WPP plc (WPP) Q2 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2020 Interim Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Today’s conference is being recorded. At this time, I would like to hand the conference over to WPP CEO, Mr. Mark Read. Please go ahead, sir.

Thank you very much, operator, and good morning to everyone. Welcome to WPP’s interim results call for 2020. I’m here in Sea Containers with John Rogers, our CFO; and Peregrine Riviere, heads up our Investor Relations committee. We’ll take you through the numbers. On Page 2, we should all just take the time to read our Safe Harbor statement and then move on to Page 3, our agenda today. So I’ll briefly take you through the highlights of our results in the first-half, and then John will take you through the financial performance of the company before we come back to an update on the business and how we see it and then some time for people to ask questions. On Page 4. Look, I think, if we had to describe the first-half, I think we would say that we had a resilient performance in what, no doubt, been a challenging environment. It’s clear that COVID-19 had a significant impact on WPP as it has had on business and on society as a whole. And we shouldn’t forget the impact on people’s lives and the people who has lost their life as a result. But turning to our business in the first-half, we saw like-for-like revenue less pass-through costs down 9.5% in the first-half. I’d say that May was the toughest month and we really started the year positively with growth outside of Greater China of 0.4%, but overall results minus 0.6%. In March, we started to see the impact of COVID-19 in a really kind of a half a month impact minus 7.9% and then a decline of 15.1% in the second quarter. And we’ll come on to that. But I think, I’d say, it’s significantly better than perhaps we had anticipated. And then a gradual recovery of minus 9.2% in July. So you can really see the pattern to our results. We’ll come on to the full-year expectations later. That reflects, I’d say, a resilient performance, particularly from our top clients, our top 200 clients. And if we go into that in some detail, you can see, in just over half of our business, 56% of our business in consumer packaged goods, technology and pharma, actually, the decline was only 0.7% in the first-half and only 4.4% in the second quarter relative to 15.1% of the business overall. But the automotive luxury travel sector, much more impacted minus 11.7% for the first-half and 18.7% in the second quarter. So I think that demonstrates the resilience and breadth of our business, and we see that as well in the services that we offer. We have had, I’d say, a very different working relationship with our clients over the last six months. And we’ve seen parts of our business in marketing, technology and e-commerce in greater demand, public relations much less impacted. And I think particularly pleased with the new business performance of the company overall, market-leading and new business performance, with wins from Intel, HSBC and Unilever, where we won the media business in China. I think the way that our people have responded has been fantastic. And that goes beyond building and strengthening relationships with clients, looking after their team working from home. I think, collectively, people have really come together over the last six months. Financially, and John will go into some more detail, we’ve had good progress on cost savings. And I think we’ve got the right balance between temporary and permanent cost savings that we set out at the beginning of the pandemic to really mitigate as much as we could, the permanent headcount reductions that we need to take or that regrettably there have been some. With the strong liquidity position, our net debt is down significantly year-on-year and from our peak of close to £5.7 billion around three years ago. We’re pleased that the Board was able to recommend that we could reinstate our dividend and we have had a goodwill impairment that we’ll talk about at £2.5 billion. I think lastly, and perhaps most importantly, COVID-19 has accelerated trends, I think, that were existing in our industry before. But have really been accelerated and that calls for and we are accelerating our strategy. We certainly haven’t. So still, over the last six months, we talked to you about the actions we’ve taken in terms of investing in brand, investing in talent and investing in training over the last over the last six months. So I think like many companies and people, we probably prefer not to have been in the situation that we’ve been in for the last six months. But I’d say that we’ve performed resiliently and done well. And so I’ll turn it over to John, who’ll take you through our financial performance.

So thank you, Mark. Good morning to everyone. I’m going to take you through the first-half results for 2020. So turning to Slide 6 and starting with the headline income statement. So revenue less pass-through costs down 10.2% on a reported basis, down 9.5% on a like-for-like basis, obviously, reflecting the impact of COVID-19, particularly in the second quarter. Disposals account for 0.8% reduction in revenue, less pass-through costs and with currency being 0.1% favorable, all of which has delivered an operating profit of £382 million, down 38.1% year-on-year, with associate income down £15 million as the benefit of the Kantar investment is offset by COVID-19-related downsides. That delivered a PBIT for the year of £382 million, down 39.6%, with net finance costs down year-on-year to £106 million, obviously, reflecting an improvement in our net debt position that Mark just referred to. That’s delivered a profit before tax of £276 million. And with tax at 23.1%, broadly in line with the same figure last year, delivering a profit after-tax of £212 million. Deducting non-controlling interest delivers profit attributable to shareholders of £191 million and our diluted earnings per share figure of 15.4p. Worth highlighting that our operating margin for the first-half was 8.2%, down 0.3 percentage points year-on-year, but better than the market was expected. So moving on now to the reconciliation of our headline operating profit to our reported operating profit. So you see here the headline operating profit, £382 million I’ve just made reference to, obviously, taking account of the goodwill impairment charge of £2.5 billion that I’ll come on to in a second in more detail; amortization, impairment of intangibles and also the investment write-down of associates, which is largely Imagina at £210 million, £220 million in total, and then reflecting restructuring and transformation costs, which relate to the ongoing costs that we talked about in our restructuring plan first outlined in December 2018 of £18 million this year compared to £34 million last year. And then also, very specifically, COVID-19 restructuring costs relating to severance actions that Mark just referred to, taken in the second quarter as a response to the pandemic. And then reflecting a gain on disposals, largely in relation to our sports agency, Two Circles, all of which just delivered, when added together, a reported operating loss just over £2.4 billion. So now coming on to the impairment charge in a little bit more detail. So impairments of £2.74 billion, which includes the goodwill impairment and also the impairment in relation to our associates. And you’ll see the breakdown here by company. And you’ll notice that most of the impairments largely relate to an acquisition of the Y&R Group that was made back in 2000, so 20 years ago, when the business is acquired in a stock-for-stock transaction on the basis of 23 times PBIT multiple at the peak of the dotcom bubble, so when valuations were very high. The impairments of the sales are actually driven by a combination of higher discount rates used to value the cash flows, a lower profit base and recovery from 2020 through to 2021, and then lower industry terminal growth rates. Just as an indication of the sensitivities to these assumption changes, around £2 billion to £2.1 billion of the £2.5 billion goodwill impairment relates to changes in the discount rate assumptions. About £300 million or so relates to a change in the terminal growth rate for the industry and about £100 million or so relates to a lower profit base in 2020 and then recovery through 2021. So by far, the bulk of the impairment is related to a change in the discount rate. So just moving on now to a breakdown of our performance by sector. First, the global integrated agencies, reported revenue less pass-through costs down 10.3%, down 9.5% on a like-for-like basis, so exactly in line with the overall group, delivering an operating profit margin of 7.4%. VMLY&R, which by far the best performer, really encouraging performance, close to flat like-for-like in the first-half, reflecting improving business momentum since the merger of those businesses. And our second best-performing global integrated agency was Wunderman Thompson, again, benefited from the creation of an integrated agency in the last couple of years. And Hogarth production, also in strong demand. GroupM, as a whole, underperformed the overall GIAs due to the fact that its performance is more closely correlated to client media spend, which has clearly been significantly impacted as a result of COVID-19. If you look at the graph, you’ll see the trajectory by quarter, the significant step down in Q2 to minus 15.7%. But encouragingly, performance in July has bounced back and we’ve delivered an improvement to minus 9.2%. So we’ve got some positive momentum, some recovery as we go into the second-half. Coming on now to our public relations businesses. These have been our strongest performing sector. So reported revenue less pass-through costs, down 3.6% and on a like-for-like basis, down 4.5%, delivering a very strong operating profit margin of 16.9%, which is actually up 1.5 percentage points year-on-year. So very encouraging performance from our public relations businesses. And we’ve seen a lot of good demand from clients who are particularly looking at how they want to engage with their strategic stakeholders, how they communicate to those stakeholders. We’ve seen very encouraging performance from our specialist PR companies, where we’ve actually seen like-for-like growth half-on-half. And H&K has been the strongest performing of our major agencies. We’ve also seen in the first-half the formation of Finsbury Glover Hering to create a global leader in strategic communications and significantly simplified our overall portfolio. And again, if you look at the trends on the graph, you’ve seen the dip down in Q2 of minus 7.5%. But again, in July, recovery back to minus 2.7%. So encouraging momentum again as we go into the second-half. Coming on now finally to our specialist agency, where it’s fair to say, we’ve seen a bit more of a mixed performance. Overall, revenue less pass-through costs down 13.3% on a reported basis, down 11.8% like-for-like and overall operating margin at 7%. AKQA and Geometry have been the relative outperformance, given their focus on experience and commerce, where we’ve seen good growth. Our GTB is broadly in line despite the ongoing drag from the assignment losses that we’ve communicated historically. And it’s really been our Brand Consulting businesses that have suffered from short-term budget cuts through this period. And, of course, our events businesses and our specialist airline agencies have been heavily impacted in the second quarter, resulting in a decline in overall net sales by 16.3% that you see on the chart. But again, we have seen some relative improvement coming in July where we saw net sales down 12.5%. So now moving on to our overall geographic performance. Starting off with our top five markets. Looking at the USA, North America, we’ve seen actually a relatively robust performance in the U.S. So the first quarter being down minus 1.9%, the second quarter down minus 9.6%, but some recovery coming through in July at minus 6.1%. And it’s been a much shallower dip that we’ve seen in the U.S. compared to many other of our global markets. Coming on to the UK, which is perhaps more characteristic of what we’ve seen through most of our geographies through COVID-19. We saw a decline in Q1 of minus 4.2%, a big step down in Q2 of minus 23.3%, reflecting the impact of lockdown in the UK economy. But then we’re starting to see recovery as things start to ease, conditions start to ease, and we saw minus 10.5% in July. Germany, which was perhaps the strongest performer of our European countries, again, relatively robust against the impact of COVID-19, minus 4.3% in the first quarter, minus 11.6% in the second quarter, and then some recovery into July at minus 7.2% Coming on now to Greater China, slightly unusual figures here. So, obviously, China itself was impacted by the impact of COVID-19 earlier than any of our other global markets, and you see that reflected in the Q1 numbers that were down minus 21.3%. We did see some recovery come through in Q2, which saw net sales down minus 3.1%. But they’re somewhat flattered to be fair by one-off revenue adjustments in Q2, and then also coming up against a very tough comparator in July where we saw net sales decline by 18.6%, but largely as a result of a quite a strong comparative for the same time last year. When you actually look at the underlying trend in China, it’s much more positive than this necessarily poor trade by these headline numbers. And then lastly, coming on to India, where the pattern in India is much more characteristic than what we’ve seen across many of our other markets, with some recovery coming through in July. Coming on now to our major other markets, France, Italy, Spain and Brazil. And again, we’ve seen quite typical patterns across these respective geographies. Interestingly, actually, looking at Italy, which, as you know, was one of the first European countries impacted by COVID-19, we saw the impact come through quite heavily in Q2, minus 29.9%. We are actually now seeing positive growth in Italy in July, which is a very encouraging sign. It’s clearly one month, and we can’t be too complacent, but it’s good to see positive growth coming through. And at the same time, lest we forget, if you look at the – look at Spain, again, we’ve seen the impact coming through in Q2, minus 17.2%, but actually not so strong a recovery coming through in July minus 14.3% and perhaps as a consequence of local lockdowns in Spain. So we need to be sensibly cautious about our outlook for the second-half. Clearly, there’s some encouraging signs with some momentum coming through. But equally, the impact of local lockdowns clearly could have further effects as we travel through the second-half, and hence, we need to be sensible – sensibly cautious about the outlook for the second-half. So coming on now to our overall costs and our change in our headline operating margin. So as you know, we reported net sales down by £531 million, or down 10.2% on a reported basis. But as Mark has already highlighted, we’ve taken significant cost actions, particularly in the second quarter in order to mitigate that downside on the net sales. So staff costs are down just under 5%, with most of the actions coming through in the second quarter. Establishment costs down just over 5%, albeit we’ve had some investment in our IT, reflecting an ongoing investment actually in our IT platforms going forward, which will deliver longer-term savings. The biggest saving we’ve seen though has been in our personal cost, which obviously reflects reduced travel and hotel expenses and other operating expenses down 12.2%. So on average, for the first-half, our operating expenses are down 6.5%, delivering a total saving of £296 million, which is actually about 56% of our net sales decline we’ve been able to offset by operating cost savings to deliver the operating profit as reported here and the margin of 8.2%, as we’ve already discussed. And moving on to the next slide. It’s important to look at the run rate here on our operating cost savings, because, of course, most of our cost actions were only taken in the second quarter, and we only got up to our full run rate coming through in May and June. So you’ll see here that actually the first quarter relatively minimal cost savings with COVID-19 not hitting net sales until March onwards. And then we’ve seen significant cost reductions take place from April through May and June, with immediate reductions taking place in relation to, obviously, personal expenses and then staff costs and salary cuts and so forth, and then slightly more permanent cost savings coming through towards the end of June in terms of permanent staff reductions taking place. So if you look at the ongoing run rate in May to June and you extrapolate that towards the end of the full-year, we are confident that we’re on track to deliver towards the upper-end of £700 million to £800 million target savings that we’ve communicated to you previously. And we also believe that when you look at these savings, approximately one quarter of these savings will be permanently retained when we return back to 2019 net sales levels. So particularly in areas where we’ve had savings on travel and hotel costs, some of our establishment cost-saving and some of our staff cost savings will be permanent in nature, which leads us to believe that about £200 million of these savings will be permanently retained in our business going forward. So coming on now to the free cash flow and the free cash flow conversion. You’ll see, we start off with the headline, so with the statutory [ph] reported operating loss of £2.4 billion, adding, of course, back to that depreciation, adding back the impairments, all of which, of course, are non-cash items, reflecting lease payments and outflow of working capital, which is very typical for the first-half. We’ve actually seen an improvement in working capital. If you look at the year-on-year position, we all see an upside working capital in the first-half, reflecting, obviously, interest payments, tax, capital expenditure, which again is in line with the guidance that we gave. So we’ve cut back our capital expenditure. We expect to outturn about £300 million for the year and earn-out payments, all of which resulted in the cash outflow about £825 million compared to £513 million for the same period last year. And then when we look at the uses of that cash flow, again, on the next slide, you’ll see that, obviously, with disposals of £207 million compared to £304 million last year, slightly lower and also acquisitions of £46 million, a little bit higher than last year, but not by much. And taking account, of course, a distribution to shareholders of the £286 million, now reflecting the share buyback program that we made in the first quarter of this financial year has seen an overall net cash outflow of £950 million compared to £235 million for the same period last year. So coming on now to our net debt waterfall chart on Slide 18. You’ll see that we’ve seen a significant improvement in our net debt position from £4.2 billion to £2.7 billion as of June 2020, obviously, reflecting the operating cash flows that we’ve delivered during that time, offset by lease payments, CapEx and tax paid. We then have the benefit of the, obviously, the disposal in relation to Kantar coming through. And as I mentioned earlier, we’ve seen an improvement on June in our trade net working capital of just over £400 million, offset by the share buybacks and the dividends that we paid last year and some other FX adjustments to deliver a significant improvement in our net debt position to £2.7 billion. And then coming over now to look at our overall leverage metrics. Again, you’ll see the net debt number four lines down on that page, the £2.7 billion I’ve just made reference to. Important to highlight in the line below, our available liquidity at the 30th of June is £4.7 billion. And if you remember back to – at the same time last year, it was £3.5 billion. And in fact, if you remember back to our discussions at March at the outset of COVID-19, we had available liquidity of £4.4 billion. So we’ve actually improved our liquidity over what’s been clearly a tough trading period. Taking account headline finance costs, in other words, stripping out the impact of IFRS 16 on that charge has delivered an interest cover of 6.8 times, which is broadly similar the same point last year. And again, looking at the rolling average net debt to headline EBITDA, we’ve come down from 2.5 times to 2.1 times, and so an improvement year-on-year. And we would expect by this financial year-end to come down to a level between 1.8 and 1.85 times at the end of this year, so again, further improvement. And ultimately, we expect to get down to our target level of between 1.5 and 1.75 times by the end of 2021. So coming on now to dividend and buyback. And as we said, we’ve canceled the 2019 final dividend in order to maintain our desired leverage ratio, offsetting, of course, the impact on profitability and cash flow that we’ve seen in the first-half of this year. That said, we’re pleased to be able to announce the reinstatement of our interim dividend of 10p being declared, reflecting our greater visibility in the second-half of the year on our earnings, future performance and clearly, our strong liquidity position and the fact that we are forecasting a positive cash flow in the second-half of the year. The share buyback remains under review. It will be our intention to restart that when the environment stabilizes further. And, of course, Mark has already talked about, we’ve got a Capital Markets Day planned towards the end of this financial year where we will update the market on our future capital allocation plan. And so last, but by no means least, coming on to our 2020 guidance for the full-year. So guidance, we expect financial performance to be within the range of the current market expectations. So like-for-like revenue less pass-through costs between minus 10% and minus 11.5% down. Headline operating margin between 10.4% to 12.5%. We expect a small working capital outflow for the full-year, reflecting the fact that there was a real stretch for the line this time last year. But overall, I think I’ve been very pleased with our working capital performance, clearly, at what is quite a tough time for the industry more broadly to maintain, broadly speaking, maintain or expect to maintain our working capital position for the full-year, I think, is a very good result. CapEx at £300 million, slightly lower than our usual number, again, reflecting savings that we’ve made. And as I’ve already talked about, our average net debt to EBITDA in the range of 1.5 to 1.75 by the end of 2021 and 1.8 to 1.85 at the end of this financial year. And with that, I’ll hand back to Mark to give you a business update. Thank you.

Great. Thanks very much, John. And I would say that, I think, our financial results do reflect a tremendous amount of hard work by our people and, particularly, our finance people around the world and discipline in how we manage the business. I’ll try to give everyone a little bit more color to what we’ve seen in the first-half, and then talk maybe about some of the implications for how we see the strategic opportunities for WPP. So turning to Page 23. I think the first point to make is that, we have not stood still. And during the lockdown, we’ve continued to make really a solid progress on our strategy, and that our turnaround does remain on track. If you look at the new vision and offer that we set out for WPP, I think, that’s been very much validated by the trends that we’ve seen in the market. Our strong performance in digital media and in commerce and indeed in marketing technology reflects that, as does our new business performance and greater retention of existing clients that have no doubt been reviewed over the first six months of the year. In terms of our focus on creativity, which, as you know, has been a big emphasis for us. We have continued to hire new creative talent. Walter Geer has joined us at VMLY&R in New York. And we’ve had an excellent creative team in Ogilvy New York a couple of months ago to strengthen our creative work there. And I think really across our agencies, particularly in North America, we have been able to attract excellent creative talent, which I think reflects renewed emphasis on the quality of the work that we’ve been able to demonstrate and commitment to creative excellence really across the company. I can’t underestimate how important that is. That’s reflected – the fact that we’ve won the Global Effies for the ninth successive year, actually, every year in which they’ve given out this award, and the Cannes Lions recognized WPP as the holding company of the decade in June of this year. Alongside creativity, data and technology is clearly critical to us. And Forrester recognized the quality of our work with Adobe. In any one year, we’re probably Adobe’s largest or second-largest partner. And the same would be true of Salesforce, certainly in the marketing cloud area. And we’re recognized as a leader in the implementation services wave. And I think it’s particularly important that we’ve taken the time during COVID, not – I think that many of our people had much free time to train our people and we received 20,000 – more than 20,000 partner accreditations from Adobe, Amazon, Facebook, Google and Salesforce in the first six months of the year. And I think it’s critical that we do equip our people with the skills that they need for the future. As you know, a big emphasis over the last two years has been simplifying the structure of WPP that really got too complicated. And the integration of traditional or so-called traditional creative and digital has been validated really by the results. VMLY&R, it grew in the first-half of this year. And Wunderman Thompson and VMLY&R were collectively two of our best-performing integrated agencies. And I think that really shows that sort of traditional siloed approach to marketing doesn’t work. With the creation of Finsbury Glover Hering, we’ve created a global powerhouse in strategic communications and brought together three businesses that never really cooperated together in the past to form a single powerful company, alongside management that have invested in the company. And I think that’s, again, provide us with really interesting opportunities for the future. And we’ve continued the program of disposals, maybe at a lower level, with seven further disposals in the first six months of the year. I think culture has been critical to us. And the new WPP has been able to hire really excellent talent. Andy Main joined us from Deloitte Digital as the CEO of Ogilvy. And we’re really pleased that Todd McDonald to join the group and as the North American CEO from Xandr and probably one of the appointments where we see the most recognition from peers in the industry have seen for sometime. And then we set out only comprehensive inclusion and diversity strategy. We formed our first Global Inclusion Council, and this is an area to which I’m personally very committed to making progress over the next few months and indeed years. When you look at that, I think it’s important to think a little bit about what we saw in the performance from our clients. On Page 24, we looked at our top clients. And the second quarter performance, I’d say, was probably significantly better perhaps than we had expected and I think significantly better than our worst fears when we were doing our scenario planning back in March. And I think if you look at the explanation for that, you can see that in the results from our largest clients. So our top 200 clients grew by 1.4% in the first quarter, but were only down by 8.4% in the second quarter compared to 15.1% for WPP, overall. So part of the resilience of our business has come from the strength of our top 10 clients. I think part of that is because, unfortunately, the pandemic has impacted smaller businesses and businesses that don’t tend to be WPP clients more than it has our client base. I think we do take – we are confident in the future because of the resilience of our client base. And if you look at our clients in consumer packaged goods, technology, health care and pharma, their performance in the second quarter minus 4.4% compared to minus 51.2%. So we have seen a relatively stronger performance. And as you would expect, those sectors of the economy that have been most impacted by COVID, automotive, luxury goods, travel, leisure were down by 18.7% in the second quarter. So really, across the Board, you see, to some extent, a pattern that you would expect. But I think it demonstrates the continued relevance of our offer to clients and the opportunity to bounce back as the economy comes back strongly in those sectors more impacted by the lockdowns and by the economic impact. Our new business track record has really been excellent over the first six months of the year. I think it’s important to say that despite the lockdowns, new business has continued, our pipeline probably dipped a little bit in May, June. When we look at our pipeline today, it’s back at the levels that it was at the beginning of the year. It’s really very strong. And if we look at where we are in terms of the new business, we’ve had a really strong record of wins with the global Intel business or the Unilever media business in China or Novo Nordisk Global media account. But I think equally reassuring, we had a pretty strong track record on retaining clients. We did lose the media – the digital media business for Clorox and the production business for GSK. But those were really the only significant losses that we had in the first-half of the year. And that’s reflected in how independent analysts view the competitive new businesses on Page 26, you can see the R3 new business statistics. And overall, we’ve really done excellently in terms of our business. Clearly, on Page 27, COVID-19 is accelerating existing trends that we’ve seen and we’ve observed that we’ve seen a decade’s innovation in a few months. And there’s really three trends that I think we’d like to highlight. The first is the growth in e-commerce, the second is the accelerating shift to digital, and the third is the increase and rising up the agenda or purpose in ESG. In e-commerce today, we’re now seeing e-commerce is about 30% of UK sales, up I think 54% year-on-year, and that’s continued into July. So despite the easing of the lockdown, patterns of behavior have shifted permanently. And I think that, that is what we’ll see for packaged goods companies, e-commerce can now represent 10% to 15% of sales, and they’re seeing 50%-plus growth in e-commerce. So e-commerce clearly is important to us. Secondly, this is the first year in which digital now dominates media. Until today, you may logically start the media plan with the traditional media plan. Today, you have to start a media plan with a digital approach. And we’re seeing continued shifts in consumption. But again, I think, have been accelerated by the pandemic, the growth in streaming services, the success of Disney+, the success of Peacock, all of those will lead to permanent changes in media consumption. And I don’t think that we expect media consumption habits to return or revert to where they were pre-pandemic. Just like in 2008, 2009, the impact on newspaper spend did not revert when it came back. And then lastly, I think, clearly, we’ve seen purpose and ESG rise up corporate agenda. Chief Executives can no longer ignore the issues facing society. They need to tackle them head on, whether that’s COVID-19, whether that’s racial justice or whether that’s the safety of social media platform. So all of these are topics where we’ve increasingly been advising our clients over the last six months, and I think demonstrate the continued relevance of the types of services that WPP companies offer. We need to give our clients not just an understanding of technology and how the bits and bytes work, but also an understanding of human behavior, of emotion, of how people think, why people do what they do and what they can do to communicate in a relevant way, their positions to their customers. And it’s clear that consumers will just – will judge companies by how they respond, not just what they say, but most importantly, what they do. And all of these trends talk to WPP’s continued relevance to our clients. And as a result, on Page 28, we’re seeing an accelerating demand from our clients in the areas of experience, commerce and technology. And increasingly, those are the areas of our business that we laid out two years ago, where we’re focusing on our initiatives. Now I think it’s important to highlight some of the work that we’re doing on Page 29. The e-commerce business within WPP, I think, is something that probably – well, not probably, certainly insufficiently recognized by analysts. And certainly, increasingly, we’re engaged with our clients in this area, actually engaged with eight of our top 10 clients on e-commerce and we want to give you some context of the types of services and offerings that we do. For example, for BAT, we’re undertaking one of the world’s largest rollouts of Adobe’s B2C commerce platform. They bought the Marketo platform a couple of years ago. We’re one of Marketo’s largest partners. They’re looking at building a direct-to-consumer offer in a new category. And WPP companies are delivering not just the technology, but also the organizational enablement, the integration of the platform into their systems and a creative expression of that platform and its experience. For Ford, they launched a new Bronco earlier this year in the United States. And we led the launch of that new vehicle across media in terms of creative, but also in terms of building the customer experience, the user experience that allowed consumers to register car at a time when they couldn’t visit dealers. They had taken 165,000 preorders. And really, the Bronco is now sold out. And that’s leading to a totally new automotive buying experience. The dealer is clearly still important, but Ford are driving sales and registration to dealers. In the consumer packaged goods area, as I mentioned, in consumer packaged goods, we’re seeing 10% to 15% of the sales now coming through e-commerce channels. And increasingly, they’re seeking new ways to invest to build direct-to-consumer capabilities. But we’ve been supporting Unilever on the launch of lever.com, which features trusted Unilever brands in the cleaning area. Our support has really been around the content and making sure the user experience works. And this is going to be an increasing area, I think, of support to packaged goods. And the last area to focus on really are marketplaces. So we advise clients, both on building their own websites, on dealing with traditional retailers, but increasingly, what they can do in marketplaces like Amazon or Alibaba. For Adidas, at the beginning of the pandemic, there was really a very rapid pivot in our support from them from traditional media into performance marketing and into media to drive e-commerce sales, particularly on Amazon, where our working company is not just how we drive traffic to an Amazon page, but also what content sits on that page and how to optimize the spend and availability. And that is our store, growth in e-commerce sales of 93% in the second quarter. Not only is e-commerce driving experiences and platforms, it’s also increasingly driving our media spend on Page 30. You can see the growth in e-commerce that we’ve experienced in the first-half of the year. At GroupM, today, 39% of our billings are digital. That’s up 5.5 points from the first-half of last year. In the first-half of this year, we spent around $7.4 billion on digital media. We are the single largest partner to Google, Facebook and Amazon on the media front. But what we’ve seen, particularly from packaged goods clients, is a massive increase in spend on e-commerce. And I think it makes sense of the time when clients need to drive sales to shift them to channels that can drive sales, and that’s increasingly a multi-platform strategy across all of the platforms that exist. And the third thing we want to highlight was the importance of purpose. It’s clearly rising up the corporate agenda. We’ve been working with Pfizer since the beginning of the year to lift their reputation as a patient-focused scientific leader. We launched a new campaign, Science Will Win, a couple of months ago. It’s been extremely well received in the market and demonstrated results. We’d like to share that film with you. So would you please play the first video. [Commercials] So that work was created by a multiagency WPP team, comprising of Grey, Landor, Hill+Knowlton, really to come together to build and promote Pfizer’s reputation. Second piece I would like to share with you is the work we did for Procter & Gamble around Pride this June as part of a campaign called Can’t Cancel Pride. We teamed up with iHeartRadio really to talk about the challenges that members of the LGBTQ community face in their everyday life. So please play that film as well. [Commercials] So that film was Procter & Gamble’s third-highest film since 2016, and I think briefly illustrates the challenges that, that community faces. On Page 33, I think, I’d point out that all of this work was produced under lockdown. So we have been able to produce work to the very highest quality under lockdown. And I think it illustrates that what we’ve seen over the last five months is not the sort of trivial debate between whether people are working from home or working for the office. It’s something much more fundamental. We’ve seen a change in the way that we work, where we’ve embraced increased speed and agility in the way we work with clients. We have more engagement with clients, less travel, much faster delivery. We’re doing work. We’re making films for clients in 16 days that may perhaps previously taken 16 weeks or indeed, in many cases, longer. We’ve seen a huge update of collaborative tools. We have a 6 times increase in usage across WPP or Microsoft Teams. And when we survey our people, 91% of people believe they have the resources and technology available to do their jobs. And it’s been really important for us over the last six months to look after the well-being of our people, and I think I’ve certainly been extremely impressed by the way our people have stepped up to look after each other and to look after their clients. But it’s increasingly clear that people’s well-being and effectiveness is being impacted. And I think we are looking gradually over the next few months increasingly to get people back into our offices, but in new ways. So that if don’t ever go back to ways that we’ve worked in the past, we want to make sure that we incorporate the lessons and the new ways of working in a way that we come back to work. So on Page 34. If I were to summarize how we feel about this, I’d say, despite the challenges, we look back at the last six months as a time where we’ve made really continued progress and we have a resilient performance. And we do see the second quarter, the toughest quarter of the year, and we do remain cautious on the speed of our recovery. We do see COVID-19 very much as accelerating the changes. I think that we are pleased with the strategy that we laid out two years ago, which is under two years in December 2018 and the decisions that we’ve made since then that I think have very much been validated by decision to focus on reducing our debt and ensuring that WPP was financially resilient. The decisions to simplify the structure of the company to integrate our offer to invest in creativity and to invest in technology have all been proven beneficial over the last six months. But at the same time, we are looking to embed the lessons of the lockdown to ensure that we work faster in more agile ways that we travel less, it will be better for our personal lives and for the environment and to make sure that we lock in where we can the permanent cost reductions. So my conclusion is, the last months, we’ve performed extremely well. There are many ways that we’ve worked in the last months that we’ll continue to use. And there will be opportunities. So to that end, we intend to come back to you in November or December to update you two years into the strategy on progress that we’ve made and further opportunities that we see in terms of advancing our strategy, looking for long-term effectiveness and our capital allocation plan. So thank you very much for your time and attention. And now, we’ll turn to questions.

Thank you, sir. [Operator Instructions] We will now take our first question from the line of Tom Singlehurst from Citi. Please go ahead.

Hi, Tom.

Hi. Good morning. Thank you very much for taking the question, and thanks for doing the call. Yes, I just wanted to go back on that theme of the current environment accelerating changes, because obviously early in the presentation you mentioned within global integrated agencies, we’ve seen GroupM underperform the broader group. And that feels like a sort of new development. Historically, media has always somewhat outperformed. I suppose I hear the point you’re making about it’s just being naturally more exposed to media spend. But how – what line of sight do we have that will sort of revert to being a sort of outperformer within GIA? And how comfortable are you that there isn’t no – a sort of negative acceleration happening there that will have a longer-term impact? So that was the first question. Second question, very briefly on the cost saves. Great that it’s the top end of the £700 million figure, and obviously even better that you’re going to retain some of that. But I’m just interested, worried about whether that constrains your ability to rebound next year when recovery becomes broader base? And then the final question on the reinitiation of the dividend, which is obviously helpful. I’m just interested why – it’s the £120 million or so, you’re going to be returning by the dividend. Why didn’t you just fire up the buyback? Because surely you get more bang for the – for your buck out of that and it’s more sort of temporary and flexible. I’m just intrigued why you chose the dividend over the buyback given the shares are what they are? Thank you.

Well, I’ll take the first question and John can take the last two, and I’ll add anything so I won’t need to. No, I think I’m very comfortable with the strategic performance of our media business. And I think maybe instead of saying GroupM underperform, we may wish to think about as GroupM as most impacted. I mean, clearly, that business is most linked to advertising expenditure. And sure, in the second quarter, in some markets, ad spend was down as much as 30% or 40%. In the United States, advertising spend was down 22%. I think, in the UK, it was closer to 40% in the second book. So I think in that context, it’s not surprising that GroupM was most impacted. But I think just as your analysts that follow media companies would expect advertise spend to bounce back more quickly. I think that we’ll see the rebound in GroupM the other way. So I don’t think we have any particular strategic concerns. I think, it’s naturally just an impact of what we would expect. And I think, more broadly in our business model, the fact that we have a blended business model that’s less linked to advertising spend has made our revenues less volatile, which I think, again, demonstrates sort of the strength, if you like, of our business model. John?

And, Tom, just in relation to your question around cost savings, potentially constraining our ability to rebound next year, I think, far from it actually. We’ve been very careful about the blend of our cost savings. Obviously, some of those cost savings are temporary in nature. So things like freezing on new hires or delaying salary increases or indeed reduction in our freelancers. Some of the cost savings are more permanent in nature in terms of some of the severances that we’ve announced. But we’ve tried to get a blend between those two buckets right in order to ensure that, number one, we’re right sizing the business for the new world going forwards. But equally, we’ve got the flexibility to bring back resource, particularly, for example, freelance resource as and when the market starts to recover. So we’re very, very comfortable that we can respond to the market as and when it starts to recover in terms of our ability to resource. Of course, some of the savings that we’ve announced are, we think, are permanent in nature and I think reflect a change in the ways of working going forward. So if you look at things like our travel expenses and our hotel expenses and some of our staff costs, you will very much see going forward that we will not return to the same level of travel or the same level of hotel expenditure and there’ll be long-term cost savings that will be available. And we’ve sort of given an estimate those at around £200 million or so, so they will be permanent savings. To be absolutely clear, though, they do not reflect what I’ve talked about in the past, which is more structural savings in the context of things like, for example, long-term rent savings, for example, the results of COVID-19 or shared service savings through finance and HR or better procurement savings, those more longer-term structural savings. We’re in the process of quantifying and we will come back and update you on those longer-term savings towards the back-end of this financial year. In relation to your question on the dividend, why dividend, why not the share buyback? Well, we wanted to communicate a confidence to the market in terms of the sustainability of cash flow returns to shareholders. And we know that our shareholder base very much values our dividends. And given that we’ve got better visibility, not complete visibility of performance into the segments, but certainly better visibility than we had three or four months ago. We’ve got a very strong balance sheet. We’ve got a very strong liquidity position better than it was in March of this year at the start of COVID-19. We wanted to be able to signal to the market a degree of confidence by reinstating that dividend on a more sustainable basis. Obviously, we will come back to the share buybacks at a point in time when we’ve seen a further improvement in that visibility of performance over a sort of 12, 18-month basis.

That’s very clear. And one final question. Is there any inference from the level you’ve selected for where the sort of full dividend will come back out as and when?

No, not at all. I mean, we made the interim dividend on the basis of, as I’ve just described, confidence in our performance over the next six months or so. And the fact that it’s eminently affordable given our liquidity. But I would not read anything whatsoever into interpolating from that interim dividend what our ultimate dividend policy may or may not be. That is something that we will definitively come back to at our Capital Markets Day towards the back-end of this financial year.

Very clear. Thank you.

Thanks, Tom.

Thank you. Our next question is from Julien Roch from Barclays. Please go ahead.

Hi, Julien.

Yes. Good morning. Thank you for taking my question. The first one is on the cost savings. So upper end £200 million will be permanent. £200 million equates to 184 basis points of 2019 margin. Your margin target was around 15%. Should we add the whole 1.8 to that? Or are those gross savings, then you will reinvest somewhere else? And if you reinvest somewhere else, can we have an idea of how much of the 184 basis points we should keep? That’s my first question. The second one is coming back on Page 29, you’re highlighting e-commerce as one of your strengths. Would it be possible to have an idea of how much that represents as a percentage of net sales approximately in either 2019 or an estimate for for 2020? That’s my second question. And then the last one is the £2.5 billion a goodwill impairment. Does it create tax loss carryforward? And if yes, how much? Thank you.

I’ll let John do the first and the third. On e-commerce, clearly, it’s difficult to identify specific e-commerce projects, and we’re not organized around those four areas. But we’ve done some work, and we believe it’s around 8% of our net sales generated from the e-commerce area. John, you want to talk about cost savings and…

Yes. So just, Julien, in response to your question on cost savings, your math is impeccable. So all else being equal, you will see that fall through. But, of course, the big caveat there is all else being equal and that may or may not necessarily be the case. We will come back to this at our Capital Markets Day when we hope to be able to set out in more detail as a consequence of an update through the strategy, what the future financial targets and projections for the business are going to be going forward. I think it’s fair to say at this stage, though, that all else equal, we will see that benefit flow through the bottom line. Now we need to go through the detail and obviously talk about where we might want to invest that or whether we let it drop through. So I wouldn’t want to be too prescriptive at this point. But the math is right and the benefit is clearly there on a permanent basis. As I said already, that doesn’t – that benefit doesn’t reflect further upside in relation to why might describe as more structural cost savings. This is very much taking out costs on a BAU basis. We’re going to update the market towards the end of this year on the more structural cost savings. In relation to the £2.5 billion impairment, that’s a non-tax item, so that won’t create a tax loss carryforward to be clear.

Thank you.

Thank you.

Our next question is from the line of Matti Littunen from Bernstein. Please go ahead.

Hi, Matti.

Good morning. Within your online media business during COVID-19, do you see any shift between open exchange programmatic and the more closed walled garden platforms like Facebook? The other question, speaking of Facebook, how do you see the impact of their IDFA changes on your online media business? Thank you.

Yes. So I think the – broadly speaking, I’d say, we see – we’ve seen continued growth in spend on Facebook and Google and probably a little bit more resilience there than we have on the exchanges. I think on the Facebook front, we’re going to have to see how that works through. But I would expect that, if they’re limited in their ability to use data, then that will naturally impact the spend that goes through those platforms, if not in terms of volume of impressions, certainly in terms of value, and they’re talking about sort of the data list impressions or when you lose the data signal, the value of an impression declines by 40% to 50%. So I think we would see some reduction in absolute spend. The question is where – how and where one would divert that spend to and where it would go, and what Facebook will do in other ways? I would say, generally, we are moving to a world where we do rely less on cookies and where we are targeting media in different ways and increasingly building powers to have our own source of data around media, increasingly moving to contextual targeting. I wanted to be very much like traditional media. We’ll look at the content of the page and decide what message to serve on the content of the page, and increasingly understanding how we take clients’ own first-party data and activate that in a secure way and privacy-compliant way on media channels. So I think that it’s a sort of moving feast. And net-net, the sort of interaction between the platforms and the competitiveness of that is going to drive how spend. But I don’t think one can sort of take a linear inference from those changes to how spend will flow.

Very helpful. Thank you.

Our next question is from Richard Eary from UBS. Please go ahead.

Hi, Richard.

Hi, Richard.

Yes. Good morning. Thanks very much for taking the call. Sort of three questions. Firstly, just I think you provided some detailed, obviously, breakdowns in terms of how things are trended through first quarter, second quarter and in July. And it seems that from looking at the numbers in the appendices, China and Russia had sort of deteriorated in July, whereas all other markets you had presented had actually got better. I’m just trying to understand, is there anything in that? And is that the reason why you’re probably a bit more cautious around not changing full-year expectations and where the market sits today? That’s the first sign. The second question was more about top 200 clients versus smaller clients and whether you could give us a little bit more color in terms of what the top 200 clients represent of the total revenues? And whether there’s any signs of recovering the smaller clients which are significantly underperforming the bigger client sets? And then just lastly, on the cost side. I know John, you’re going to come back at the Capital Markets Day. But I think when you hosted the analyst session a couple of months ago, you seem pretty optimistic about back office and middle office and even sort of front office savings. I just don’t know whether you can share any more color in terms of what you – what’s happened in the last two months as you evolved your thoughts?

Okay. So I’ll tackle the client question, and John can talk about the outlook and cost. But I think our top 200 clients are 64% of our revenue. So it’s a pretty representative mix of large organizations. I would say that given the nature of those businesses, they tend to sit inside categories like healthcare, technology, consumer packaged goods, so they tend to sit in the more resilient categories. And the other – if you were a restaurant chain or relatively smaller business, they sit in the other sites. So I think I would take from it that they’ve been more resilient. Actually, if you go back three or four years ago, somebody said we were losing share from our largest clients, if you remember, versus WPO overall. So I think we are reassured with continued spend from our largest clients. But yes, it’s about 64% of our spend. So it’s a pretty representative sample of the business overall, John.

And Richard…

So Mark, I was going to say, just if you look at the improvements in trends into July, is that mainly driven by the top 200 clients? Or basically other categories coming back or smaller clients coming back into the fold?

To be – I haven’t looked at that, but we can get back to you on that.

Sorry, John.

Yes. Rich, just in relation to your question on sort of China and Russia, you are right to highlight that those two markets do seem to be sort of bucking the trend, so to speak, in terms of recovery coming through in July. But I’d make the following observation. First, it’s very dangerous and we shared July numbers with you. But it’s a month worth of data. It’s certainly encouraging. And indeed, we saw just to sort of throw a little bit of color on the performance in the second quarter. May was our worst month and we saw improvements come through in June and then further improvements coming through in July. So overall, we feel positive about the direction of travel. I think if you look at China, just specifically, first and foremost, the number for Q2, the minus, I think, 3.1 it was, is flattered by some one-off adjustments. And actually, if you stripped out as one of the adjustments for net sales, then you’d probably be at an underlying rate of about somewhere between minus 10 and minus 15. And indeed, if you look to July, where we’re down 18%, we came – it’s up against a very tough compared to last year where we were up 9%, 10%. So, again, I think if you look at the underlying rate coming through for China for the second-half, I’m expecting to be around minus 10%, maybe a little bit better. So I’m really comfortable with the direction of travel moving in the right direction for China. And then in – specifically in relation to Russia again, it’s a relatively small market for us. And I wouldn’t – I’ve gone into the details of those numbers. I wouldn’t read much into that at all. But to your broader point around the caution in relation to the second-half, I just think we need to be – we just need to be careful. We take some encouragement from the fact that we got positive momentum coming through in June and July. But equally, there are areas where – Spain is a great example, where we haven’t seen quite the same recovery in July come through because of a consequence of local lockdowns. And we are not through this pandemic yet clearly. We’ve got a winter and autumn and a winter to trade into when there’s a possibility of further local lockdowns coming through. So I think we’re being sensibly cautious about the outcome for the second-half, but clearly take some encouragement from the positive momentum that we’ve seen in the business over the last couple of months. In relation to the cost line and about – can we shed more light on that? Well, obviously, you want to keep my power to dry for our Capital Markets Day in November, December. But what I will say is, I remain optimistic about the opportunity. So I have talked in the past about financial shared services, about procurement, about HR shared services, about some of our production capabilities, and I remain optimistic that those are areas that we can go to, to seek further what I would describe as being structural cost savings. I think the one that I would add to that list now, which is, if anything, has seen a potential uptick in savings would be in the area of our property costs. And clearly, as a consequence of COVID-19 and the new ways that the new, very much agile ways of working that we started to operate under. To Mark’s point, it’s much more about that agility than it is necessarily about for the people who are in the office or not. But nonetheless, I think, we are going to move into a new world where people have that right balance, that right combination with working from home, working in the office, I think, all else being equal, that will mean that we need less office space going forward. And indeed, our campus strategy that was embarked on a-year-and-a-half or so ago, gives us a real opportunity to better flex our space across our different agencies and look to absolutely deliver further cost savings on our property side in a way that perhaps wouldn’t necessarily be available to others, because we’ve got that flexibility of exiting some longer-term leases. And so I do feel that there’s an opportunity there that perhaps wasn’t available previously. But again, we’ll come back to the detail of that when we update you at our Capital Markets Day.

Thanks. Just – John, just on that latter, not to obviously probe into actual numbers, which you may give out later in the year. But if you look at the categories that you’ve mentioned, where do you think is the biggest opportunity now? Is that property?

I wouldn’t want to get drawn on that because of the inferences that you might make from it. So yes, let us do the detail work. Teams are working hard now to pull all those numbers together, and we’ll update you on the detail of that when we come back to market in November, December.

Very clear. Thank you very much.

Thank you. Our next question is from Matthew Walker from Credit Suisse. Please go ahead.

Hi, Matthew.

Hi, guys. Can you hear me, okay?

Yes.

Yes.

Okay. Yes, congratulations on the result. I’ve got two questions. The first is on revenue improvement. I mean, I guess, obviously, none of us know what’s going to happen in H2. But given you’ve set out your cost saving targets, how would you characterize the drop through if revenue did improve from what you’re expecting? So let’s say, for every £100 of improvement in revenue, how much of that will drop through to the operating profit line? And then the second question is on the – obviously, you do the Capital Markets Day on the structural cost savings. But with the structural cost savings, do you think that there will be cost to achieve those savings? And will you put those into operating profit line? Or will you take those as exceptionals? Those are the two questions.

All right. John…

Yes. Thanks. Thanks, Matthew. So in relation to your first question how much of any future revenue improvement will drop through to the bottom line? What we sort of roughly set a target and I’ve talked about this before. We set the teams an overall target to try and offset 50% of any net sales decline in the form of cost savings. And that’s the target that we set our teams. Now, the reality is, as we’ve exited the first-half, we’ve been doing a little bit better than that, sort of 60 or so, north of 60%. So that’s encouraging. And let’s see whether we can maintain that momentum through into the second-half. But as a guide, I think, it’s somewhere between 50% and 60% of any net sales decline, we would hope to be able to offset in terms of cost savings, that should give you some indications as to the drop through. And in relation to structural cost savings, will that incur any one-off costs? It’s possible, yes, for sure. And so, for example, if we’re investing in shared service systems and so forth, that will indeed require further investment. Other areas, I just made mention to property costs, there may be some sort of early exit costs from some leases. But I think I see where we get to, but there will – there won’t be any any other one-off costs. I think some of the procurement savings, I think, will not require one-off costs. So it’ll be a little bit of a blend of both. But we’ll set that out very clearly when we come back to the market in November, December in terms of what we think the cost savings are, the timings of those cost savings on an annual – on a year-on-year basis, and also, if there’s any one-off costs associated with having to deliver those savings.

Okay. I just want to quickly follow-up on the first one. I get what you’re saying about, you want to maybe offset the revenue drop this year by 50% or 60%. But isn’t the issue that you’ve actually given already an absolute number for cost savings, and therefore, any incremental revenue improvements should actually drop through, as I remind you, on to the operating profit?

You’re right. I mean, the assumption there is though in your math is that the cost savings are static versus the top line. Of course, the reality is that’s not the case. And so, yes, you’re right on the margin. And any – the way it works is any improvement in revenue, above and beyond our forecast, will generally drop through at a higher rate in the 50% or 60%, because what happens in Brexit is you sweat the assets slightly. The resources, the people are slightly harder. So you tend to get a better drop through. And so, for example, in June and July, we did deliver better net sales than we were forecasting the cost savings were delivered. And so we saw most of the upside versus our forecast drop through into profitability. What I’m trying to give you though, when I talk about the sort of 60% – 50%, 60% is just a rough guide on – if you wanted to forecast the numbers forward, a rough guide as to what the actual overall drop through will look like, which will be sort of 50% to 60%. But you’re absolutely right on the margin, generally speaking, any upside does drop through a little bit quicker. And again, we might expect as we start – one of the things I’m very keen to do is, as we start to see recovery come through next year, as we start to recover from COVID-19, the big challenge that we’ll have, of course, is to hold on to as many of those cost savings as possible. Now, we’ve been very clear that we think that there’s around £200 million that we will hold on to on a permanent basis. But in theory, there’s another £600 million that will come back into our P&L. And, of course, the task there is how do we delay that £600 coming back into the P&L as much as possible. And, of course, yes, they will be – we’ll try and make those savings as sticky as possible. So we’ll try and work our business hard as we go through next year as we start to recover, to try and hold on to as much of those savings as possible. But it’s inevitable that all costs in some way is a combination of fixed and variable and some are more variable than others. And inevitably, as we start to recover, we will see costs coming back in. But rest assured, we’ll hold on to as much as we possibly can. Hopefully, that gives you a little bit of a flavor. I don’t know whether that answered your question or not.

Yes. I think yes. Yes, I’ll leave it as of now. Thanks.

Okay. Thanks, Matthew.

Thank you. Our next question is from Patrick Wellington from Morgan Stanley. Please go ahead.

Hi, Patrick.

Yes. Good morning, everybody.

Good morning.

All right. And not to hop on about the £200 million. But on Slide 15, you’ll see that the savings will be permanently retained when we’ve returned to the 2019 net sales levels. So just want to check what that the implication of that statement is? Does that imply that if net sales don’t returns 2019 that you might retain more than the £200 million? So what’s the relationship that you’re trying to hit there? The second question, because we must have three is what’s going to make you turn the share buyback back on? I mean, you can see your financial situation at the half year. You’ve got your forecast for the full-year. You’ve just paid an interim dividend. I mean, are you going to sit there when you get a good revenue number in August or September and say, “Well, now I feel more confident in my forecast, I’d turn it on now.” What’s going to be the trigger, I guess, is the question? And then my third one is more for Mark. And I think it’s part of Julien’s question earlier on. You described 8% of your business as being an e-commerce. If you take those four sort of growth segments that you describe, comms and experience and commerce and tech, I think, they’re overall about 25%, 30% of their total. So I guess, the question is, this depiction of acceleration in e-commerce and digital, do we have the traditional analog decline on the other side? And how does WPP navigate that process? Is it all incremental? Is it partly substitutional? Is there a risk that you – I mean, people think you have assets, if you like, towards legacy businesses. How does that be managed?

So why don’t I – why don’t we start there and then [indiscernible] similar questions, we’ll talk about the…

Okay. So just in response to your first question, obviously, if we see – what we’re trying to say here, it’s an oversimplification of our cost base. But what we’re saying is the £800 million of savings, the £200 million is sort of fixed or permanent and £600 million is variable. Now, it’s never quite that black and white, as you, I’m sure, appreciate. But – so in other words, ads on net sales do return back to 2019 levels. And by the way, we do anticipate that happening at some point, those costs – £600 million of those costs will come back in. At any point in time, if our net sales numbers are less than the 2019 level, then clearly, we will have the – what we call the permanent savings is £200 million-plus, an element of the £600 million will still be available to us on the grounds that they are variable saving. So, that’s the way I would look at it, frankly. It’s – as I said, it’s an oversimplification on the way our business works, because not all costs are fully fixed, not all costs are fully variable. But hopefully, that gives you a little bit of a flavor. In relation to your second question on the trigger for share buybacks, I think, it’s simply a question of we need to be – we need to recognize that we are not through COVID-19 by any shot at the moment. There remain uncertainty out there. And I think for me, the key trigger that we would look to before we reinstate the share buyback is having visibility of our performance over the next 12 to 18 months. Now, there’s no question that the visibility of our performance has improved from where it was three or four months ago, when there was a huge uncertainty as to the impact of COVID-19. We’ve now traveled through these three or four months. We’ve delivered a stronger performance than expected. We’ve been pleased with our performance over that time, but we are not through the impact of this pandemic, not least of which, perhaps some of the longer-term economic impacts of COVID-19 on consumer and consumer spend and consumer confidence. And so I think until we are – until we’ve got better line of sight over 12 to 18 months, we won’t be reinstating the share buyback. When do I think that’s going to happen? I think it’s too premature to say at this point. I don’t think it will be before our Capital Markets Day and it may not be even at our Capital Markets Day. So I think let’s just wait and see how we perform over the coming months or so and the extent to which we can have visibility into the future before we reinstate that share buyback.

All right. On your question about growth, I think, the first thing to say is, firstly, we see growth in all four areas of communications, experience, commerce and technology. We may see slightly stronger growth in experience, commerce and technology, but the communication business we do see continuing to grow. But I think within it, there is, as you point out, that shift between from analog to digital within communications, which is sort of by definition more pronounced there than it is in other areas. I think the second observation I’d make is, it’s not as simple as saying that WPP didn’t grow historically, because the analog portion was declining faster than the digital portion. The challenges we face were around the way we will organize the complexity of our organization. The fact that our analog and digital capabilities weren’t integrated, the performance and quality, historically, of our businesses in the United States and lack of growth in the U.S., and those are all issues that we’ve been working on making pretty good progress on in the last two years. So I think that we will, in a steady state, see growth. Our goal will be to see growth in all four areas of our business. You can’t run a business, where you have a long run potential for it is to decline. And so we’re really organizing the whole company to grow. Does that help understand where we’re going?

That’s good. Thank you.

Well, I think our clients need service. Clearly, the online portion of the business is growing more quickly. But I think our clients need service. No one lives in a – even my eight-year old son doesn’t live in a digital-only world that he’d like to try to do. So I think that we do live in a – in an omni-channel world. Clearly, the pandemic has increased the shift to digital. But I think as we’ve seen through the integration of VMLY&R, the fact that it grew in the first-half of the year that we can integrate our capabilities to grow in the world in which we live.

That is great. I mean, I suppose the – so it’s too simple a narrative, if you like to do the digital analog acquisition. Do you think you’ve got the weighting of your people right to people naturally transition across from dealing with TV and stuff like that into the digital markets? Or do you need a bigger shift in the balance of your people at some stage?

Clearly, we need to continue to shift. Clearly, we need to train our people and equip them for the skills that we need for the future. But I think if you were to sit through a client presentation, or if you were to sit through the meetings that we have, it’s not Mad Men. We’re not sitting there, taking about 30-second television ads. When we help Ford launch the new Bronco through the – not just a primarily online launch, but when dealers were closed, that work was totally digitally focused. When we help our clients launch films where – when cinemas, movie theaters are closed and clearly, we’re driving people to online platforms. We’ve done a lot of work in the commerce area, helping clients – for sales of liquor stores in the U.S., there’s 60 liquor stores. In two weeks, we spun up a curbside delivery platform for a company that had no e-commerce presence whatsoever. So I think the work that we do is a blend and clearly, television advertising or videos, as they call it today, they are important part of what we do. And in a way, it’s a shame that we show you films on these presentations, because you take away, that’s what we do, but it’s in many ways the best way to encompass the work. But I’d say, we have a very, very broad range of skills. And I think that our people, the average age of some of the workers for WPP is less than 30. They don’t hark back to the 1980s luckily.

Okay. Well, true social good in the curbside liquor delivery. Thank you.

Our next question for today is from Sarah Simon from Berenberg. Please go ahead.

Hi, Sarah.

Yes, morning. I’ve just got one question, actually. And it was really you’ve made comments in the release about sort of thinking about capital allocation and kind of suggesting that your dividend policy is going to be reviewed. And I’m just wondering, if you think given the shifts we’ve seen and the acceleration and what was happening already, do you – is there anything you can say in terms of whether you feel like, you need to shift more towards M&A, now you’ve got the balance sheet in good shape? Or if you can do this more organically? Just anything you can say in terms of what you mean by those comments? Thanks.

I don’t think now. I think, we’ll come back to you in November on that.

Okay, thanks.

Anything else?

There are no further questions at this time. I would now hand the call back over to Mark Read for further closing comments.

Thank you. Thank you very much, operator. So I think just to summarize, I think, we had – it has been a challenging six months for the company, but we haven’t stood still. We’ve made significant progress against our strategic objectives, and I think demonstrated the resilience of our business model, the strength of our relationships with our clients. And I just put on the record, thanks to all our people who have worked hard in extremely challenging circumstances to deliver to our clients and, in particular, to look out for each other and time has not been easy. So thank you all for listening, and we’ll see you, I guess, for the quarterly results later in a couple of months time.

Thank you very much, sir. That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may not disconnect.