WPP plc Q1 FY2024 earnings call

Key managerial messages include: Strong focus on implementing strategic moves from Capital Markets Day. Increased deployment of WPP's intelligent operating system with growing take-up. Integration of new AI models into WPP Open and Performance Brain demonstrated at Google Next. Progress on structural changes at VML, GroupM, and Burson, with these agencies on track to deliver savings. Recognition of Ogilvy as Ad Age's Global Network of the Year and strong client wins in media and healthcare. Continued heavy investment in AI with WPP Open now having 50,000 users across the group.

Global Integrated Agencies declined 0.7% year-on-year. GroupM, the media planning and buying business, grew 2.4% but was offset by U.S. client assignment losses and lower spending by technology clients. Global integrated creative agencies saw a like-for-like decline of 3.3% due to lower spend from technology clients and the full quarter impact of the roll-off of Pfizer, though Ogilvy continued to grow and Hogarth capitalized on production opportunities. Public Relations, around 10% of WPP, declined 3.3%. FGS Global grew against a tough comparison, but BCW and Hill & Knowlton declined due to the loss of Pfizer and cautious spending patterns. Specialist Agencies, accounting for around 7% of WPP, declined 7.6% with smaller agencies impacted by delays in project-based spending, while CMI (specialist health care media and buying agency) continued to deliver good growth. Region-wise, North America declined 5.2%, the U.K. grew 0.3%, Western Continental Europe grew 3.3%, and the rest of the world declined 0.6% with Asia Pacific down 3.2%, India up 6.6%, and China down 15.4% due to macroeconomic challenges.

Reiterated full-year guidance with momentum expected to improve over the rest of the year. Technology clients expected to turn from negative in Q1 to positive throughout the year. Budget cuts' impact to tail off and strong new business pipeline. FX impact on revenue less pass-through costs revised to -1.3% vs prior -2%. Expect 20 to 40 basis point improvement in operating margin in 2024, weighted towards the second half as year-on-year growth improves and structural cost savings ramp up.

Risks include continued pressure from technology clients, impact of certain client losses from prior years, macroeconomic challenges in China affecting the market, and ongoing integration challenges in agency restructurings which could pose potential disruption.

Q: On tech clients, expect sequential improvement?

A: Yes, comparatives get easier as the year progresses, with stability in tech client spend expected to turn positive over the course of the year.

Q: China momentum?

A: China is an important market but has faced challenges with macroeconomic pressures, reduced spend in media clients. A new management team is in place, and the market is expected to be down for the full year with a cautious approach to budgeting.

Q: AI impact on margin?

A: Investment in AI includes a commitment to spend around GBP 250 million a year. There are revenue growth opportunities from expanding services to clients, but short-term impact is largely on competitiveness, with long-term potential for efficiency gains and margin improvement through better use of AI in workflows.