Positive start to the year; reaffirmed
guidance for 3-5% LFL growth in 2023 with an operating margin of
around 15%
WPP (NYSE: WPP) today reported its 2023 First Quarter Trading
Update.
£ million
% reported1
% LFL2
First Quarter
Revenue
3,460
11.9
4.9
Revenue less pass-through
costs
2,829
9.9
2.9
- Q1 revenue +11.9%; LFL revenue +4.9%
- Q1 LFL revenue less pass-through costs +2.9%, demonstrating
continued momentum
- $1.5 billion net new business won, including from Adobe, Ford,
Maruti Suzuki, Mondelēz and Swissport
- WPP topped all three WARC rankings: Creative 100, Effective 100
and Media 100, for 2023
- Acquisitions of Obviously and Goat to invest in influencer
marketing expertise; and 3K Communication, a healthcare PR agency
in Germany
- KKR to take minority investment in FGS Global at a valuation of
$1.425 billion
- 2023 guidance reaffirmed: LFL revenue less pass-through costs
growth expected to be 3-5%; with headline operating margin around
15% (excluding the impact of FX)
Mark Read, Chief Executive Officer of WPP, said:
“We have seen a positive start to the year, in line with
expectations, reflecting continued spending by clients in
communications, customer experience, commerce, data and technology
to support their businesses and brands.
“We are continuing to strengthen the company – winning new
clients, hiring new creative leadership, investing in our
technology platforms and data, making three acquisitions in the
growth areas of healthcare and influencer marketing and bringing in
a minority partner to FGS Global. Our focus on AI over the last
five years is paying off, with many examples of our work with
clients, using the main AI platforms, in-market today.
“We remain on track to deliver our full year guidance, thanks to
the competitiveness of our offer and our role as a modern, trusted
partner to clients in a world further disrupted by technology.”
Overview
Q1 2023
£ million
%
reported
%
M&A
%
FX
%
LFL
Revenue
3,460
11.9
0.8
6.2
4.9
Revenue less pass-through
costs
2,829
9.9
0.7
6.3
2.9
Business segment
Global
Integrated
Agencies
o/w3
GroupM
o/w
GIA ex
GroupM
Public
Relations
Specialist
Agencies
Q1 2023 +/(-)% LFL
3.0
6.1
0.7
2.2
1.9
Top five markets
USA
UK
Germany
China
India
Q1 2023 +/(-)% LFL
2.3
7.4
4.0
(13.0)
(1.4)
Operational and strategic progress
We saw encouraging growth against last year’s first quarter
which was the strongest LFL growth quarter of the year. Performance
was broad-based across all our business lines and regions. GroupM,
our media planning and buying business, performed strongly,
reflecting its unparalleled global scale and the strength of its
integrated digital and offline offer.
Our momentum in new business continues with $1.5 billion of net
new business in the quarter. Account wins include work for Adobe
(media), Ford (social media), Maruti Suzuki (media), Mondelēz
(production), Lloyds Banking Group (technology), and Swissport
(public relations).
We are proud to have topped all three 2023 WARC rankings after
WPP was named the number one company in the Creative 100, Effective
100 and Media 100 lists. Ogilvy also ranked as the top network of
the year in both the Creative 100 and Effective 100 while
EssenceMediacom took first place in the Media 100.
We invested organically to accelerate our data and technology
capabilities. Choreograph, our global data products and technology
company, continues to scale its offer.
We believe that AI will be fundamental to WPP’s business and are
excited by its transformational potential. There are many
applications of AI today in the work we do for clients,
particularly in GroupM, our media planning and buying business, and
in Hogarth, our creative production business. We are using AI to
automate workflows, speed the process of ideation and concepting,
and produce innovative creative work for clients, such as our
award-winning work for Cadbury’s in India which used AI to allow
Bollywood superstar Shah Rukh Kahn to produce personalised ads for
local businesses. Our expertise in the application of AI to
marketing is based on investments that we have been making for some
time, including the appointment of a Head of Creative AI in 2019
and the acquisition of Satalia in 2021. We are working with
technology from all the main AI companies, including Adobe, Google,
IBM, Microsoft, Nvidia, and OpenAI, with dedicated enterprise
platforms, proprietary to WPP, to deliver work to clients that
protects their information and IP and using legal guidelines that
allow us to responsibly deploy this technology. Finally, we
recognise the challenges of AI to society and are committed to
using it responsibly.
Our campus programme expanded further, opening two new campuses
this year in Manchester and Guangzhou.
In March, we announced a new strategic partnership with KDDI,
one of Japan’s leading telecommunications groups, to jointly
develop next-generation digital capabilities and bridge Japanese
content and culture globally. We also announced a partnership with
Braze, a best-in-class customer engagement platform aimed at
helping brands use its offering to automate the creation of
personalised and timely communications.
We completed three acquisitions during the quarter which will
strengthen our capabilities in strategically important areas of our
offer: Goat, a London-based data-driven influencer marketing
agency; Obviously, a New York-based technology-led influencer
marketing agency; and 3K Communication, a Frankfurt-based
healthcare PR agency to build out our healthcare presence in
Germany.
In April, we announced that global investment firm KKR will
become a strategic partner in FGS Global, our leading strategic
advisory and communications consultancy. KKR will become a 29%
shareholder in FGS Global, acquiring all of Golden Gate Capital’s
equity and a proportion of the interests of WPP and FGS Global
management. WPP will remain the majority owner at 51%. The
transaction, which values FGS Global at $1.425 billion, is expected
to close before the end of the third quarter of 2023, subject to
regulatory approvals and other customary closing conditions.
Finally, in April we acquired amp, one of the world’s leading
sonic branding companies, to strengthen our offer in experiential
branding and ability to create high-quality, differentiated, and
ownable sound experiences for clients.
Business sector review
Revenue less pass-through costs analysis
£ million
Q1 2023
Q1 2022
+/(-) %
reported
+/(-) %
LFL
Global Integrated Agencies
2,307
2,106
9.6
3.0
Public Relations
292
262
11.5
2.2
Specialist Agencies
230
206
11.3
1.9
Total Group
2,829
2,574
9.9
2.9
Global Integrated Agencies like-for-like revenue less
pass-through costs was up 3.0%, with GroupM (approximately 36% of
WPP revenue less pass-through costs in Q1) up 6.1%. Excluding
GroupM, Global Integrated Agencies was up 0.7%, with very good
growth at Ogilvy driven by strength in consumer packaged goods
clients and recent new business wins. This was partially offset by
a slower start to the year at Wunderman Thompson, primarily due to
lower spend from some technology clients, and AKQA Group,
reflecting a softer start to the year at Grey.
Public Relations like-for-like revenue less pass-through
costs was up 2.2%, with FGS Global performing particularly strongly
and slightly softer performance at BCW and Hill+Knowlton
Strategies.
Specialist Agencies like-for-like revenue less
pass-through costs was up 1.9%, with very strong growth in CMI
Media Group, our specialist healthcare media agency, and good
growth at Landor & Fitch, partially offset by the final run-off
of a COVID-related government contract in Germany.
Regional review
Revenue less pass-through costs analysis
£ million
Q1 2023
Q1 2022
+/(-) %
reported
+/(-) %
LFL
N. America
1,150
1,015
13.3
1.9
United Kingdom
377
352
7.0
7.4
W. Cont Europe
558
507
10.0
3.4
AP, LA, AME, CEE
744
700
6.4
1.9
Total Group
2,829
2,574
9.9
2.9
North America saw like-for-like revenue less pass-through
costs up 1.9%. Growth in the USA was 2.3%, primarily driven by
growth in spending from clients in consumer packaged goods,
financial services and telecoms, media & entertainment
offsetting a weaker performance from some clients in technology
& digital services and retail.
In the United Kingdom, like-for-like revenue less
pass-through costs was up 7.4%, with strong spending from clients
in consumer packaged goods.
Western Continental Europe like-for-like revenue less
pass-through costs grew by 3.4% supported by good growth in Spain,
Italy and Germany. France declined year-on-year mainly due to
client losses.
Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe like-for-like revenue less
pass-through costs was up 1.9%, with double-digit growth in Middle
East & Africa and Central & Eastern Europe offsetting
declines in Asia Pacific. China declined 13.0% reflecting high
levels of infection at the start of the year and a strong
comparative quarter in 2022 (+11.9%). However, we did see some
improvement in client media expenditure and sentiment towards the
end of the quarter which has continued into April.
India declined 1.4% reflecting the impact of macroeconomic
uncertainty at the beginning of the quarter and phasing against the
comparative quarter (Q1 2022) which saw strong growth of 25.1%.
Declines in China, India and Brazil were partially offset by
growth in Japan, Australia and smaller markets.
Balance sheet highlights
Average net debt in the first three months of 2023 was £3.2
billion, compared to £1.6 billion reported in the first quarter of
2022, an increase of £1.6 billion, of which £0.1 billion was due to
FX.
Net debt at 31 March 2023 was £3.9 billion, compared to £2.5
billion reported on 31 December 2022, an increase of £1.4 billion,
driven largely by expected seasonal net working capital movements
and the three M&A transactions in the quarter.
Outlook
We are reaffirming our guidance for 2023 as follows:
Like-for-like revenue less
pass-through costs growth of 3-5%;
further margin improvement
reflecting continued operating leverage to deliver a
headline margin of around 15%
(excluding the impact of FX)
Other 2023 financial guidance:
- We also anticipate mergers and acquisitions will add 0.5-1.0%
to revenue less pass-through costs growth
- Headline income from associates is expected to be around £40
million4
- Effective tax rate (measured as headline tax as a % of headline
profit before tax) of around 27.0%
- Capex £300 million
- Restructuring costs of around £180 million5
- Trade working capital expected to be broadly flat year-on-year
with operational improvement offsetting increased client focus on
cash management
- Average net debt/EBITDA within the range of 1.5x-1.75x
Cautionary statement regarding forward-looking
statements
This document contains statements that are, or may be deemed to
be, “forward-looking statements”. Forward-looking statements give
the Company’s current expectations or forecasts of future events.
An investor can identify these statements by the fact that they do
not relate strictly to historical or current facts.
These forward-looking statements may include, among other
things, plans, objectives, beliefs, intentions, strategies,
projections and anticipated future economic performance based on
assumptions and the like that are subject to risks and
uncertainties. These statements can be identified by the fact that
they do not relate strictly to historical or current facts. They
use words such as ‘aim’, ‘anticipate’, ‘believe’, ‘estimate’,
‘expect’, ‘forecast’, ‘guidance’, ‘intend’, 'may', ‘will’,
‘should’, ‘potential’, ‘possible’, ‘predict’, ‘project’, ‘plan’,
‘target’, and other words and similar references to future periods
but are not the exclusive means of identifying such statements. As
such, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances that are
beyond the control of the Company. Actual results or outcomes may
differ materially from those discussed or implied in the
forward-looking statements. Therefore, you should not rely on such
forward-looking statements, which speak only as of the date they
are made, as a prediction of actual results or otherwise. Important
factors which may cause actual results to differ include but are
not limited to: the impact of, epidemics or pandemics including
restrictions on businesses, social activities and travel; the
unanticipated loss of a material client or key personnel; delays or
reductions in client advertising budgets; shifts in industry rates
of compensation; regulatory compliance costs or litigation; changes
in competitive factors in the industries in which we operate and
demand for our products and services; changes in client
advertising, marketing and corporate communications requirements;
our inability to realise the future anticipated benefits of
acquisitions; failure to realise our assumptions regarding goodwill
and indefinite lived intangible assets; natural disasters or acts
of terrorism; the Company’s ability to attract new clients; the
economic and geopolitical impact of the Russian invasion of
Ukraine; the risk of global economic downturn, slower growth,
increasing interest rates and high and sustained inflation; supply
chain issues affecting the distribution of our clients’ products;
technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting
from increased threat of cyber and other attacks; the Company’s
exposure to changes in the values of other major currencies
(because a substantial portion of its revenues are derived and
costs incurred outside of the UK); and the overall level of
economic activity in the Company’s major markets (which varies
depending on, among other things, regional, national and
international political and economic conditions and government
regulations in the world’s advertising markets). In addition, you
should consider the risks described in Item 3D, captioned “Risk
Factors” in the Group’s Annual Report on Form-20F for 2022, which
could also cause actual results to differ from forward-looking
information.
Neither the Company, nor any of its directors, officers or
employees, provides any representation, assurance or guarantee that
the occurrence of any events anticipated, expressed or implied in
any forward-looking statements will actually occur. Accordingly, no
assurance can be given that any particular expectation will be met
and investors are cautioned not to place undue reliance on the
forward-looking statements.
Other than in accordance with its legal or regulatory
obligations (including under the Market Abuse Regulation, the UK
Listing Rules and the Disclosure and Transparency Rules of the
Financial Conduct Authority), The Company undertakes no obligation
to update or revise any such forward-looking statements, whether as
a result of new information, future events or otherwise.
Any forward-looking statements made by or on behalf of the Group
speak only as of the date they are made and are based upon the
knowledge and information available to the Directors at the
time.
_______________________________
1 Percentage change in reported sterling
vs prior year.
2 Like-for-like. LFL comparisons are
calculated as follows: current year, constant currency actual
results (which include acquisitions from the relevant date of
completion) are compared with prior year, constant currency actual
results, adjusted to include the results of acquisitions and
disposals for the commensurate period in the prior year. Both
periods exclude results from Russia.
3 Of which.
4 In accordance with IAS 28: Investments
in Associates and Joint Ventures once an investment in an associate
reaches zero carrying value, the Group does not recognise any
further losses, nor income, until the cumulative share of income
returns the carrying value to above zero. At the end of 2022 WPP’s
cumulative reported share of losses in Kantar has reduced the
carrying value of the investment to zero. This means that we expect
that around £40-50 million of Kantar headline income will not be
recognised in our headline income from associates during 2023.
5 Excluding any restructuring costs
arising from a review of our property portfolio in the US and other
regions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230426006059/en/
Investors and analysts Tom Waldron +44 7867 975920
Anthony Hamilton +44 7464 532903 Caitlin Holt +44 7392 280178
irteam@wpp.com
Media Chris Wade +44 20 7282 4600 Richard Oldworth +44
7710 130 634 Buchanan Communications +44 20 7466 5000
wpp.com/investors
WPP (NYSE:WPP)
Historical Stock Chart
From Mar 2024 to Apr 2024
WPP (NYSE:WPP)
Historical Stock Chart
From Apr 2023 to Apr 2024