WPP plc (WPP) Earnings Call Transcript

Good morning, everyone, and thank you for joining the WPP Q3 2026 Trading Update Call. My name is Melanie, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Thomas Singlehurst to begin. Please go ahead.

Thank you, Melanie. Good morning, and thank you for joining us for WPP's third quarter trading update. I'm Tom Singlehurst, WPP's Group Director of Investor Relations. And joining me today are Cindy Rose, our CEO; and Joanne Wilson, our CFO. I hope you had the opportunity to read this morning's press release, together with the accompanying presentation and disclosures. And as always, I would ask you to read the cautionary statement, which is on Page 2 of the slide deck, [indiscernible]. Before Joanne takes you through the numbers in detail. I'll hand over to Cindy for some opening comments.

Brilliant. Thank you, Tom. Good morning, everyone. I want to offer a brief perspective on our progress before Joanne takes you through the detail. We are less than a year into our 3-year Elevate28 plan to return WPP to consistent and sustainable growth. We continue to make progress, and I'm encouraged by the improved momentum in the third quarter. We are reiterating our full year guidance, and we remain laser-focused on disciplined execution of the Elevate28 plan. Our Q3 revenue was up 0.5%, both reported and on a like-for-like basis, while net sales declined by 2.1% like-for-like, reflecting further quarterly sequential improvement. This was driven by a return to growth of WPP Media for the first time since 2024, led by our U.S. Media operation, which is strategically significant and really wonderful to see. WPP Production also saw 2.5% growth in the quarter. WPG Media began its transformation a year before we launched Elevate28, with WPP Production following close behind, and we're now realizing the benefits of those changes, which gives me confidence that the rest of the business will follow a similar trajectory. That momentum moves us firmly towards the build phase of Elevate28 and strengthens our foundation for a return to growth sometime during 2027. Our singular focus on execution excellence is resulting in improved new business performance and client retention, contributing to the sequential improvement in growth that we're delivering in the second half. At the same time, we are operating more efficiently and creating greater capacity to invest in our outstanding talent and the capabilities that will drive our future growth. The third quarter gave us a lot to be encouraged about. We secured new client assignments and significant client retentions, including successfully winning a competitive pitch to renew our long-standing partnership with The Coca-Cola Company for global media, data, tech and creator marketing in every market we competed for, as well as continuing to service the company's global creative partner. We also expanded our global media partnership with DoorDash, building on an 8-year relationship that now encompasses more than 40 markets worldwide. We were appointed as the media partner across North America and EMEA for Alphabet's Waymo, leading strategy, planning and buying, including to the driverless car brand Super Bowl debut. In Greater China, we're bringing together talent, technology and AI through WPP Open China to deliver Nestlé's first fully integrated content model. Other notable client wins included a partnership between AKQA and TurboTax, engaging the next generation of tax payers through digital content, Godrej Consumer Products Limited consolidated its international media operations with WPP Media across Indonesia, Bangladesh, Sri Lanka, South Africa, Nigeria, Argentina and Chile under a single connected model. And WPP was also named the integrated agency partner for the Electoral Commission in the U.K., leading voter communications across Great Britain. These wins reflect the creativity, the deep expertise and determination of our teams and the trust and confidence that our clients have in WPP's ability to drive brand differentiation and business growth at a global scale. We're also investing in the future with confidence. Last month, we opened Devon's Point, our new state-of-the-art AI-powered global flagship production facility in East London. Devon's Point was built from the ground up to support the modern demand of global brand marketing, and offers our clients large-scale virtual production sets, dedicated creator facilities such as live streaming studios, rapid shoot and edit facilities and collaboration spaces and multiple AI-enabled postproduction technology suites. We also continue to strengthen our partner ecosystem, welcoming almost 50 additional data partners to WPP Open Intelligence, including, for example, Eyeota, whose audience, data and technology bring deeper insights, more precise consumer targeting and enhanced omnichannel performance. This takes the total number of data partners to around 400, further strengthening the open, differentiated ecosystem that is central to our long-term data strategy and a source of competitive advantage for our clients. We also expanded our strategic partnership with Kyndryl to accelerate enterprise AI transformation and bring new innovations to our shared clients. As part of this partnership, WPP was named Kyndryl's global media and marketing partner, delivering a broad portfolio of integrated services powered by WPP Open, our agentic marketing platform. On the people front, we announced a few leadership changes last month. Joanne will step down as CFO in 2027, and I want to take this opportunity to recognize her contribution to WPP over the years. Joanne's leadership has helped position us for success as we deliver on the first phase of Elevate28. The process to identify a new CFO is well underway, and I know that Joanne is committed to a smooth and orderly transition once her successor is identified and onboard. We also celebrate Jon Cook's -- excuse me. We also celebrate Jon Cook's remarkable 30 years at VML before he leaves us next year. Looking ahead, I'm excited to welcome Tyler Turnbull from McCann as Global CEO of WPP Creative, while Eric Campbell, currently CEO of VML North America, will become Global CEO of VML. And to help us further deepen our trusted client partnerships across our largest WPP clients, Adam Gerhart has been promoted to Chief Client Officer. I'm excited about the leadership team we're building. This calendar of talent brings the energy, experience and leadership needed to help us accelerate the next phase of our strategy. Alongside these investments, we continue to strengthen our financial foundations. We're on track to deliver the targeted GBP 100 million in year cost savings, and we continue to make progress on asset disposals, and expect to generate more than GBP 200 million of proceeds this year. Together, these actions are creating a stronger platform for sustainable growth. Look, transformation at the scale isn't easy, and the benefits do not materialize overnight. It takes time. And progress may not always be linear, but I am incredibly proud of what our teams are delivering. They are performing and transforming with energy, enthusiasm and commitment, and that fills me with confidence that we will continue to see progress reflected in the lead indicators that we set out back in February. So as I said earlier, we're less than a year into our 3-year Elevate28 plan to return WPP to sustainable consistent growth. We still have a lot of work ahead of us, but we continue to make progress, and I'm encouraged by the commercial momentum we're delivering. We are reiterating full year guidance, and we remain laser-focused on disciplined execution of the Elevate28 plan. We'll share a fuller update on our strategic progress when we report our preliminary results in February. And with that, let me now hand over to Joanne to take you through the details of our third quarter performance. Joanne?

Thank you, Cindy, and good morning, everyone. So let me share some detail on our third quarter financial performance. And then, of course, we will open the call up for your questions. And starting with our operating performance in the third quarter in Slide 8. Like-for-like revenue less [indiscernible] costs fell 2.1% in the third quarter, while organic revenue growth, a metric which may ease comparability across our clear set, was up 0.5%. Both figures represent further sequential improvement from the second quarter and were in line with our expectations. The impact from both M&A and FX was negligible, with reported net revenue [ moving ] more in line with organic trends, down 2%. You will see further detail on performance of our business units, region and client sector on Slide 9 of the presentation, but I would call our following features of performance in the third quarter. By business unit, WPP Media saw a return to growth of 0.3% in the third quarter. This compares to a decline of 8.3% in the first quarter and a decline of 2.8% in the second quarter. While we note the impact of easing comparables and some timing benefits, we are encouraged by this performance, especially as it continues to include a significant impact from gross account losses. We are seeing an improving contribution from new business wins, however, the net impact of new business for WPP Media remains a drag on our like-for-like performance. Looking at the nonmedia businesses, WPP Creative was down 5.1%, as deteriorating rates decline versus the second quarter, which was down 3.5%. This is primarily driven by lower client spending, partially offset by the ramp-up of new business. We view this branded design continues to post good growth, while PR also returned to growth in the quarter despite pressures in the Middle East. WPP Production delivered another quarter of positive growth with the like-for-like of 2.5%, a sequential quarter-on-quarter acceleration on the 1.3% growth in the second quarter. By geography, the shape of performance is still distorted by the impact of gross account losses, which we moved heavily in North America and in the U.K. Encouragingly, both of these markets was still in negative territory, down 1.8% and 1.2%, respectively, are tracking much better quarter-on-quarter. At the same time, we are encouraged to see both Germany and India return to growth. By contrast, China was down high single digits in the Q3. However, the year-to-date trend represents a stabilization relative to the last couple of years. Given ongoing geopolitical uncertainty, I want to mention performance in the Middle East, which represents just under 2% of our business. This region was down around 13% in the quarter, a deterioration on the second quarter, and continues to be a source of uncertainty into the fourth quarter. By client sector, as discussed at both the first half and in the first quarter, trends in areas like CPG and tech continue to be impacted by client assignment losses, albeit Q3 has seen an improving quarter-on-quarter performance in both of these client sectors. Excluding this, we continue to see a high degree of polarization between the [indiscernible] sectors. We note, however, that in the third quarter, we've seen continued growth within both health care and auto. And turning to growth through the lens of our largest clients, the Q3 like-for-like decline in the top 25 clients was 2.7%, which I've mentioned, includes the impact of specific client losses. Excluding this, Q3 performance for that group was positive. Turning to our balance sheet, and you can see the detail of where net debt stands up to 30th of September on Slide 10. Average adjusted net debt of GBP 3.2 billion continues to come down both year-to-date and year-on-year, albeit somewhat assisted by the beneficial impact from IFRS 9 amendments, which were effective from 2026. Since our interim results, we repaid the EUR 750 million bond, which matured in September, and this takes our weighted average maturity back about 6 years. Also note that given successful issuances in December last year and March this year, all of our debt maturities are covered through to 2028. I would like to reemphasize that creating firm financial foundation is a core tenet of the Elevate28 plan, and that the root of this is a commitment to maintaining an investment-grade balance sheet. To this end, as we indicated in February, we have initiated processes to assess the potential sale of certain portfolio assets and continue to expect proceeds from disposal-related activity of at least GBP 200 million in 2026. Those processes continue to advance as planned. And while we do not have any additional comments to make today, we will update in due course as appropriate. And finally, turning to guidance on Slide 11. Taking a balanced view of the outlook, we reiterate our guidance for a like-for-like revenue less pass-through costs down low to mid-single digits in the second half, with Q4 like-for-like expected to be towards the better end of this range. Looking to 2027, we will not set formal guidance until the prelims in February. That said, consistent with the guidance we gave at the launch of the Elevate28 strategy earlier this year, we do continue to expect a return to growth during the course of the year. Turning to headline operating profit margin. Again, we are reiterating our guidance for a full year margin of 12% to 13%, which is consistent with second half margins decreasing by up to 200 basis points year-on-year. We are on track to deliver GBP 100 million of in-year structural cost savings as part of our Elevate28 strategy. And as intended, we are reinvesting savings into growth drivers, including the rebuilding of incentive tools. Looking beyond the net sales and margin guidance, we continue to expect to deliver adjusted operating cash flow free working capital in the GBP 800 million to GBP 900 million range. As a reminder, this excludes the anticipated restructuring costs associated with the Elevate28 program and historical restructuring programs. Excluding these, we would anticipate adjusted operating cash flow before working capital of between GBP 1 billion and GBP 1.1 billion. As mentioned, we expect the overall impact of disposal-related activity, some of which will come by direct disposal proceeds and some by associate dividends to contribute at least GBP 200 million to our cash flow in the full year. We continue to expect the improvement in average adjusted net debt to be sustained across the balance of the year. So that wraps up the formal part of our presentation, and both Cindy and I will now be delighted to take your questions.

Thank you, Joanne. We'll now begin the Q&A session. [Operator Instructions] But with that, Melanie, can you open the lines for questions, please?

[Operator Instructions] And our first question comes from the line of Ciaran Donnelly from Citi.

It's Ciaran from Citi. A few questions from myself. One, maybe for Cindy, just in terms of client conversations you've been having recently, what's the kind of outlook into 2027? What's the tone of those conversations? I guess just in terms of maybe quantification, in terms of net new business for 2027. I know you guys don't give a number for the contribution, but just directionally, where are we now versus perhaps where we were at H1? And then two, just in terms of the reiteration of the margin guidance, can you just talk us through the dynamics within that range? What are the puts and takes? And how should we think about that? And then finally, just in terms of a couple of quantifications. You called out the top 25 performance, excluding losses, was positive. Could you give us a number for that? And also just in terms of the timing benefits you called out in WPP Media, if you could just give us a sense of the size of that benefit in Q3?

Thanks, Ciaran. Why don't I kick off with client conversations in tone, and then I'll hand to Joanne on numbers. What I will say, Ciaran, is, I'm genuinely more excited about the opportunity I see today than I was even a year ago. And I think transformation at the scale that we're undertaking here clearly takes time to flow through to the numbers, and no one is more patient than I am to see that happen. But I spend time with clients every single day. And what I can tell you is that they're responding very positively to the changes that we're making. Why? Because we're showing up as one unified company, and we're able to present the best of WPP, not hundreds of different agencies. So we can offer our clients the right talent to the right client at the right time without historical agency constraints. And now that the vast majority of our [ benches ] are integrated -- the old WPP just wasn't set up to keep pace with the evolving these clients in that way, and now we are. I think our new business wins and client retentions continue to be an important lead indicator of the progress that we're making. We're seeing improving trends on both that demonstrate that we're on the right track, and the tone and conversations I have with clients really validate that. So Joanne, do you want to pick up on net new business numbers, margin?

Yes. Ciaran, thanks for the question. Yes, let me start with the margin guidance. They're very similar to the messaging in August. We do have a declining top line this year, and obviously, that has some impact on operating deleverage. But if you look at some of the drivers within the margin, we talked about structural cost savings this year of GBP 100 million, very much on track to deliver those. We also talked about the importance of getting back to sustained growth as part of Elevate28 and that we would invest in areas like media, data commerce, enterprise solutions where we saw opportunities to do so. And we indicated that all of the structural cost savings would be reinvested back into the business this year. And alongside those areas of growth, we are also investing in rebuilding our incentives. And that's really all reflected within the margin guidance of 12% to 13%. I would also just point out that -- this year, we've seen renewed momentum in new business, which is very encouraging. We also have the impact of historic client losses. And in our industry, as you're ramping up new business wins, of course, you have all of the cost sometimes even before day 1, and it takes time, often 3, 6, 9 months in some cases to ramp up to the full revenue from those wins. So there is a little bit of that dynamic in the year, and that's reflected in the margin as well. In terms of the top 25, it was encouraging to see, excluding the losses, that we're back in growth, and that growth was around low to mid-single digit. And as Cindy said, an area of continued focus for us. In terms of the media performance, very encouraged with the growth in Q3. I think it reflects the work that Brian and the team have been doing over the last number of years. I wouldn't get too focused on quarter-on-quarter performance. And I would look at H2 versus H1. We said at the start of the year, we expect an improving trajectory. We very much could see that within media, which is encouraging. There were some timing benefits, which Q3 benefited from, which supported that performance. But we often see that quarter-on-quarter, which is why I point you to the half rather than the quarter.

Our next question comes from the line of Nicolas Langlet from BNP Paribas.

So I've got 3 questions, please. First, to come back on the net new business. By how much the net new business improved in Q3 relative to Q2? And what do you expect for Q4? And also based only on the wins and losses already known, do you expect a positive or negative net new business entering '27? Second question on Media. So can you quantify the timing benefits in Q3? And whether you expect that to fully reverse in Q4? And lastly, on Creative. So what is driving the lower client spending from existing clients in Q3? Are you seeing clients buying fewer services or the same for fewer build hours? And which fix are you pursuing to improve the trend? And basically, when do you expect the Creative to return to positive like-for-like?

Thanks, Nicolas. Why don't I take all of this. Just on the net new business, we talked in, obviously indeed at the start of the year that we expect our growth client losses to have an impact of 500 to 600 basis points and that we were towards the top end or at the top end of that range, which remains the case. We are very encouraged by the momentum that we've seen in new business wins this year, and of course, we're ramping those up as we go through the year. And I talked about easing drag on that new business from H1, sorry, into H2, and we expect that to continue. In terms of Q3, we did see an easing of the net new business drive versus Q2. And of course, that helps with that performance. And in fact, very pleasingly, we saw an acceleration of some of the ramp-up of the new business in Q3. As a result of that, I expect the net new business impact to be similar across Q3 and Q4. I think I mean it's too early to talk about the impact of net new business on 2027, but I think the focus is on the new business, it's on client retention, and it's to continue to see an improving trend on the net new business. I would just like -- there were some losses in Q2, Q3 then, of course, we will carry into 2027, but that is not unusual at all. And I wouldn't expect to see anywhere near the level of losses that we were carrying into 2026. In terms of the Media, I just repeat what I said before. Still to too much in the quarter, look at it on H2 versus H1. I do expect all of that timing benefit to unwind in Q4. It was important enough to call out, but not material in terms of Media's overall performance in Q3. On Creative and the lower client spending. Look, again, if you look at the performance in the first half, the performance in Q3 was broadly in line with up down mid-single digits. If I [indiscernible] Creative, I think it's important to call out that we did see Burson get back to growth in the quarter and we saw continued strong growth across our brand design in agencies, including Landor, which is very much encouraging. The lower client spend is -- we talked about polarization of spend across and within client sectors, and that's reflected really on that Creative number. Now we are seeing a ramp-up in new business. I would call out that the Creative teams have done a very good job this year on improving their win rate year-on-year, and they're ramping those wins up, and we'll continue to -- as we go through the balance of the year. I mean I think it's important to call out on Q3 that WPP Creative and the team there have gone through a significant redesign of their operating model this year. And yes, again, they've done that brilliantly as they always do. But nonetheless, the big lift in terms of the changes across the business are really in Q3. And while the team are very much focused on making sure there's minimal client impact to that, which there was, undoubtedly, that is a distraction for the leadership team away from the top line. And we say that, that has probably had some small impact on that in Q3 as well.

Our next question comes from the line of Julien Roch from Barclays.

First of all, good luck, Joanne, in your next adventure. I'll come back, sorry, once again, on net new business, probably last attempt on -- so growth towards the top end of 500 to 600 in terms of losses. Gross wins were supposed to be better than last year, 250. So now are we close to the end of the year, can we have some more color on how much better than 250? That's my first question. My second question is on Burson back to growth. Can we have a more precise number? And also, how much was it of net sales in Q3 or 9 months? And then finally, for Joanne, what is the #1 item to address, the #1 problem to solve that you are leaving in your successor [indiscernible]? Just one, just one, because I'm sure there's a long list, but just one.

Okay. I might answer that last question positively, Julien. So on the net new business, look, the gross losses, let's say, 600 basis points, as you said last year, gross wins were 250 basis points. And I think the team has done a super job this year on the win rate. And as a result of that, the gross wins will be significantly better than they were last year, but not enough to offset that gross loss. So I am sort of expecting in Q4 that the net new business is a drag, albeit an easing drag versus H1 in the final quarter of the year, but still negative. In terms of Burson's growth, look I would say that what was the driver of it that -- we saw particularly strong performance in the U.S. I'm very much encouraged by the turnaround in that business versus where it was last year. The growth was low to mid-single digits, and PR overall is around 7% of our net sales. And then in terms of -- in terms of what my...

This is the scale of Burson's, [ one ] of the questions.

Yes. I think it's also important just in the context of that Burson performance to call out the Middle East because the Middle East, we've said, it's 2% of WPP's overall net sales, but from Burson, it's a higher percentage. So in the context of that, that we saw a step down in the Q3 in the Middle East. I think it's important to call out the job that the Burson team are doing is very strong. So look, Julien, I'm not trying to avoid your question, but I think in terms of where the business is at today, I think the entire team at WPP have worked incredibly hard over the last 3, 3.5 years to simplify the business, to turn around the performance that we saw over the last few years. And as part of that, simplifying our corporate functions as well. The team is -- I have a brilliant team here. And so whoever comes in, will be inheriting that, so they're very fortunate. And I think it's a much easier job to inherit than perhaps the one I did 3.5 years ago. So I think there's [indiscernible], it's fantastic times to join the business, and we're all on track to deliver Elevate28. So continue -- driving continued momentum, I think, will be the focus in supporting Cindy and the rest of the executive team do that.

And our next question comes from the line of Adam Berlin from Goldman Sachs.

Yes. Just one question left really on costs. So I'm just -- you talked about a GBP 500 million cost savings from Elevate28, GBP 100 million of that has come in 2026. Can you give us any sense of how much of the remaining GBP 400 million will come through in 2027, just as we're starting to think about 2027 margins? And what areas could that be reinvested? Or how much of that could actually drop through to the bottom line next year?

Okay. Thanks, Adam. So yes, very much on track to deliver the GBP 500 million of structural cost savings through '28. We delivered GBP 100 million in year. And the annualized impact will be GBP 250 million in '27, so another GBP 150 million coming through from the actions taken this year, and of course, there will be further actions on the corporate functions next year, which will add to that GBP 150 million. I think it's important to take you back to February, and Cindy and I talked about our priorities to get the business back to sustained growth. And we will invest in a disciplined way to do that across growth drivers. So that is Media, it's in our data proposition, it's across enterprise solutions, it's across commerce, and on some sectors where we see big opportunities for us to take share in some cases. It's too early to say how much of that will be reinvested in 2027, but we'll give more detail in February.

And our next question comes from the line of Adrien de Saint Hilaire from Bank of America.

Yes. Just extending my gratitude to Joanne for all your help over the years. My question is actually probably more for Cindy, in fact, but I know it's super difficult to talk about individual clients, but I'd be interested to hear about why WPP did not participate in the U.S. pitch for Coke? Secondly, some of your peers are talking about winning assignments without pitching. Is that also something that you're observing? Then I'm very sorry, Joanne, I've got a bit of a boring question. Is there an impact from -- on the interest costs from higher rates? And can you talk about where you see net debt and average net debt ending for the year?