REG - WPP PLC - First Quarter Trading Update

WPPAnnouncement

25/04/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240425:nRSY9409La&default-theme=true

RNS Number : 9409L  WPP PLC  25 April 2024

 

First Quarter Trading Update

 

 Q1 performance in line with expectations. 2024 guidance reiterated. Strong
 progress on strategic initiatives across Burson, GroupM and VML

 

Key figures

 First Quarter                     £ million    +/(-) % reported(1)  +/(-) %

                                                                     LFL(2)
 Revenue                          3,412         (1.4)                2.1
 Revenue less pass-through costs  2,687         (5.0)                (1.6)

 

 

•      Q1 revenue -1.4%; LFL revenue +2.1%

•      Q1 LFL revenue less pass-through costs -1.6% (Q1 2023: +2.9%)
with growth in the UK and Western Continental Europe offset by declines in
North America and Asia Pacific, which saw strong growth in India offset by a
decline in China

•      Global Integrated Agencies revenue less pass-through costs
declined 0.7%, with 2.4% growth in GroupM offset by a 3.3% decline at
integrated creative agencies with the loss of assignments at a healthcare
client and reduced spend at technology companies

•      New client assignment wins from AstraZeneca, Canon, Molson
Coors, Daiichi Sankyo, Nestlé, Perfetti, Perrigo, Rightmove and Telefónica.
Q1 net new billings of $0.8bn (Q1 2023: $1.5bn)

•      Strong progress on the strategic initiatives laid out at our CMD
in January. Burson, GroupM and VML on track to deliver targeted in-year
savings and well-placed to benefit from a strong pipeline

•      Continued strategic progress on AI initiatives. WPP Open adopted
by over 50,000 of our people and at the heart of Nestlé Oceania, ASEAN and
Nestlé Health Science US wins. Collaboration with Google to integrate Gemini
1.5 Pro in WPP Open announced in April. WPP named NVIDIA Industry Innovation
Partner of the Year in EMEA

•      2024 guidance reiterated: LFL revenue less pass-through costs
growth expected to be 0-1%; with headline operating margin improvement of
20-40bps (excluding the impact of FX)

 

Mark Read, Chief Executive Officer of WPP, said:

 

"The first quarter of 2024 was very much in line with our expectations with
performance reflecting the toughest comparator of the year.

 

"Strategically, we have progressed well on the priorities set out at our
Capital Markets Day at the end of January. We've rolled out multiple AI tools
through our intelligent marketing operating system WPP Open, including the
latest foundation models from Bria, Google and OpenAI, and at Google Cloud
Next we launched our Performance Brain to predict the best-performing content
ahead of campaigns going live. These products are being deployed at scale,
together with investment in training for our people. WPP Open was also at the
heart of our most recent new business successes, including major media wins
with Nestlé.

 

"Structurally, VML is now well established and is on track to deliver savings.
GroupM is progressing well with its simplification and Burson will be
operational in July. I'm very pleased with the progress we are making and we
are already seeing the benefits of a simpler and more agile structure for our
clients.

 

"Our outlook for the full year is reiterated. We remain on track to return to
growth in the balance of the year, supported by an encouraging new business
pipeline and the strength of our business creatively and in media, both
powered by new AI capabilities, while our simpler structure will drive
organisational flexibility and stronger cash conversion."

 

 

For further information:

Investors and analysts

 Tom Waldron              +44 7788 695864
 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

press@wpp.com

 

wpp.com/investors

 

(1.) Percentage change in reported sterling.

(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 from continuing operations, adjusted to include the results of
acquisitions and disposals for the commensurate period in the prior year.
Throughout the commentary in this release growth rates are LFL unless stated
otherwise.

( )

Overview

Revenue in the first quarter was £3.4bn, down 1.4% from £3.5bn in Q1 2023,
and up 2.1% like-for-like. Revenue less pass-through costs was £2.7bn, down
5.0% from £2.8bn in Q1 2023, and down 1.6% like-for-like.

 

 £ million                        Q1 2024  %          %      %         %

                                           reported   FX     M&A       LFL
 Revenue                          3,412    (1.4)      (4.2)  0.7       2.1
 Revenue less pass-through costs  2,687    (5.0)      (3.9)  0.5       (1.6)

 

 

Business segment review(3) - revenue less pass-through costs

 

 £ million                   Q1 2024  Q1 2023   +/(-) % reported    +/(-) % LFL
 Global Integrated Agencies  2,202    2,305    (4.5)               (0.7)
 Public Relations            276      292      (5.5)               (3.3)
 Specialist Agencies         209      232      (9.9)               (7.6)
 Total Group                 2,687    2,829    (5.0)               (1.6)

 

Global Integrated Agencies: GroupM, our media planning and buying business,
saw growth in revenue less pass-through costs of 2.4% in Q1 (Q1 2023: +6.1%),
with continued growth in client investment in media, partially offset by the
impact of US client assignment losses from prior years and lower spending by
technology clients.

 

Other Global Integrated Agencies declined 3.3% (Q1 2023: +0.7%), also impacted
by lower year-on-year spending by technology clients and the first full
quarter impact of the loss of Pfizer creative assignments. Against that
backdrop, VML and AKQA declined in the quarter, with continued growth at
Hogarth and Ogilvy, supported by recent client wins.

 

Public Relations: BCW and Hill & Knowlton, which together will merge to
form Burson in July, saw a combined decline due to the loss of Pfizer
assignments and the impact of macroeconomic uncertainty on client spending.
FGS Global grew against a tough comparison.

 

Specialist Agencies: Landor, Design Bridge and Partners, and a number of our
smaller specialist agencies continued to be affected by delays in
project-based spending. CMI Media Group, our specialist healthcare media
planning and buying agency, continued to grow well, building on strong prior
year performance.

 

 

(3.) Prior year figures have been re-presented to reflect the reallocation of
a number of businesses between Global Integrated Agencies and Specialist
Agencies.

 

 

 

Regional review - revenue less pass-through costs

 £ million         Q1 2024  Q1 2023   +/(-) % reported    +/(-) % LFL
 N. America        1,055    1,150    (8.3)               (5.2)
 United Kingdom    383      377      1.6                 0.3
 W Cont. Europe    556      558      (0.4)               3.3
 AP, LA, AME, CEE  693      744      (6.9)               (0.6)
 Total Group       2,687    2,829    (5.0)               (1.6)

 

North America had a challenging quarter as expected, declining 5.2% due to a
year-on-year reduction in spend from technology clients, the loss of Pfizer at
our creative agencies, and client assignment losses at GroupM. We continue to
expect our strategic actions to drive improved performance in the region
across the balance of 2024.

 

The United Kingdom grew 0.3% against a tough comparison (Q1 2023: +7.4%) with
growth in CPG offsetting declines in technology client spend. Western
Continental Europe saw strength in France and Spain offset by a decline in
Germany.

 

Rest of World declined 0.6% primarily due to a decline in Asia Pacific of
3.2%. Growth in India of 6.6%, reflecting last year's strong new business
momentum, was offset by a 15.4% decline in China, due to a challenging macro
and client environment.

 

There was continued growth in Latin America (+2.3%) and Middle East &
Africa (+7.8%). Central & Eastern Europe was flat (-0.1%).

 

Top five markets - revenue less pass-through costs

 % LFL +/(-)  USA    UK   Germany  China   India
 Q1 2024      (5.4)  0.3  (1.9)    (15.4)  6.6

 

 

Client sector review

Client sector - revenue less pass-through costs

 Q1 2024                                     % share, revenue less pass-through costs(4)  % LFL +/(-)
 CPG                                         28.0                                         9.5
 Tech & Digital Services                     17.1                                         (9.0)
 Healthcare & Pharma                         11.6                                         (8.2)
 Automotive                                  10.6                                         (0.7)
 Retail                                      8.9                                          (9.1)
 Telecom, Media & Entertainment              6.8                                          6.8
 Financial Services                          6.2                                          (0.9)
 Other                                       4.7                                          (14.8)
 Travel & Leisure                            3.7                                          4.0
 Government, Public Sector & Non-profit      2.4                                          (6.6)

 

(4.) Proportion of WPP revenue less pass-through costs in Q1 2024; table made
up of clients representing 77% of WPP total revenue less pass-through costs.

 

Operating and strategic progress

Lead through AI, data and technology

 

At the Capital Markets Day in January, WPP set out its strategy to leverage
its first-mover advantage in applying AI to marketing. During the quarter we
continued to invest in WPP Open, our intelligent marketing operating system
powered by AI, as part of our annual investment of £250m in AI, data and
tech. WPP Open is already used by more than 50,000 of our people and adopted
by key clients, including The Coca-Cola Company and L'Oréal. Most recently,
WPP Open was leveraged in a bespoke agency model, OpenMind, to win media
assignments at Nestlé Oceania, ASEAN and Nestlé Health Science US.

 

In April, WPP announced a collaboration with Google Cloud to integrate
Google's Gemini 1.5 Pro models with WPP Open, with a range of Gemini powered
applications demoed during the keynote session of the annual Google Cloud Next
conference, including WPP Open Creative Studio and an upgraded AI Performance
Brain(TM).

 

WPP was proud to be recognised by the NVIDIA Partner Network as the Industry
Innovation Partner of the Year in EMEA.

 

Accelerate growth through the power of creative transformation

 

Creativity is what sets WPP apart, and when combined with AI, technology, data
and the largest global media platform, we have an unparalleled offer to
clients.

 

During the quarter, WPP topped the WARC Media 100 for the seventh year running
and topped the WARC Creative 100 for the second consecutive year. All three of
WARC's top creative directors work at WPP agencies. WPP also topped The Drum's
World Creative Rankings 2024 for the third year in a row.

 

Ogilvy was named the 2024 Global Agency Network of the Year by Ad Age and also
topped both the WARC Effective 100 and Creative 100 rankings. VML was third in
the WARC Creative 100. Mindshare New York was named the number one media
agency in the WARC Effective 100 rankings.

 

VML's 'Waiting to Live' campaign with NHS Blood and Transplant won two Gold
Clio awards.

 

At this year's Super Bowl, WPP integrated creative agencies were responsible
for 12 of the 57 advertising spots shown during coverage of the game. GroupM
secured the media for 19 spots.

 

Build world-class, market-leading brands

 

Good progress has been made on each of our strategic initiatives with
integration and cost actions relating to VML expected to be broadly complete
in early Q2. The GroupM simplification and Burson merger also remain on track.

 

Across all three agencies, we have a strong pipeline of new business and we
are encouraged by conversion in Q1.  VML won a global assignment for Perrigo
and a US assignment from Daiichi Sankyo and AstraZeneca for their medicine
Enhertu in breast cancer. GroupM won Nestlé Oceania, ASEAN and Health
Sciences in the US and Burson won Kellanova.

 

GroupM agency Wavemaker was named the number one global media agency network
in the COMvergence Final 2023 Global New Business Barometer with a total new
business value of $2.4bn including retentions.

 

Execute efficiently to drive financial returns through margin and cash

 

As well as the initiatives above we are making good progress against our
enterprise IT roadmap and workforce optimisation across finance and IT.

 

In the UK, Workday HCM access was rolled out across more than 10,000
employees. In the US, VML and GroupM ERP deployment plans are tracking in line
with our plans. Several smaller markets in EMEA are preparing for the rollout
of Maconomy in the second quarter.

 

Our cloud migration continues at pace with over 50% of legacy on-premise
workloads migrated to the cloud by the end of Q1, with three more data centres
closed in Germany, North America and Brazil during the period.

 

No new campuses were opened in the quarter, but several new campus openings
are planned for the second half of 2024.

Purpose and ESG

WPP's purpose is to use the power of creativity to build better futures for
our people, planet, clients and communities. Read more on the ways WPP is
working to deliver against its purpose in our 2023 Sustainability Report
(https://www.wpp.com/en/sustainability/sustainability-report-2023) .

Balance sheet highlights

 

Average adjusted net debt in the first three months of 2024 was £3.5bn,
compared to £3.4bn reported in the first quarter of 2023, with no material
impact from FX.

 

Adjusted net debt at 31 March 2024 was £4.0bn, against £3.9bn as at
31 March 2023.

 

In March, WPP issued two bonds as part of a planned refinancing of two
upcoming debt maturities, issuing a €600m 3.625% bond due 2029 and a €650m
4.0% bond due 2033.

 

Outlook

We are reaffirming our guidance for 2024 as follows:

 

 Like-for-like revenue less pass-through costs growth of
 0-1%.
 Headline operating margin improvement of 20-40bps (excluding the impact of FX)

 

Other 2024 financial indications:

•     Mergers and acquisitions will add 0.5-1.0% to revenue less
pass-through costs growth

•     FX impact: current rates (at 19 April 2024) imply a c.1.1% drag on
FY 2024 revenue less pass-through costs, with no meaningful impact expected on
FY 2024 headline operating margin

•     Headline income from associates and non-controlling interests at
similar levels to 2023

•     Net finance costs of around £295m

•     Effective tax rate (measured as headline tax as a % of headline
profit before tax) of around 28%

•     Capex of around £260m

•     Cash restructuring costs of around £285m

•     Working capital expected to be broadly flat year-on-year

 

 

Medium-term targets

In January 2024, we presented an updated medium-term financial framework
including the following three targets:

 

•     3%+ LFL growth in revenue less pass-through costs

•     16-17% headline operating profit margin

•     Adjusted operating cash flow conversion of 85%+(5)

 

(5.) Adjusted operating cash flow divided by headline operating profit.

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 conflicts in Ukraine and Gaza; 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; effectively managing the risks,
challenges and efficiencies presented by using Artificial Intelligence (AI)
and Generative AI technologies and partnerships in our business; risks related
to our environmental, social and governance goals and initiatives, including
impacts from regulators and other stakeholders, and the impact of factors
outside of our control on such goals and initiatives; 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). 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. 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 on the date of this document.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTFZLLLZZLFBBL