REG - WPP PLC - Third Quarter Trading Update

WPPAnnouncement

26/10/2022 07:17

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RNS Number : 1516E  WPP PLC  26 October 2022

26 October 2022

Third Quarter Trading Update

Strong Q3 performance; LFL revenue less pass-through costs +3.8% year-on-year
and acceleration of growth on 2019 at +10.9%; update to full year guidance

                                  £ million   +/(-)% reported 1  (#_ftn1)  +/(-)% LFL 2  (#_ftn2)

 Third Quarter
 Revenue 3  (#_ftn3)              3,573       10.3                         2.7
 Revenue less pass-through costs  2,986       13.1                         3.8

 Year to date
 Revenue                          10,329      10.2                         6.6
 Revenue less pass-through costs  8,496       12.7                         7.1

n Q3 revenue +10.3%; LFL revenue +2.7%

n Q3 LFL revenue less pass-through costs +3.8%

o Acceleration of growth on 2019 levels +10.9% (Q2 +9.7%, Q1 +9.2%)

o Top five markets: USA +4.5%, UK +4.2%, Germany -8.7% (+3.3% excluding the
impact of Covid-related contract in prior year), China -9.0%, India +10.7%

o Other major growth markets: Brazil +19.7%, Canada +7.7%

o By business sector: Global Integrated Agencies +4.3% (GroupM +4.7%, ex
GroupM +4.0%), Public Relations +5.8%, Specialist Agencies -3.9% (+8.6%
excluding Covid-related contract above)

n $1.7 billion net new business won in Q3 and $5.1 billion net year-to-date

n £692 million of share buybacks year-to-date, total of £800 million to be
completed in 2022

n Full year 2022 guidance updated: LFL revenue less pass-through costs growth
raised to 6.5-7.0% (previously 6.0-7.0%); headline operating margin up 30 to
50 bps  (previously up around 50 bps)

Mark Read, Chief Executive Officer of WPP, said:

 

"WPP continues to show strong momentum, reflecting broad-based growth across
our agencies, markets and industry sectors and the investment by our clients
in marketing, ecommerce and digital transformation. Our performance on a
three-year basis has continued to improve each quarter during 2022.

"Our new business success reflects the quality of our creative work, our
strength in media and our ability to deliver integrated solutions to clients.
During the quarter we achieved $1.7 billion of net new business, including
assignments with Nestlé, Samsung and SC Johnson. Our leading scale and
differentiated offer were exemplified by GroupM which led COMvergence's new
business and retention global rankings in the first half of 2022.

"Our growth over the year has been strong with full year like-for-like revenue
less pass-through costs now upgraded to 6.5-7.0%. We have continued to invest
in our people and in data and technology to support this growth, resulting in
headline operating margin now expected to be up 30 to 50 bps. We are on track
with the £300m transformation savings and will continue to manage our costs
with discipline.

"We enter the last quarter of the year with confidence, based on the leading
competitive position of our businesses, our client momentum and the knowledge
that the actions we have taken to strengthen WPP leave us well placed to
support our clients in navigating the economic uncertainties ahead."

 

For further information:

 

Investors and analysts

Anthony Hamilton                           +44 7464
532903

Caitlin Holt                                      +44 7392
280178

 

Media

Chris Wade
                      +44 20 7282 4600

 

Richard Oldworth,                           +44 20 7466 5000

Buchanan Communications            +44 7710 130 634

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

 

Overview

The business has performed well in the third quarter, continuing the positive
momentum built up through the first half of the year. Revenue in the third
quarter was up 10.3% at £3.6 billion. On a constant currency basis, revenue
was up 1.4% year-on-year. Like-for-like growth, excluding the impact of
currency, acquisitions and disposals, was 2.7%.

Revenue less pass-through costs in the third quarter was up 13.1% year-on-year
to £3.0 billion, and up 4.0% on a constant currency basis. Excluding the
positive net impact from acquisitions and disposals, like-for-like growth was
3.8%.

Operational and strategic progress

Clients and partners

Client demand remained healthy across all services as our clients continue to
invest in their marketing, ecommerce and digital transformation.

We have won $5.1 billion of net new business in the first nine months of the
year, up on the $4.6 billion in the same period in 2021. Significant wins and
retentions include Nestlé Germany media, Samsung European CRM, Discover
media, H&R Block creative and the consolidation of SC Johnson's global
creative and shopper marketing account. Coca-Cola continues to be onboarded at
pace; most recently, Coca-Cola-owned Costa Coffee appointed OpenX from WPP to
lead its global brand strategy.

Industry recognition and awards

We are proud that our creative excellence and depth of capabilities have been
recognised in the latest Q3 Forrester Waves. VMLY&R was named a leader in
Marketing Creative and Content Services and WPP was named a leader among
Global Marketing Services providers, in recognition of the strength of our
offering, strategy and market presence.

On the media front, GroupM led COMvergence's new business and retention global
Group rankings in the first half of 2022, reflecting the company's leading
scale and differentiated offering. Within media agencies, Mindshare and
Wavemaker ranked first and second respectively.

Investment for growth

We continue to invest in the long-term growth of our business across commerce,
data, technology and media.

We acquired four businesses including Newcraft, a data-first European
ecommerce consultancy based in Netherlands; Corebiz, a Latin American
ecommerce agency specialising in VTEX implementation; JeffreyGroup, a leading
corporate communications, public affairs, and marketing consulting firm in
Latin America; and Passport Brand Design, a leading brand design agency based
in the United States.

Transformation programme

We continue with our actions to deliver efficiency savings to invest in our
people, accelerate growth and improve margins. In property, we opened our new
Dusseldorf campus during the quarter. By the end of the year, we aim to open
three further campuses, taking the total to 38 campuses that can accommodate
around half our people. We have made progress in our shared services and IT
transformation, with finance shared services now live in twelve markets. Our
procurement team continue to leverage our global scale to consolidate our
spend with suppliers; during the quarter this included working with our HR
teams to consolidate spend with freelance and contractor agencies. We remain
on track to deliver £300 million of efficiency savings by the end of 2022.

 

People

WPP is focussed on attracting, retaining and promoting exceptional, diverse
talent. In July we launched the Making Space initiative, giving our people a
company-wide break along with a series of events across our campuses and
offices to inspire and reconnect. We have partnered with The One Club for
Creativity to launch ONE School UK, a free 16-week online programme designed
to open doors to a career in advertising for talented UK-based Black
creatives. In addition, we launched the second year of the VisibleStart
course, a programme providing career options and training for women over 45.

During the quarter we announced the internal promotions of Karen Blackett to
President of WPP in the UK and Devika Bulchandani to Global Chief Executive
Officer of Ogilvy. We are also pleased to announce the appointment of Juan
Pedro Moreno as President of WPP's business in Spain, aligning with WPP's
country leadership structure in other major markets. We also appointed Laura
Maness as the new Global Chief Executive Officer of Grey and Wendy Lund as
Chief Client Officer for Health and Wellness.

Environment

WPP is committed to achieving net zero carbon emissions across our supply
chain - including our $60 billion of media investments - by 2030. Supporting
this, GroupM released  its media decarbonisation report in July, which
provides a framework to measure and reduce ad-based carbon emissions; an
important first step to standardise and accelerate carbon reduction across
different media channels.

Regional review

Revenue less pass-through costs analysis

 

 £ million         Q3 2022            +/(-) % reported  +/(-) % LFL

                            Q3 2021
 N. America        1,222    975       25.5              4.7
 United Kingdom    381      362       5.1               4.2
 W. Cont Europe    547      562       (2.7)             (2.1)
 AP, LA, AME, CEE  836      741       12.8              6.9
 Total Group       2,986    2,640     13.1              3.8

 

North America saw like-for-like revenue less pass-through costs up 4.7%, with
strong growth in the US and Canada where both markets are up double digits on
2019 levels. Growth in the US was up 4.5% or 11.0% on 2019 levels, mainly
driven by strength in GroupM and Hogarth, our media and production businesses.

In the United Kingdom, like-for-like revenue less pass-through costs was up
4.2% and saw a strong acceleration in its three-year LFL growth rate, from
7.3% in Q2 to 13.9% in Q3. Ogilvy, GroupM and H+K saw the highest growth in
the quarter.

Western Continental Europe like-for-like revenue less pass-through costs fell
by 2.1% in the quarter although achieved an acceleration in its three-year LFL
growth rate from 10.0% in Q2 to 12.4% in Q3. Performance in Germany was down
8.7% year-on-year in Q3 due to the prior year boost from a Covid-related
contract. Excluding this, Germany grew 3.3% and Western Continental Europe
grew 2.5%. While France remains below 2019 levels, the other main markets
showed growth.

Asia Pacific, Latin America, Africa & the Middle East and Central &
Eastern Europe like-for-like revenue less pass-through costs was up 6.9%. The
highest growth region was Latin America, led by Brazil which grew 19.7%, the
sixth consecutive quarter of double-digit growth. Asia Pacific grew more
slowly with strong growth in India, up 10.7% offset by a significant slowdown
in China. China was down 9.0% in the third quarter, a deceleration from the
second quarter, as Covid-related lockdowns have restricted activity.

Business sector review

Revenue less pass-through costs analysis

 £ million                   Q3 2022            +/(-) % reported  +/(-) % LFL

                                      Q3 2021
 Global Integrated Agencies  2,458    2,190     12.3              4.3
 Public Relations            296      231       28.0              5.8
 Specialist Agencies         232      219       6.1               (3.9)
 Total Group                 2,986    2,640     13.1              3.8

Prior year figures have been restated to reflect the reallocation of a number
of businesses between Global Integrated Agencies and Specialist Agencies. This
increases Global Integrated Agencies' Q3 2021 revenue less pass-through costs
by £5 million and reduces Specialist Agencies' by the same amount.

Global Integrated Agencies like-for-like revenue less pass-through costs was
up 4.3%. GroupM, which was approximately 37% of WPP revenue less pass-through
costs in the third quarter, grew 4.7% in Q3 and showed an improving three-year
trend from 15.9% in Q2 to 20.0% in Q3. Excluding GroupM, Global Integrated
Agencies was up 4.0%. Hogarth was the standout performer in the quarter, while
Ogilvy and AKQA also saw strong growth.

Public Relations like-for-like revenue less pass-through costs was up 5.8% and
up 19.1% over 2019. BCW, H+K and FGS Global continued to perform well,
reflecting the strong demand from clients for strategic advice in a heightened
political environment.

Specialist Agencies like-for-like revenue less pass-through costs was down
3.9%, and up 17.1% over 2019. Excluding the impact of the Covid-related
contract in Germany, growth was 8.6% year-over-year, fuelled by CMI, our
healthcare media business, which grew double-digits.

Balance sheet highlights

Average adjusted net debt 4  (#_ftn4) in the first nine months of 2022 was
£2.8 billion, compared to £1.5 billion in 2021, at 2022 exchange rates, an
increase of £1.3 billion. Adjusted net debt at 30 September 2022 was £3.5
billion, compared to £1.6 billion on 30 September 2021, or £1.7 billion at
2022 exchange rates, an increase of £1.8 billion.

Share purchases of £735 million were made in the first nine months of the
year, of which £692 million related to share buybacks and £43 million were
purchases into the employee benefit trust.

Outlook

We are confident in the resilience of our business, our strategy and our
long-term growth potential. Our updated guidance takes into account the strong
third quarter performance, ongoing investment in our people, inflationary
pressures and the impact of the current outlook for the global economy.

We therefore raise revenue guidance and adjust expectations for headline
operating profit margin progress for the full year. Our guidance for 2022 is:

n Like-for-like revenue less pass-through costs growth of 6.5-7.0% (previously
6.0-7.0%)

n Foreign exchange rate benefit of around 7.0% to reported revenue less
pass-through costs from the movement in sterling year-on-year

n Mergers and acquisitions benefit of around 0.3% to revenue less pass-through
costs

n Headline operating margin improvement targeted at 30 to 50 bps (previously
around 50 bps)

n Capex £350-400 million

n Trade working capital expected to be flat year-on-year; £300-£400 million
outflow expected on non-trade working capital, largely driven by the high 2021
bonus paid out in 2022

n Around £800 million of share buybacks in 2022, of which £692 million was
completed in the year-to-date

n Average adjusted net debt / headline EBITDA slightly below the guidance
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 'anticipate', 'estimate', 'expect', 'intend', 'will', 'project',
'plan', 'believe', '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 outbreaks, epidemics or pandemics, such as the Covid-19 pandemic and
ongoing challenges and uncertainties posed by the Covid-19 pandemic for
businesses and governments around the world; 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; 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; 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 under Item 3D 'Risk Factors' in the Group's Annual Report on Form
20-F for 2021, 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 on the date of this document.

 1  (#_ftnref1) Percentage change in reported sterling.

 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.

 3  (#_ftnref3) Certain businesses have been reclassified to associates as the
Group no longer controls them. In addition, certain media billings
    recognised as revenue earlier were re-assessed under IFRS 15: "Revenue
from Contracts with Customers" and have been excluded from revenue, but have
no impact on revenue less pass-through costs. There are no adjustments to
previously reported revenue in the first three quarters of 2021. The
adjustments were recorded for the first time for full-year 2021 reporting.

 4  (#_ftnref4) Adjusted net debt excludes lease liabilities.

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