Well to New Strategy
CLIENTS RESPONDING WELL TO NEW STRATEGY 2018 PRELIMINARY RESULTS 36
Slide 37: Strong Creative Work
STRONG CREATIVE WORK 2018 PRELIMINARY RESULTS 37
Slide 38: Gillette Results
” The response has been incredible… We’re only a week into it but I think we will see the positive responses go up more and more and GILLETTE RESULTS people will see, especially among millennials that Gillette stands for something. David Taylor, CEO, Procter & Gamble +4,000 15B+ TOP 10 EARNED MEDIA
Slide 39: Progress on Technology
PROGRESS ON TECHNOLOGY • Building out central technology team with new data and creative technology appointments • Launched cloud migration project across GroupM, Wunderman Thompson and Hogarth • Deployed AI-driven search tools in 30 additional clients • Formed first-to-market partnership with Waze
Slide 40: Building the Team
BUILDING THE TEAM Jacqui Canney1 Stephan Pretorius Judy Jackson Laurent Ezekiel1 Global Chief People Chief Technology Global Head of Chief Marketing and Officer, WPP Officer, WPP Culture, WPP Growth Officer, WPP Shane Atchison1 Beth Ann Kaminkow Jon Cook Mel Edwards North America CEO, Global CEO, CE
Slide 41: Building a Collaborative & Growth Focused Culture
BUILDING A COLLABORATIVE & GROWTH FOCUSED CULTURE • Executive Committee formed • Chief People Officer appointed • Incentive programs being refocused – Increasing % based on WPP performance – 50% based on top-line growth/50% based on operating profit and margin • USA client growth collaboration 2018
Slide 42: Simplification
SIMPLIFICATION FEWER STRONGER 1. More integrated solutions to clients AMOUNTS TO C.23% OF 2. Better positioned for growth THE COMPANY 3. Simpler to manage 4. Eliminate overhead 2018 PRELIMINARY RESULTS 42
Slide 43: Restructuring: Efficiency
RESTRUCTURING: EFFICIENCY Investor Day Target Current Status On Plan? 100 planned mergers Business Unit Rationalisation (at local office level) by end of 2019 70 completed or in progress ü 80 planned closures Business Unit Closures by end of 2019 57 closed ü Gross Headcount Reduction 3,500 by end of
Slide 44: Restructuring: Disposals
RESTRUCTURING: DISPOSALS Investments Associates / JV’s Subsidiaries Big Idea Group CEEOR1 AppNexus BNTI1 Grey Bulgaria CMC Content Bruin Sports Capital Grey Serbia Domo DASL IEG Fullscreen Etecture1 JWT Mirum Miami Fullsix Globant Mannov PR1 Imagine Imagina (Return of Capital) Maxx Marketing Ooh!Med
Slide 45: Better Capital Discipline
BETTER CAPITAL DISCIPLINE YEAR ON YEAR CHANGE IN NET DEBT – CONSTANT CURRENCY¹ 750 500 250 0 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 -250 -500 -750 Decrease £m -1,000 -1,250 1. Constant currency - PY net debt recalculated at CY actual exchang
Slide 46: Summary
SUMMARY • Good initial progress on implementing strategy • Promising response from clients, talent and partners • Simplifying and repositioning the business for growth • Disposals and capital discipline to have an impact • Preparations for Kantar progressing well, launch of sale process imminent, ex
Slide 47: Other Financial Information
OTHER FINANCIAL INFORMATION HARD COPY ONLY 2018 PRELIMINARY RESULTS 47
Slide 48: Unaudited IFRS Income Statement
UNAUDITED IFRS INCOME STATEMENT Δ CONSTANT YEAR TO 31 DECEMBER 2018 £M 2017¹ £M Δ REPORTED CURRENCY Revenue 15,602 15,804 -1.3% 1.5% Gross profit 2,939 3,175 -7.4% -5.0% Operating profit pre exceptional & goodwill/intangibles² 1,962 2,154 -8.9% -6.6% Net exceptional loss (67) (24) - - Goodwill/intan
Slide 49: Net Exceptional Gain
NET EXCEPTIONAL GAIN YEAR TO 31 DECEMBER 2018 £M Gain on disposals of investments and subsidiaries (Globant £185m) 235¹ Restructuring and transformation costs (302)¹ Net exceptional loss (67)¹ Share of associate exceptionals (41)¹ Net exceptional loss including associate exceptionals (108)¹ 1. As ou
Slide 50: Unaudited Headline IFRS Income Statement
UNAUDITED HEADLINE¹ IFRS INCOME STATEMENT Δ CONSTANT Δ LIKE-FOR- YEAR TO 31 DECEMBER 2018 £M 2017² £M Δ REPORTED CURRENCY LIKE Revenue 15,602 15,804 -1.3% 1.5% 0.8% Revenue less pass-through costs 12,827 13,170 -2.6% 0.2% -0.4% Operating profit³ 1,962 2,154 -8.9% -6.6% Income from associates 85 113
Slide 51: Revenue Less Pass-Through Costs Growth by Country
REVENUE LESS PASS-THROUGH COSTS GROWTH BY COUNTRY REVENUE LESS PASS-THROUGH COSTS GROWTH¹ TOP COUNTRIES More than 10% Argentina, Poland 5% to 10% Brazil, Denmark, India, Mexico, South Korea, Sweden Greater China², Mainland China, Colombia, France, 0% to 5% Germany, Italy, Japan, Netherlands, Russia,
Slide 52: Revenue Less Pass-Through Costs Growth by Category
REVENUE LESS PASS-THROUGH COSTS GROWTH BY CATEGORY REVENUE LESS PASS-THROUGH COSTS GROWTH¹ CATEGORIES 5% to 10% Retail, Travel & Airline Automotive, Electronics, Entertainment, 0% to 5% Government Computers, Drinks, Financial Services, Food, Media Less than 0% & Oil, Personal Care & Drugs, Telecommu
Slide 53: Revenue Less Pass-Through Costs by Industry
REVENUE LESS PASS-THROUGH COSTS BY INDUSTRY Other Auto 9% 13% Travel & Entertainment 7% Consumer Products 6% Telecommunications 5% Technology Personal Care 6% 10% Retail 7% Government Healthcare 2% Oil 12% 2% Financial Services 8% Food & Drink 13% Chart represents revenue attributed to each industry
Slide 54: Net Finance Costs/(Income)
NET FINANCE COSTS/(INCOME) YEAR TO 31 DECEMBER 2018 £M 2017 £M Δ £M Net debt interest 191 180 (11) Investment income (15) (16) (1) Pensions 8 10 2 Sub-total (7) (6) 1 Headline finance costs 184 174 (10) Financial instruments (172) (261) (89) Net finance costs/(income) 12 (87) (99) 2018 PRELIMINARY R
Slide 55: Pensions Deficit
PENSIONS DEFICIT YEAR TO 31 DECEMBER £M 2018 2017 Deficit B/F (206) (277) Asset Allocation 2018 2017 Service cost (16) (13) Bonds & insured 76% 75% Plan liabilities interest annuities (31) (33) charge Equities 9% 13% Funding 45 68 Other 15% 12% Investment returns (18) 40 Δ valuation assumptions¹ 53
Slide 56: Earnout Accrual
EARNOUT ACCRUAL YEAR TO 31 DECEMBER £M 2018 EXPECTED PAYMENTS £M Accrual B/F 631 2019 148 Earnouts paid (120) 2020 140 New acquisitions 49 2021 39 Revised estimates taken to goodwill (68) 2022 50 Revaluations of payments (83) 2023 20 Excluding FX 409 2024+ 18 Foreign exchange impact 6 Total 415 Accr
Slide 57: Ordinary Shares - Diluted
ORDINARY SHARES - DILUTED NUMBER SHARES MILLION 2018 2017 Δ Average Basic 1,248 1,261 1.1% Share Option Dilution 1 2 Other Potentially Issuable Shares 12 13 Average Diluted 1,261 1,276 1.1% 2018 PRELIMINARY RESULTS 57
Slide 58: Ordinary Shares - Basic
ORDINARY SHARES - BASIC NUMBER SHARES MILLION 2018 2017 Δ 1 January 1,333 1,332 Option exercise - 1 31 December 1,333 1,333 - Weighted Average 1,333 1,332 -0.1% ESOP, Treasury & Other (85) (71) Average Basic 1,248 1,261 1.1% 2018 PRELIMINARY RESULTS 58
Slide 59: Effects of Currency
EFFECTS OF CURRENCY STERLING • Currency movements 2018 2017 STRONGER/(WEAKER) accounted for 3% US$ 1.34 1.29 4% decrease revenue less pass-through costs € 1.13 1.14 -1% • Reflects strengthening ¥ 147 145 1% of £ sterling against most currencies Chinese Renminbi 8.8 8.7 1% Brazilian Real 4.87 4.11 18
Slide 60: 2018 Preliminary Results
2018 PRELIMINARY RESULTS London 1 MARCH 2019 2018 PRELIMINARY RESULTS 60