TIDMWPP
RNS Number : 9317I
WPP PLC
17 December 2020
17 December 2020
Accelerating Growth
WPP is hosting a virtual presentation for investors and analysts
which will provide an update on its strategy for growth, set out
opportunities for efficiency and reinvestment, outline its plans
for capital allocation and provide new medium-term financial
targets. The event will be webcast live from 1pm GMT today at
www.wpp.com/investors and available for replay subsequently.
Strategic goals
n Return core Communications business to sustainable growth
n Expand further into high-growth areas of Commerce, Experience
and Technology - from 25% of our business today to 40% by 2025
n Fund growth and improve profitability through gross annual
cost savings of GBP600 million by 2025, with approximately
two-thirds reinvested in talent, incentives and technology to drive
growth
n Supplement growth through targeted, scalable M&A of
GBP200-400 million annually
n Invest capital expenditure of GBP450-500 million per annum in
2021 and 2022 and GBP300-350 million per annum thereafter, in our
campus programme, ERP systems and shared services to deliver gross
cost savings and improved business insight and talent
management
Medium-term targets
n Recovery to 2019 revenue less pass-through costs levels by
2022
n 3-4% annual growth in revenue less pass-through costs from
2023, including M&A benefit of 0.5-1.0% annually
n 15.5-16.0% headline operating margin in 2023
n Double-digit headline EPS growth over next three years
n New dividend policy: intention to grow annually with a pay-out
ratio around 40% of headline EPS
n Average net debt/EBITDA maintained in the range 1.5-1.75x
2020 and 2021 guidance
n LFL revenue less pass-through costs growth of -6.7% in the two
months to November
n 2020 LFL revenue less pass-through costs growth expected to be
in line with year to date performance of -8.4%
n 2020 headline operating margin expected to be 12.5-13.0%
n 2020 year-end net debt expected to be around GBP1.6
billion
n 2020 dividend in line with new policy
n 2021 LFL revenue less pass-through costs growth of
mid-single-digits %, with headline operating margin of
13.5-14.0%
n Kantar share buyback programme to resume in 2021
Mark Read, CEO of WPP, said:
"It has been two years since we set out our strategy to return
WPP to growth. Since then, we have made significant progress, with
stronger agency brands, new leadership, a simpler structure and a
strong balance sheet. We can see the results in our
industry-leading new business performance, with $5.6 billion won in
the first nine months including Alibaba, HSBC, Intel, Uber and
Unilever.
"The events of 2020 have only accelerated the structural changes
in our industry, from the expansion of digital channels to growing
demand for ecommerce solutions. The actions that we have taken have
positioned us well, and we are already working with 76 of our top
100 clients on ecommerce. There are significant new growth
opportunities for WPP as clients demand simple, integrated
solutions that combine creativity with technology and data
expertise. Clients need trusted partners more than ever to help
them transform and succeed.
"In partnership with our agency brands we are deepening and
accelerating the change already happening within WPP. We aim to
return our Communications business to sustainable growth and invest
further in the high-growth areas of Commerce, Experience and
Technology. We are converting our size into scale, making us more
effective and efficient as we share expertise across a simpler
company of stronger agency brands. GBP400 million of the targeted
GBP600 million savings will be used to fund investment in the
capabilities and technology that will drive future growth for our
people, our clients, our business and our shareholders."
For further information:
Investors and analysts
Peregrine Riviere } +44 7909 907193
Fran Butera (US) } +1 914 484 1198
Media
Chris Wade } +44 20 7282 4600
Richard Oldworth, +44 20 7466 5000
Buchanan Communications +44 7710 130 634
wpp.com/investors
Progress since December 2018
WPP has made substantial progress since launching its new
strategy in December 2018. We now operate through fewer, stronger
agency brands, with the creation of the integrated agencies
VMLY&R and Wunderman Thompson. More recently we have announced
the formation of the AKQA Group with AKQA and Grey, and the
creation of VMLY&R Commerce through the combination with
Geometry. These new integrated agency models provide clients with
simple solutions not only in communications but also in experience,
health, ecommerce, data and technology. Under GroupM, our media
business leads its industry, winning a disproportionate share of
this year's new business reviews. The resilience of our public
relations and public affairs agencies has been clearly demonstrated
in 2020. Hogarth, our production agency, continues to innovate to
provide more data-driven and personalised content solutions.
Together, WPP can provide clients with powerful solutions across
all their needs and the effectiveness of this offer is reflected in
our industry-leading new business performance with $5.6 billion of
new business won in the first nine months of the year. Our ability
to bring together creative, media, data, technology and public
relations was demonstrated most recently with the retention and
expansion of our relationship with Walgreens Boots Alliance.
We are building a strong culture and attracting new talent. Many
of our major agencies have new leadership, from internal promotions
and external hires, who are working together as part of a WPP
Executive Committee. Most recently we appointed Andy Main to lead
Ogilvy. We have bolstered our creative talent around the world,
attracting some of the best people in our industry. We now have
around a third of our people co-located on 20 campuses around the
world, bringing our agencies closer together.
We have significantly simplified WPP and reduced debt, putting
the company in a solid financial position to navigate 2020. We have
sold more than 60 businesses and investments, raising over GBP3.5
billion; merged 100 small, local offices; and closed a further 80
business units. Our net debt has more than halved from GBP4.9
billion at September 2018 to GBP2.3 billion at September 2020 and
is expected to end the year at around GBP1.6 billion.
This strategic progress is becoming evident in our results. Our
relative performance has consistently improved over recent
quarters, and both globally and in the US we have outperformed the
average of our global marketing services peers for the last two
quarters; we are leading in new business in 2020; and our client
satisfaction scores continue to improve, with a clear acceleration
during the pandemic as clients placed additional value on the work
that we do for them. Despite the challenges of the pandemic, we
grew our relationships with 15 of our top 30 clients in the third
quarter of the year.
Addressable market and WPP's growth agenda
The profound changes to consumer behaviour brought about by
COVID-19 have only accelerated the need for companies to invest in
digital technologies, ecommerce and new customer experiences. We
are strongly positioned to benefit from this acceleration. WPP
provides services in a global market with addressable fee income of
over $300 billion in 2019. Just over half of the addressable market
is in our core Communications services of media, creative and PR,
which are forecast to grow at around 1% annually 2021-2024. The
balance of spend is in higher-growth areas of Experience, Commerce
and Technology, where client spend is forecast to grow at around
10% annually over the same period.
WPP's business mix in 2019 was approximately 75% in
Communications and 25% in Experience, Commerce and Technology. Our
goal is to deliver sustainable growth in Communications through a
focus on digital communications, and to expand further into
high-growth areas of Commerce, Experience and Technology, growing
our mix from 25% to 40% by 2025, so that we increase our share of
the higher-growth areas of client spend. Furthermore, leveraging
WPP's existing global strength we will accelerate our investment in
high growth potential markets, such as China, India and South
America.
In our four integrated creative agencies, we will increase
investment in creative talent, our global client teams and our
content and technology platforms, as well as attractive industry
sectors such as consumer packaged goods, technology and healthcare.
We will supplement organic growth with targeted acquisitions,
scalable across WPP, which bring in additional talent, capability
and technology.
In our media business, we will drive growth through investment
in our innovative digital platforms, such as Xaxis, our
programmatic business, and Finecast, our market-leading addressable
TV platform.
In PR and other specialist communications, we are
well-positioned to meet demand for advice around purpose,
reputation management and sustainability, which will be the growth
drivers of the next few years.
Purpose and sustainability progress and priorities
Our purpose is to use the power of creativity to build better
futures for our people, planet, clients and communities. We have
the ability to use the power of marketing to communicate the
actions that our clients are taking to build a sustainable future
and a more inclusive society.
Our goal is for WPP to be the employer of choice for all. This
year, as part of a series of commitments to tackle racism, we
formed a Global Inclusion Council to help accelerate change
throughout WPP. The Council's role is to give a voice to
under-represented groups at the highest level of WPP, recommend
programmes, policies and initiatives that will systemically create
more inclusive and diverse workplaces, advise on leadership
succession, and remove barriers to progress. We have also committed
to investing $30 million over three years to fund inclusion
programmes within WPP and to support external organisations. We
will be publishing our racial diversity data annually in our
sustainability report.
We have made significant progress in driving gender equality,
with women now representing 50% of our senior managers. At the most
senior executive level, this figure is 37%, and our aim is to
achieve parity. From 2021, we will be integrating inclusion and
diversity metrics into executive remuneration to hold our leaders
accountable for progress.
We have made major steps in reducing our environmental impact,
cutting our carbon emissions intensity (scope 1 and 2) by 69% and
absolute emissions by 58% since 2006. We have committed to halving
our scope 1 and 2 emissions intensity by 2030, from a 2017
baseline. This year, we set two new goals: to reach net zero carbon
emissions in our campuses by 2025, and to source 100% of our
electricity from renewable sources by 2025. We are also completing
a scope 3 carbon inventory in order to set value chain carbon
reduction targets and have started taking steps to address the
carbon emissions associated with our value chain, for example as a
founding member of AdGreen, a new standard aimed at reducing the
emissions associated with advertising production.
Efficiency and reinvestment
WPP has a very material opportunity to unlock cost savings,
creating a more efficient operating platform for its agencies and
reinvesting the savings in growth. We aim to achieve annual gross
savings of around GBP600 million by 2025 by simplifying our
operating model, generating efficiencies in procurement and real
estate, and through improving the effectiveness of our support
functions and shared services. These savings include the GBP200
million permanent savings previously highlighted, which are part of
the 2020 cost reduction in response to the COVID-19 pandemic.
Of the total cost savings target, we expect to reinvest around
two-thirds into talent, technology and incentives to drive growth.
These cost savings will be phased over the next five years.
Capital allocation
The four elements of our capital allocation strategy are as
follows:
Capital expenditure : we will continue to invest in our
technology infrastructure and campuses, building platforms for our
people and our clients, and supporting reduced property costs and
standardised systems. Capex will rise to GBP450-500 million in 2021
and 2022, reflecting the peak of campus and IT investments but also
in part reflecting the postponement of some 2020 spend. After 2022,
we expect capex to return to a more normalised range of GBP300-350
million per annum.
Dividend : our goal is to pay a dividend that is growing and
sustainable, reflecting the strong cash generation of the business
while allowing for sufficient reinvestment for growth. Starting
from the current year, we intend to grow the dividend annually and
to pay out approximately 40% of headline earnings per share.
M&A : acquisitions have always been an important engine for
growth for WPP, enhancing organic growth and introducing future
talent. We intend to pursue a focused M&A strategy, building
out our capabilities in key growth areas, such as marketing
technology and ecommerce, and concentrating on a few targets with
critical mass which are scalable across WPP's offering to our
clients. We expect to spend GBP200-400 million a year on
acquisitions.
Excess capital and leverage target: we anticipate recommencing
the share buyback funded by the Kantar transaction proceeds in
2021. We expect to generate and return ongoing excess capital in
future years, subject to our leverage target of 1.5-1.75x average
net debt/EBITDA.
Current trading and 2020 full year outlook
Trends in October and November have been as expected, with LFL
revenue less pass-through costs growth of -6.7% across the two
months, taking the year-to-date performance to -8.4%.
We expect full-year 2020 LFL revenue less pass-through costs to
be in line with the 11-month figure. Headline operating profit
margin is expected to be 12.5-13.0%, reflecting a very strong
performance on cost reduction. We expect year-end net debt to be
around GBP1.6 billion, supported by strong working capital
management.
2021 guidance and medium-term targets
For 2021, we expect mid-single-digits % LFL growth in revenue
less pass-through costs, and a headline operating margin of
13.5-14.0%.
We expect to return to 2019 levels of revenue less pass-through
costs by 2022. From 2023, we are targeting annual revenue less
pass-through costs growth of 3-4%, including an annual benefit from
M&A of around 0.5-1.0%. Based on the expected phasing of our
five-year efficiency plan and reinvestment, we anticipate a
headline operating margin of 15.5-16.0% in 2023, and double-digit
headline EPS growth over the next three years.
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to
be, "forward-looking statements". Forward-looking statements give
the Group's current expectations or forecasts of future events. An
investor can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words such
as 'anticipate', 'estimate', 'expect', 'intend', 'will', 'project',
'plan', 'believe', 'target' and other words and terms of similar
meaning in connection with any discussion of future operating or
financial performance.
These forward-looking statements may include, among other
things, plans, objectives, projections and anticipated future
economic performance based on assumptions and the like that are
subject to risks and uncertainties. As such, actual results or
outcomes may differ materially from those discussed in the
forward-looking statements. Important factors which may cause
actual results to differ include but are not limited to: the
unanticipated loss of a material client or key personnel, delays or
reductions in client advertising budgets, shifts in industry rates
of compensation, regulatory compliance costs or litigation, natural
disasters or acts of terrorism, the Company's exposure to changes
in the values of other major currencies (because a substantial
portion of its revenues are derived and costs incurred outside of
the UK) and the overall level of economic activity in the Company's
major markets (which varies depending on, among other things,
regional, national and international political and economic
conditions and government regulations in the world's advertising
markets). In addition, you should consider the risks described
under Item 3D 'Risk Factors' in the Group's Annual Report on Form
20-F for 2019 and any impacts of the COVID-19 pandemic which could
also cause actual results to differ from forward-looking
information. In light of these and other uncertainties, the
forward-looking statements included in this document should not be
regarded as a representation by the Company that the Company's
plans and objectives will be achieved. Other than in accordance
with its legal or regulatory obligations (including under the
Market Abuse Regulation, the UK Listing Rules and the Disclosure
Guidance and Transparency Rules of the Financial Conduct
Authority), the Group undertakes no obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise. The reader should, however, consult any
additional disclosures that the Group may make in any documents
which it publishes and/or files with the SEC. All readers, wherever
located, should take note of these disclosures. Accordingly, no
assurance can be given that any particular expectation will be met
and investors are cautioned not to place undue reliance on the
forward-looking statements.
Any forward looking statements made by or on behalf of the Group
speak only as of the date they are made and are based upon the
knowledge and information available to the Directors on the date of
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