WPP Earnings Call INSIGHTS: Strength in Germany, Clients’ Views on Social Media

On Thursday, WPP PLC ADR (NASDAQ:WPPGY) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Strength in Germany

Townsend Buckles – JPMorgan: This is Townsend Buckles for Alexia with two questions. First, on your strength in Germany, are you seeing a healthier market there or has it been more share gains?

Sir Martin Sorrell – Chief Executive: Well, on Germany, I think Germany is the strongman of Europe. I think we believe that for the last couple of years, and we acquired Commarco, Scholz & Friends in Germany last year, and principally because of the strength of the agency in Germany, but also because of the leverage it gave us, not just in Germany, but Central and Eastern Europe. So I think Germany benefits from the strength of Central and Eastern Europe. But broadly, I would not express surprise about the relative strength of Germany. It’s more the weakness, not in our case, Italy, but the weakness is more French and Spanish and then Italian issue with some extent in the U.K., rather than the German issue. So, we may have picked up share in Germany, but we do have some good businesses. We have a very strong media business there. Obviously, Commarco is a tremendous strength for us to. We have some very strong digital businesses in Berlin and elsewhere, and the agencies – the research business is also strong in Germany. But they’re getting great leverage from what we’re seeing in Russia, in Czech Republic and Poland and elsewhere in Eastern Europe.

Townsend Buckles – JPMorgan: And to touch on some of the areas that softened a bit in Q2 like the U.S. and Europe in PR an advertising media, any of these concerns you more as you look into the back half of the year in terms of presenting risk to your revised forecast?

Sir Martin Sorrell – Chief Executive: No. I think if you look at some of the specifics, you might expect in an election year, public affairs or polling to be a little bit softer as people focus on the election rather than legits of the issues that they’re concerned about. We did some technology investment in the U.S. in our Consumer Insight business. We did some restructuring in the U.S. and indeed in Western Europe, which is not cheap, which we have to make an investment again in our Consumer Insight business. We had some issues in one of our call center businesses, but the healthcare, we would have the patent cliff from which others – our competitors have been talking about for some time and the healthcare businesses have had – the healthcare and pharmaceutical companies have had difficulties in dealing with governments around the world on payment for drugs and payment for health service support schemes. A lot of the drug companies are going through restructuring. So, I don’t think anything that I would regard as being secular, more things I think – I mean, all of our costs are in – we don’t put anything as exceptional or extraordinary that some others do. So everything – what you see is what you get and you have to remember that in the second half there is skewed profitability. The second half, it runs actually almost one-third, two-thirds first half to second half in our case, which is very different to what we see competitively which – their results tend to be much smoother in terms of the division between the first half and second half. So, I wouldn’t point to anything in particular.

Clients’ View on Social Media

Dan Salmon – BMO Capital Markets: Sir Martin, I was hoping you could comment a little bit on your clients’ view on social media these days, in particular, the mix of earned, owned and paid media. Then secondly, how agencies and WPP in particular may or may not be able to capture a larger share of budget for those types of campaigns relative to your other services?

Sir Martin Sorrell – Chief Executive: Well, I think generally, it’s fair to say that the trend continues to be a shift in spending from what I would call legacy whether you quoted earned or paid and what I would call legacy to new. And in new, I mean, the five things that I mentioned in the context of Google; I mean search; I mean display – online display; I mean video; I mean social and I mean mobile. Mobile, I think it remains the one that we are most disappointed about and the fact that we think it has the most potential, but it hasn’t been (grasp) as yet, but maybe it’s starting to show some increased momentum. But the spending with Google, I think is the classic example of this. So, as I said, 1.6 billion last year it will be well over 2 billion and Google will be as big as any of our media partners or the companies that we deal with around the world. That’s phenomenal, when you think of how quickly Google has grown. It’s very much bigger than we see. For example, Facebook last year it was 200 million, we were targeting 400 million this year. We’ll see whether we get that. This year, as I said, Google will be well over 2 billion, having been (1.6 billion) last year. So, I think that’s indicative of what we see happening in the social space. Having said that, I think the recent commentary on Facebook underlines the importance of what we’ve been saying for some time. And Facebook is a phenomenally powerful branding medium probably around 1 billion Facebook users around the world now. So, it’s one of the largest countries on the planet, not quite the largest, but the third largest still, but maybe it soon will be the largest. So, it’s phenomenally powerful, but it hasn’t yet got to where I think Google is with its five-legged stool and that’s what Facebook has to do. Twitter is on a smaller scale, but you saw in the context of the Olympics, which really was the first digital Olympics that we’ve seen – the one we saw in London that Twitter had an immense exposure as a public relations news medium and information medium and really did extremely, extremely well in the context and Search did well in the context of that campaign. Having said all that, client spending is still around 19% of budgets. In certain categories like consumer goods it might tend to be more or financial services or travel or airlines it tends to be more than that, but I know obviously there are compensating sectors where it is less than that. So, we know that consumers still spend, not still, spend a third of their time online so there has to be more of a shift from traditional to new media and that share will primarily come from print, because print we also know we’re spending about 19% of budgets on print. We know the consumers are only spending 9% of their time on print. So the shift from 19% to a third will basically be funded by what happens on print and you know the data around print and probably another day goes by before we get more data around what’s happening or not happening to print circulation and print reading even taking into account what is happening online. In terms of our agencies, and they are extremely capable and well positioned. If you are talking about the advertising agencies, whether they’re the traditional companies such as JWT or Y&R or Grey or Ogilvy or whether you’re talking about the digital companies, an OgilvyOne, a Wunderman, an AKQA, a VML, a G2, a Possible Worldwide or whether you’re talking about the companies that we have interests in, whether it be a minority interest like a Buddy or an Omniture, or a Visible World or Visible Technologies or a jewel or whatever it happens to be. I think they’re exceptionally well positioned. Media planning and buying operations with Xaxis and we spent a little bit of time in the presentation on how successful Xaxis has been from a standing start with its media buying platform, online media buying platform. I think we’re exceptionally well positioned to do that and I think as the market gets more difficult for the smaller medium sized companies, which there is no doubt that, that has been the case in the mature markets. I think that expertise becomes more and more important. So, all in all, we’re doing a lot. It’s a third of our business already. So ,we’re out weighting, we’re over weighting the 19% that we see (clients) doing, we’re at 32% and that’s roughly where consumers are spending their time. So we’re probably in the right zone but we need to be even more aggressive.