REG - WPP PLC - First Quarter Trading Update

WPPAnnouncement

27/04/2023 07:00

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RNS Number : 6701X  WPP PLC  27 April 2023

27 April 2023

WPP PLC ("WPP")

First Quarter Trading Update

Positive start to the year; reaffirmed guidance for 3-5% LFL growth in 2023
with an operating margin of around 15%

                                               % reported 1  (#_ftn1)  % LFL 2  (#_ftn2)

                                  £ million
 First Quarter
 Revenue                          3,460        11.9                    4.9
 Revenue less pass-through costs  2,829        9.9                     2.9

 

n Q1 revenue +11.9%; LFL revenue +4.9%

n Q1 LFL revenue less pass-through costs +2.9%, demonstrating continued
momentum

n $1.5 billion net new business won, including from Adobe, Ford, Maruti
Suzuki, Mondelēz and Swissport

n WPP topped all three WARC rankings: Creative 100, Effective 100 and Media
100, for 2023

n Acquisitions of Obviously and Goat to invest in influencer marketing
expertise; and 3K Communication, a healthcare PR agency in Germany

n KKR to take minority investment in FGS Global at a valuation of $1.425
billion

n 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."

 

For further information:

 

 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 (http://www.wpp.com/investors)

 

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                o/w 3  (#_ftn3)  o/w             Public Relations  Specialist Agencies

                     Integrated Agencies   GroupM           GIA ex GroupM
 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            +/(-) % reported  +/(-) % LFL

                                      Q1 2022
 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            +/(-) % reported  +/(-) % LFL

                            Q1 2022
 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:

n We also anticipate mergers and acquisitions will add 0.5-1.0% to revenue
less pass-through costs growth

n Headline income from associates is expected to be around £40 million 4 
(#_ftn4)

n Effective tax rate (measured as headline tax as a % of headline profit
before tax) of around 27.0%

n Capex £300 million

n Restructuring costs of around £180 million 5  (#_ftn5)

n Trade working capital expected to be broadly flat year-on-year with
operational improvement offsetting increased client focus on cash management

n 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  (#_ftnref1) Percentage change in reported sterling vs prior year.

 2  (#_ftnref2) 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  (#_ftnref3) Of which.

 4  (#_ftnref4) 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  (#_ftnref5) Excluding any restructuring costs arising from a review of our
property portfolio in the US and other regions.

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