WPP Scangroup : SHAREHOLDER QUESTIONS AND MANAGEMENT RESPONSES

WPP Scangroup PLC

WPP Scangroup PLC

Responses to questions raised by shareholders at the Annual General Meeting on 27 May 2022

Question	Account	Shareholder Name	Question	Board and management response
Number	Number
1	15344792	SHAH,SHITUL MANSUKH	What is the Board doing to stop the sliding share price which	The Board and new management of the company are working hard to improve
is at an all time low currently below 3/- per share?	performance and profitability of the Group. We hope that this will start to show results
				soon and that the share price will increase as a result. The Group has a depth of talent
			With the decline of share valuation to its lowest Levels. Does
2	20915315	KARANJA,EVANS MUGAMBI	and expertise across the markets that it operates in that is unrivalled. We have had a
SCAN consider repurchasing some shares to improve its	few significant wins of business this year giving confidence to our ability to take the
			general outlook in the market.
			business back to growth and profitability.
			When does the Board project that the group will be back to	Having said this, we also are cognisant of the Global macro economic headwinds due to
			European war and the federal rate hikes due to inflationary pressure in USA and Europe
			profitability? We have been treated to optimism in the
			and slower rebound in China, resulting in the GDP of Global Markets GDP being more
3	17720406	TOLE MWAKIO PETER	annual reports, but these turn out to be giving false hopes.
subdued.
			Those of us who bought shares at KES50 a share, have lost a
			lot in this investment.	This impacts our local Kenyan Macro environment, and we are seeing economic growth
				rates being revised, indicating that the market is tough. This creates risk aversion for
				investment into frontier and emerging markets and subdues growth.
				These macro economic factors have had and will continue to impact the NSE index and
4	20915315	KARANJA,EVANS MUGAMBI	Is Scangroup on its deathbed?	trading volumes on the bourse. We have a large constituency of foreign investors and
these global factors have impacted their sentiments yielding a bearish view, this
				reflected in the overall decline in the stock prices at the Nairobi Stock Exchange.
			What is the Board's intention as regards the Company's cash	Future distribution of cash to shareholders by means of dividends will depend on the
5	20415215	A/C KE 002335	balance in terms of how much it intends to pay out as	level of distributable reserves. In the interim the Board continues to assess possible
			dividends (and when) vs. how much it intends to retain?	investment opportunities in the region but taking a cautious approach to risk bearing in
				mind current business conditions.
6	20415215	A/C KE 002335	For the portion of the cash the company intends to retain and
invest, please describe the strategy.
			Operating & Administrative expenses have been quite high	Operating and administrative expenses are high in relation to income. These costs
			nevertheless reduced in 2021 by KES 240m or 9% while Gross Profit increased by 5%
			quite high for the last two years, I think; in fact, it's so high to
7	2358204	NJOROGE,JUSTUS MURIITHI	the extent that it totally wipes out gross profit! What's being	compared to the prior year. Disclosures of expenses in the audited accounts are as
done to address that? And lastly, why haven't details of the	required by International Financial and Reporting Standards.
			same been provided in the notes section of the annual
			report?

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WPP Scangroup PLC

				We are looking to enhance our Digital and technology solutions, riding the curve of the
				new future in this space. We also are looking at greater collaboration across the WPP
				network, aggregating a larger skill set which allows more global and regional clients
			What growth strategies does SCAN plan for the future,	choose us for their growth agenda. Finally we are going to use data more to support all
8	20915315	KARANJA,EVANS MUGAMBI	our solutions, thus making decisions more real time, more targeted reducing waste and
considering the challenges faced by advertising
			ensuring more effective use of client marketing spend. This presents a compelling value
				proposition for clients to buy into. We will be making announcements in the short term
				on progress we have made in this area.
9	3484564	NDEMI MARY GORETI WAMBUI	What the dividend per share this financial year?	The Company is not planning to declare a dividend for 2021 in view of the financial
results for the year and also due to the lack of distributable reserves.
10	254118	KANGETHE,MONICA WANGUI	How do I get my dividends for the past years?	Questions relating to individuals' personal circumstances such as unclaimed dividends
11	3425983	MIGAYI,GLORIA ATIENO	I have not been receiving statements and dividend payouts.	will be responded to individually.
			Following the transfer from the Share Premium Account to	Despite the transfer from the Merger Reserve to distributable reserves during 2021, the
12	20415215	A/C KE 002335	Merger Reserve, what is the Company's capacity, from an	Company has an accumulated deficit of KSH 262m the end of 2021 and is therefore not
			accounting perspective, to pay dividends today?	currently able to pay a dividend.
				The Company will take all actions reasonably possible to re-instate distributable
13	20415215	A/C KE 002335	What is the dividend policy going-forward?	reserves to allow dividends to be paid to shareholders to the maximum extent prudently
				possible.
14	3183653	ARITHI,PAUL KIMATHI	How does WPP Scangroup work?	WPP Scangroup is a marketing, brand building and communication group that provides
communication solutions to its clients.
				There is no KSH 4.7bn write off. During the year a transfer of KSH 4.7bn was made from
				the company's Share Premium account to a Merger Reserve as permitted by Section 388
				of the Companies Act. This transfer relates to the share premium arising on the
				acquisition of shares in Ogilvy, H+K and other companies in 2013.
				An appropriation of KSH 3.3bn was subsequently made from the consolidated P&L
				reserves to the Merger Reserve representing an amount that was not recognized as
				goodwill but was adjusted directly against reserves in 2013 when the company acquired
			About the overseas investment of Ksh 4.7 billion that you are	the balance of shares in Ogilvy and H+K companies not already owned. The transfer does
			not impact the Group's profitability nor does it reduce its assets. Further details can be
15	7024614	MOMANYI,REINPETER ONDEYO	planning to write off. We need accountability on this. Who	found in the Group's audited accounts. As reported in the 2020 Annual report,
was responsible and you cleared the former CEO on any
			following the completion of the investigation into the former CEO and CFO, the auditors
			financial wrong doing?
			of the Company extended the scope of their audit work as a result of the reduced
				reliance they were able to place on the normal internal controls of the Company. The
				investigation did not identify items of a material nature that required adjustment to the
				net results of the Company or the Group for the year ended 31 December 2020 or to the
				balance sheets at that date. Further the former CEO and CFO resigned in the course of
				the investigation.

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			WPP Scangroup PLC
			1. Note 13 of the FY21 annual report with the segment
			breakdown showed that Kenya's operations have been
			historically unprofitable. The directors outlined eloquently, in
16	20863420	FULTON SHIUNDU	their strategic goals and key outlook, about the exciting
			growth opportunities but little was mentioned about a
			strategy to improve profitability in Kenya. My questions are
			specifically:
			a. What accounts for the significant operating loss in the	To some extent the more senior talent in the Group resides in Kenya accounting for
16 (i)			Kenyan entity despite 2x revenue over sales from other	higher costs in that market in relation to revenue. Additionally some of the larger costs
			geographies - Kenya is 2x larger but 4x lower profitability?	provisions have been make in Kenya.
			b. Can management provide specific issues in Kenya that
16 (ii)			drive this significant underperformance and the key strategies	Kenya is a highly competitive market a corresponding negative impact on profitability.
			and expected timelines to improve these results?
			c. Can the board confirm what metrics they use to monitor
			performance of the operating business geographically	The Board and management strive to deliver operating profits in all markets that the
			between Kenya vs Rest of Africa - do they monitor segment
16 (iii)			Group operates in. Performance is measured based on operating profit excluding non-
		operating profit before interest income or after? If the latter,
			operating income.
			is it fair to incorporate non-operating income to review
			operating performance?
			2. Working capital management has been challenging, given
			that the accounts mention that typical revenue is invoiced and
17			is payable after 30-60 days. However, looking at the accounts,
			the receivables accounts have been significant and increasing
			beyond 160 days outstanding.
			a. Please provide context on what is driving lengthening and	While every effort is made to ensure clients pay on agreed contractual payment terms, a
17 (i)			number of clients fail to adhere to agreed terms. Additionally credit terms agreed at a
		consistent difficulties in collections?
			global level on certain multinational clients have lengthened.
17 (ii)			b. Are you able to provide breakdown on ageing receivables	The Group does not disclose this information.
		between the public and private sector clients?
			c. VAT recoverable has continued to increase, could	The net VAT receivable position has increased as the Group has a number of zero rated
			or VAT exempt clients. The Group's auditors performed recoverability tests and were
			management please provide colour on the existing issues	satisfied the VAT recoverable asset was fairly stated in the balance sheet at the year
17 (iii)			driving significant recoverable from the tax authority. How did	end.
			the auditors get comfortable on the levels of provisions
			applied to these assets, and the likelihood of recoverability?
			d. Payable days were increased significantly in FY21, possibly	The Group endeavours to adhere to payment terms agreed with suppliers. At the same
			to mitigate against the increase in receivables. Can	time the Group will generally aim to match client payment terms with those agreed
			with suppliers to avoid a negative impact on cash flows.
17 (iv)			management comment on the risk and pressure such a
			strategy exerts on suppliers and how you get comfortable in
			managing this risk?
18			3. Capital allocation is a critical component for managing
		shareholder returns.

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WPP Scangroup PLC

			a. Can management talk through how they think about capital	The Board and management will carefully assess investment opportunities taking into
			account perceived risk and the opportunity cost of foregoing interest on bank deposits
18 (i)			allocation decisions and the balance between investing in the	which are currently around 8.5% in Kenya.
		business and typical returns on this investment expected
			relative to the approach on capital return to shareholders?
			b. Given the reliance on interest income in mitigating the	The declaration of dividends is to a large extent determined by the company's results
18 (ii)			losses in the Kenya operations (as evident in note 13), would	and the availability of distributable reserves out of which a dividend can be declared.
		it be fair to assume dividend policy is impacted by the need to	The Board restructured the share capital of the company during 2021 in order to boost
			keep significant cash balances in the business?	distributable reserves to the maximum extent possible.
			c. Given the current share price relative to conservative	The Board will continue to assess how best to utilise the Group's cash resources to
			deliver the greatest return to shareholders.
			valuation on an asset perspective, is there consideration to
18 (iii)			consider strategies such as share buy-backs to buy back
			shares are these extremely low valuations and boost
			shareholder returns?

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