Fireside Chat – Highlights: 

Featuring Mark Read, Chief Executive Officer of WPP   

July 8th 2020 12pm EDT  

EXECUTIVE SUMMARY 

Introduction  

Madison Alley Global Ventures virtually hosted an exclusive one-on-one Fireside Chat featuring Mark Read, Chief Executive Officer,  WPP. 

Overview of WPP  

• WPP is a large holding company involved in communications, advertising, and public relations, among other sectors.   It is considered the world’s biggest advertising agency group. 

• WPP describes itself as a creative transformation company that offers integrated communications, experience, commerce and technology. 

• Subsidiaries: AKQA, BCW, Essence Global, Grey, GroupM, Hill+Knowlton Strategies, Mindshare, Ogilvy, PEP, LLC, Wavemaker, UWG Inc., Wunderman Thompson, and VMLY&R. 

Company Snapshot   

• Led by CEO Mark Read (since September 2018) who has been with the firm nearly 25 years. 

• WPP’s agencies operate in 112 countries, working with clients including 348 of the Fortune Global 500, all 30 of the Dow Jones 30, 70 of the NASDAQ 100 and 69 of the FTSE 100. 
• HQ: London, U.K. 
• 107,000 professionals in 112 countries 
• £7.7B Market Capitalization 
• Fiscal Year 2019 Billings: £53.1B 

• Fiscal Year 2019 Revenue (excluding pass through costs): £10.8B 

2020 Outlook   

• Question raised by Michael Siedler (Madison Alley): “With respect to the outlook for the foreseeable future 2020 and beyond, in particular with regard to the crisis and pandemic, in WPP’s view generally, how do you see the pace of recovery and the distribution? What facets of your business do you see recovering and being more impacted by it over time?”  Mark Read (WPP): “If you evaluate from the highest level – at a level of JP Morgan’s forecast – the global economy is just a shade over 4% this year (2020) up just a shade over 5% next year – so next year we get back to where we were in 2019.   This is indicative of the reversion to the mean.  Advertising spend will be more impacted therefore, estimates go from +6.9% percent last year to -11.9% this year and then +8.2% next year.” 
• Regarding advertising spend, Mark Read explains that in his view advertising spend will most likely not reach 2021 levels.  Mark Read (WPP): “You don’t get about 19% that was in 2021 in advertising spend, interestingly compared to the financial recession where global GDP was down 1% and ad spend is down 11%; ad spend appears to be a bit more resilient this time than the previous period, it may be because more of it is in direct to consumer channels, we expect television to be down 17% but digital advertising will only be down between 2% – 3%”.   
• WPP forecasts that global search spend will decline, therefore advertise and spend today will be different from what it was in the previous global recession of 2008.  As far as timing of the impact of this economic and health crisis the second quarter 2020 will be the worst impacted, markets in the UK and TV have been down the 40% – 50% mark.  India 80% to 90% down. Regarding the affect to WPP, their business is not as impacted because their business is no longer tied to commissions in the way they had been historically and so their business is mitigated. As it pertains to their client base, roughly half is in consumer-packaged goods, technology and healthcare, which constitutes roughly the majority of the UK economy, relatively less impact.  It will have a significant impact on WPP’s revenues in the 2nd qtr. 2020 and for the rest of the year 2020.   

• The driver for the recovery will be on speed and timing, Mark compares it to the “Nike swoosh category of economic improvement: consumer sentiment takes time to improve, I sort of believe in what John Maynard Keynes called ‘animal spirits’” Further, he explains the need for consumer confidence to return. He is concerned with China and in the sentiment in London, only 15% of people in London are ready to return to the office and only 10% in New York; therefore, consumers lack confidence.  In time it will build and reinforce itself, now you’re seeing other segments of the economy. One of WPPs auto clients had sales up year-on-year 4% in June, 4% in May and 17% in June; therefore in some categories demand has been held back. Overall, for the year 2020 there will be slower demand, but the chance for a faster economic recovery will be when consumers come back into the market. Clients will start to come back into the market in terms of their spend. Michael Seidler (MA) commented: “Areas where there has been a pick–up of growth has been in the e-commerce and in digital transformation”. Read commented: “Every conversation I have with clients is focused on how they can transform their business more quickly and how we can help them to do that; and it’s really very striking, I say to clients that we’ve seen more innovation in the last three months than we saw in the last decade”. 

Leadership in Crisis 

Seidler: “With respect to diversity inclusion and the current systemic racism and subsequent protests – what is WPP doing organizationally and in the broader societal impact?” Read:  “Unfortunately, WPP hasn’t made much progress in the last five years for diversity, but has focused more on gender diversity than racial diversity.  There is much room for improvement in diversity and racial awareness for WPP and to do so the company will work on targets and data and broaden the scope, so that it is much more than a simple HR initiative.  WPP has made three explicit commitments:      

• The first was that 600 black advertising professionals wrote an open letter to the industry with 12 requests/steps they thought the industry should take.  WPP committed to taking those 12 steps: some of them are currently WPPs best practice and some provide room for improvement for this initiative in promoting diversity.   
• The second explicit commitment WPP has made is the use of the power of the company’s voice to fight racism and to promote more diverse and inclusive society and there are many examples of work that they have done with their clients to achieve that, for example, they backed Black creative director Keith Cartwright through Grey Group. He did notable work for Procter and Gamble (PG (NYSE)) called “The Choice” that covers a creative collective that helps build awareness and promote change.  Mark Read explains that there are many pivotal things that, as a company across their businesses, WPP is responsible for; perhaps one in five or one in six commercial messages and through these commercials they can use it as a platform to fight racism.  
• The third – WPP committed to spend ten billion dollars a year over the next three years on a combination of internal programs as well as pro bono work with organizations to support the anti–racism and diversity initiative. 

Client Impact by Industry 

• Question from Michael Seidler (MA): “Regarding the Market Cap performance by industry, there was a strong dip around mid-March (2020) in the market and subsequent rebound, due to the technology stocks: Apple (AAPL), Amazon (AMZN), Google (GOOGL), Facebook (FB) and Netflix (NFLX) performing well at 13% to 14%, whilst travel lagging in performance, then followed by the financial services and energy, analyzing the impact on different industries – to what extent does this influence WPP’s approach to clients and whether to invest in certain verticals or not?” 
•  Mark Read (WPP): “This reflects the shift to the growing importance of technology. If you were to speak to any Chief Executive they would concur that they can’t believe the market is so high, universal reaction. One reason the markets are high is due to the markets looking at a further accelerating shift in power to the FAANG stocks. The shift to the FAANG stocks is due to lagging stocks in travel due to COVID-19: for banks and financial services its due to the economic hangover and energy because of the decline in demand and you realize the pattern in the client base”   

• Further Mark Read explains: “I wouldn’t say that we have the luxury of turning down clients right now, but we are in a situation that we have a pretty proactive new business program, and that new business program has been targeting the West Coast with large technology companies where we see continued growth; that we were lucky to enough to win the Airbnb media business at the end of last year 2019” 

Global Competitive Landscape 

• Michael Seidler (MA) discusses a graphic illustration: “What we’ve done is we’ve mapped out the marketing and technology service landscape whereas the left side represents the more traditional marketing media services the right side is the heavier weight on the technology and data services and the top end is the scale and this is all by market value; there are two things to note if you look in the bottom left corner this is the marketing service organizations for the holding companies and these seven or so you can argue are of relatively comparable size.  Obviously, WPP is at the higher end of that but in total the Market Cap of these is approx. $50bn, for the top seven, If you compare this to Accenture (ACN) for example, it is nearly 3x the market value and scale of all seven of them combined. At same time, if you combine the whole market and just add technology services simply to the marketing services, there you can also argue that there is a vast new addressable market of at least $500bn of market value if not much more – so at the same time you can also have the perspective that what was a $50bn or so marketing service market is now potentially a $500bn+ marketing and technology service market – what is your perspective on this?” 
• Response: Mark Read (WPP): “My view is that the mistake these companies made was not to diversify their business quickly enough into the faster growing areas of the market and not to transition fast enough – we had brands that had not grown for six years. I don’t know how you run a company that hasn’t grown for six years in this economy – you can’t possibly do that, we just didn’t take any action about it so I think that what these companies need to do is redefine their market into a market that’s growing.  I don’t believe that the marketing services industry is a brilliant industry when ACN does it and a terrible industry when WPP does it–I don’t buy that hypothesis.  I think we need to learn more technology skills but quite frankly they need to learn more creativity skills and I think marketing is a blend of creativity and technology, not going to just be replaced by ones and zeros. Therefore – clearly we have to transform our business more rapidly and we do have a legacy and it’s not necessarily my legacy but we do have parts of our business that are focused on traditional areas of the business that are declining and parts that are focused on the growing parts of the business”.  

Strategic Position  

• Michael Seidler (MA): “WPP offers communications experience, commerce, and technology and the data analytics (WPP sold 60% of Kantar). We would be interested to hear your thoughts as to what extent is WPP centered on any of these capabilities? I think that the obvious ones are creative – a media buying content about production customer experience design and also data analytics insights. To what extent do you see WPP is now or extending into strategy or the likes of McKinsey, Bain or BCG in that area and building content platforms, commerce platforms, and protect perhaps ERP – where in the technology services is revenue generated?” 
•  Mark Read (WPP): “We are not in the ERP business nor the market research business, the market research business is not really a data business in that sense – to my mind data and technology underpin all of these launches and I would say WPP is present to one degree or another in all of them.  We need to have strategy and consulting experience to advise our clients – what we do is increase of media buying, but we have a big business in content platforms and commerce platforms”.   
• In summary, WPP in the UK has built an enterprise level grocery platform on WebSphere commerce they are engaged in e-commerce efforts, for three of their top five clients on a global basis, working with them: Magento which is now owned by Adobe and in others they are a partner for their clients in those areas and compete with Accenture (ACN) and Deloitte digital.  WPP has worked hard to diversify the company.  WPP intends to be in an addressable market that is in communications experience, commerce and technology where they can invest and grow. 

Summary & Q&A 

• Question from George Gallate, board member and investor at Tinuiti and W2O respectively, and Principal at MKTG2.U – Question: “What are your thoughts given the current market environment with regards to M&A, specifically for WPP and in general in terms of growth through strategic M&A acquisitions?”  Mark Read (WPP): “I think that the role of M&A for WPP is about building scale so bringing us capabilities that we don’t have today, I’m not interested in size what we have to do is make size mean something: i.e. create scale, therefore if we have three public relations firms in Puerto Rico, I don’t need a fourth public relations firm – what I might need is some experience in Magento or Adobe commerce around the world – so I think we’re looking at differentiated capabilities that primarily help us grow our business in experience, in commerce and in technology, very interested in strengthening data and analytics capabilities as well”.   

• 2. Question from Owen Davis, partner at Contour Venture Partners: Is the Facebook (FB) backlash from advertisers a flash in the pan or something that you for all of us as well as WPP to pay attention to?  Mark Read (WPP): “We do pay attention to it and we’ve had a lot of conversations with our clients about it over the last couple of months, ultimately we advise our clients of what to do and try to decide what they want to do whether that‘s join a boycott, or pause their spend, or review what they’re doing in the number of our clients are falling into those three buckets.  It’s come about because we are interested in pushing for change, I think on all the social media platforms, not just on Facebook, what’s happened has been reactive to events and that we need to get ahead of these events, and so I understand the feelings that people have. I would say it is a difficult issue, there’s no place for hate speech on FB or any other platform, but there is also the belief in free speech”.   

• “In summary – It is difficult to have policies that differentiate properly.  Social media platforms need to look at their policies and make sure their policies are fit for purpose; review their processes and make sure that they have the processes to implement that policy and take on content. For WPP clients, they need to think about agencies, where their messages sit next to particular types of content, i.e. an ad appearing next to a piece of content to something to do with the reputation of the platform. Therefore, it is much more fundamental to the media, this is why WPP thinks that it is not “a flash-in-the-pan event”.