TIDMWPP
RNS Number : 3272R
WPP PLC
26 October 2023
26 October 2023
Third Quarter Trading Update
Third quarter performance impacted by the continuation of second quarter trends.
Launching
the world's largest creative agency, VML, to enhance our offer to clients and simplify
WPP.
Now expect 2023 LFL growth of around 0.5-1.0% with margin of 14.8-15.0% at 2022 rates.
GBPm % reported[1] % LFL[2]
================================= ======= ============== =========
Third Quarter
================================= ======= ============== =========
Revenue 3,508 (1.8) 2.3
================================= ======= ============== =========
Revenue less pass-through costs 2,837 (5.0) (0.6)
================================= ======= ============== =========
Year to date
================================= ======= ============== =========
Revenue 10,729 3.9 3.1
================================= ======= ============== =========
Revenue less pass-through costs 8,649 1.8 1.2
================================= ======= ============== =========
n Trading highlights: Q3 revenue -1.8%; LFL revenue +2.3%
n Q3 LFL revenue less pass-through costs -0.6% with growth in
UK, Western Continental Europe and Rest of World, offset by
declines in North America, with continued weakness from technology
clients and in China
n Global Integrated Agencies grew revenue less pass-through
costs +0.1% in Q3 (YTD +1.5%) with integrated creative agencies
declining -1.1% (YTD -0.9%). GroupM grew +1.6% in Q3 (YTD +4.6%)
with low-single digit growth in the US and UK
n $1.4bn net new business won in Q3, including from Estée
Lauder, Hyatt, Lenovo, Nestlé, Unilever and Verizon. $3.4bn net new
business won year-to-date
n Strengthened offer: Two significant moves to further
strengthen our competitive offer, simplify our business and benefit
from scaled technology platforms:
o Launch of VML, the world's largest creative agency with
world-class creativity and deep expertise in commerce, data and
technology
o Further integration of GroupM with common products and single
technology platform, streamlining of operations and back-office
functions supporting client-facing agencies
o Together these moves are expected to drive stronger revenue
growth and net annualised cost savings of at least GBP100m in FY25
with a part-year benefit in FY24
n Outlook: 2023 guidance updated: LFL revenue less pass-through
costs growth now expected to be around 0.5-1.0% (previously
1.5-3.0%); with headline operating margin of 14.8-15.0% (excluding
the impact of FX) (previously around 15.0%)
n WPP intends to hold a Capital Markets Day in January 2024 to
update investors and analysts on its strategic roadmap to drive
growth, further efficiencies and margin expansion over the next
three to five years
Mark Read, Chief Executive Officer of WPP, said:
"In a world being rapidly reshaped, we need to continue to
evolve our offer to clients and simplify our business. I am excited
by the creation of the world's largest creative agency, VML, and
the continued evolution of GroupM. Both these developments will
strengthen our offer to clients, simplify the integration of our
services and maximise the returns on our ongoing investments in AI
and technology.
"Our top-line performance in Q3 was below our expectations and
continued to be impacted by the cautious spending trends we saw in
Q2, particularly across technology clients with more impact from
this felt in GroupM over the summer than the first half.
"We continue to win both creative and media assignments from
leading global companies including significant wins in the third
quarter with Estée Lauder (media), Hyatt (creative), Lenovo
(creative), Nestlé (media) and Verizon (creative). Our net new
business performance of $1.4bn in the quarter showed sequential
improvement after a tougher first half.
"We will provide more detail on today's announcements, our
strategic roadmap and actions to drive growth, further efficiencies
and margin expansion at our Capital Markets Day in January."
This announcement contains information that qualifies or may
qualify as inside information. The person responsible for arranging
the release of this announcement on behalf of WPP plc is Balbir
Kelly-Bisla, Company Secretary.
For further information:
Investors and analysts
Tom Waldron +44 7788 695864
Anthony Hamilton +44 7464 532903
irteam@wpp.com
Media
press@wpp.com +44 20 7282 4600
Richard Oldworth +44 7710 130 634
Buchanan Communications +44 20 7466 5000
wpp.com/investors
Looking ahead
We have made great progress over the last five years, investing
in creativity and technology and behind fewer, stronger agency
brands strengthening our offer to clients. We have attracted new
talent, particularly in the United States, and invested in data and
technology capabilities with a common approach that supports
collaboration and delivers results to clients. Our early
investments in AI can be seen in the many examples of work that we
are doing for clients. We also moved quickly, through the sale of
Kantar, to address our leverage and ensure our balance sheet is in
a much stronger position, while returning surplus capital to
shareholders and paying a long-term sustainable dividend.
Much has been achieved, but the world is changing fast, and
there is now more to do, particularly as we look out at the
environment over the next five years, to ensure that WPP remains
relevant and competitive to major global and local clients.
Today we have outlined two strategic initiatives that will
strengthen our client proposition, further simplify WPP and better
equip us to navigate a future more shaped by technology.
1. VML: Creation of the world's largest integrated creative
agency.
VML will bring together the people, creativity, commerce, data
and technology offering of two of our most successful agencies:
VMLY&R and Wunderman Thompson. The combined agency will benefit
from the complementary nature of their geographic strengths as well
as bringing world-class capabilities in CRM, data, experience
design, influencer marketing, marketing technology and ecommerce to
the clients of both agencies.
VML will be operational on 1 January 2024 with more than 30,000
people and will provide clients with the highest level of
creativity, commerce, data and technology expertise in 64 markets
globally. It will be led by Jon Cook as CEO, who has successfully
led VMLY&R and, prior to that, VML since 2011, and Mel Edwards
as Global President who previously led Wunderman Thompson for five
years.
2. Simplification of GroupM's operating model.
GroupM embarked on a simplification plan in 2020 under new
leadership which will now accelerate and move to a second phase.
The new structure will retain its strong agency brands,
EssenceMediacom, Mindshare, Wavemaker and mSix&Partners, but
support them with common media products and a single technology
platform, with shared services in finance, IT and HR.
One element of this is GroupM Nexus, GroupM's performance media
organisation, which provides the agencies with a unified digital
media offering and in the third quarter retired certain individual
brands including Xaxis, Finecast and Sightline.
The creation of VML and the simplification of GroupM will
strengthen these companies' competitive positions, allow further
investment in client-facing expertise and help them to accelerate
their growth. In addition, the reduction in operational complexity
and duplication that accompanies these changes is expected to
result in net annualised cost savings of at least GBP100m in FY25,
with a part-year benefit in FY24. Associated expected restructuring
costs are anticipated to be predominantly in FY24. The carrying
value of brands impacted or retired by these actions will be
assessed as part of our regular impairment review process and this
may result in additional non-cash charges in the fourth
quarter.
These net savings are in addition to the expected benefit from
the transformation plan which we set out in December 2020, designed
to achieve GBP600m in gross annual cost efficiencies by 2025 (with
GBP200m net savings). We are on target to achieve an annual
run-rate of GBP450m in efficiencies this year, against a 2019
baseline.
We will provide more details on these actions and our strategic
roadmap to drive growth and margin expansion over the next five
years at a Capital Markets Day in January.
Q3 overview
Revenue in the third quarter was GBP3.5bn, down 1.8% from
GBP3.6bn in Q3 2022, and up 2.3% like-for-like. Revenue less
pass-through costs was GBP2.8bn, down 5.0% from GBP3.0bn in Q3
2022, and down 0.6% like-for-like.
Q3 2023 % % % %
GBPm reported M&A FX LFL
-------------------------- ------- --------- ---- ----- -----
Revenue 3,508 (1.8) 1.6 (5.7) 2.3
-------------------------- ------- --------- ---- ----- -----
Revenue less pass-through
costs 2,837 (5.0) 1.1 (5.5) (0.6)
-------------------------- ------- --------- ---- ----- -----
YTD 2023 % % % %
GBPm reported M&A FX LFL
-------------------------- -------- --------- ---- ----- ----
Revenue 10,729 3.9 1.2 (0.4) 3.1
-------------------------- -------- --------- ---- ----- ----
Revenue less pass-through
costs 8,649 1.8 0.9 (0.3) 1.2
-------------------------- -------- --------- ---- ----- ----
Business segment review
Revenue less pass-through costs
+/(-)
+/(-) % +/(-) % LFL
GBP million Q3 2023 Q3 2022 reported % LFL (YTD)
============================ ======== ======== ========== ======= =======
Global Integrated Agencies 2,347 2,460 (4.6) 0.1 1.5
============================ ======== ======== ========== ======= =======
Public Relations 283 297 (4.9) (0.9) 1.1
============================ ======== ======== ========== ======= =======
Specialist Agencies 207 229 (9.6) (6.8) (2.2)
============================ ======== ======== ========== ======= =======
Total Group 2,837 2,986 (5.0) (0.6) 1.2
---------------------------- -------- -------- ---------- -------
Global Integrated Agencies : GroupM, our media planning and
buying business, saw LFL growth in revenue less pass-through costs
of +1.6% in Q3 (YTD +4.6%), on lower spend from technology clients
and the impact of client losses in the United States resulting in
low-single-digit growth in the US and UK and a slight decline in
Germany . This offset good growth in APAC markets.
Our digital billings mix within GroupM increased to 51%,
compared to 48% in FY 2022.
In our integrated creative agencies, a LFL decline of 1.1% in Q3
(YTD -0.9%) represented an improvement on Q2's LFL of -2.3%.
Ogilvy grew well, supported by recent new business wins
including SC Johnson and Verizon B2B.
Other integrated creative agencies, Wunderman Thompson,
VMLY&R, AKQA Group and Hogarth all felt a continued impact from
reduced spend across the technology sector and delays in
technology-related projects.
Public Relations : FGS Global continued to grow well in Q3 while
H+K and BCW both saw LFL declines, with all three agencies impacted
by client caution in the face of macroeconomic uncertainty,
primarily in the USA.
Specialist Agencies : continued strong growth in our specialist
healthcare media planning and buying agency, CMI Media Group, was
offset by reduced client spending in a number of our smaller
stand-alone specialist agencies.
Regional review
Revenue less pass-through costs
+/(-)
+/(-) % +/(-) % LFL
GBP million Q3 2023 Q3 2022 reported % LFL (YTD)
================ ======== ======== ========== ======= =======
N. America 1,105 1,222 (9.6) (4.1) (2.2)
================ ======== ======== ========== ======= =======
United Kingdom 388 381 2.0 1.1 5.8
================ ======== ======== ========== ======= =======
W. Cont Europe 554 547 1.3 1.1 2.8
================ ======== ======== ========== ======= =======
Rest of World 790 836 (5.5) 2.8 3.0
================ ======== ======== ========== ======= =======
Total Group 2,837 2,986 (5.0) (0.6) 1.2
---------------- -------- -------- ---------- -------
North America declined by 4.1% in the third quarter, primarily
reflecting lower year-on-year revenues from technology clients and
the expected impact of 2022 client losses in the retail sector.
This was partially offset by growth across CPG, healthcare and
financial services clients, with GroupM and Ogilvy both growing in
the quarter.
The United Kingdom grew with CPG and healthcare continuing to
grow, but at a slower rate than in H1, offset by declines in
technology client spend. Western Continental Europe saw declines in
Germany on lower spend by automotive, technology and government
clients and in France due to client losses; offset by growth in
Spain and other markets.
The Rest of World saw continued growth in the quarter but was
held back by China where a slower than expected macro recovery
impacted our integrated creative agencies. India LFL growth
accelerated to 7.3% in the quarter with a strong performance in
media driven by new business wins.
Top five markets - revenue less pass-through costs
% LFL +/(-) USA UK Germany China India
------------ ------ ---- ------- ------ -----
Q3 2023 (4.2%) 1.1% (3.8%) (4.2%) 7.3%
------------ ------ ---- ------- ------ -----
YTD 2023 (2.2%) 5.8% 2.2% (4.1%) 2.8%
------------ ------ ---- ------- ------ -----
Client sector review
Client sector - revenue less pass-through costs
Q3 % growth YTD % growth
% share +/(-) +/(-)
--------------------------------------- ------- ------------ ------------
CPG 26.7 14.5 14.9
--------------------------------------- ------- ------------ ------------
Tech & Digital Services 17.4 (12.7) (7.6)
--------------------------------------- ------- ------------ ------------
Healthcare & Pharma 12.1 1.5 3.3
--------------------------------------- ------- ------------ ------------
Automotive 10.3 2.1 0.6
--------------------------------------- ------- ------------ ------------
Retail 9.2 (8.4) (8.0)
--------------------------------------- ------- ------------ ------------
Telecom, Media & Entertainment 6.5 8.4 1.7
--------------------------------------- ------- ------------ ------------
Financial Services 6.2 3.9 7.9
--------------------------------------- ------- ------------ ------------
Other 5.7 (0.8) (0.5)
--------------------------------------- ------- ------------ ------------
Travel & Leisure 3.4 4.1 7.3
--------------------------------------- ------- ------------ ------------
Government, Public Sector & Non-profit 2.6 0.0 2.4
--------------------------------------- ------- ------------ ------------
Strategic progress
There have never been more opportunities for advertisers to
reach consumers, reflected in the plethora of marketing channels
available. Our clients continue to invest in their brands and seek
our support as they navigate this complexity. In this increasingly
complex world, WPP continues to invest in our offer to make it more
relevant than ever.
In our creative production activities, we are moving to leverage
scale and our investments in AI and production technology. We are
concentrating our investments here in Hogarth which will take on
all creative production activity not already aligned there and
expand its operations into all our key markets. This will provide
clients with a single world-class production operation with high
standards of craft backed by the latest technology.
We believe that AI will be fundamental to WPP's business and are
excited by its transformational potential and will cover the
opportunity for WPP in more detail at our Capital Markets Day. Our
expertise in the application of AI to marketing is based on
investments that we have been making over many years, including the
appointment of a Head of Creative AI in 2019 and the acquisition of
Satalia in 2021.
AI is used extensively across our business today, particularly
in GroupM and in Hogarth. Our application of AI includes automation
of workflows, speeding up the process of ideation and concepting,
and producing innovative creative work for clients.
Clients: We have won $3.4bn of net new business billings in the
first nine months of 2023 (YTD 2022: $5.1bn) including the
potential loss of certain Pfizer assignments currently held by WPP
integrated creative agencies. Key assignment wins in Q3 included
Estée Lauder, Hyatt, Lenovo, Nestlé, Unilever and Verizon B2C. Our
performance in the third quarter picked up after a somewhat
disappointing first half.
Creativity and awards : Creativity is at the heart of our offer,
and we continue to be recognised for our creative excellence. WPP
was named holding company of the year and VMLY&R network of the
year at the New York Festivals Advertising Awards. Ogilvy was the
most awarded agency at the Global Influencer Marketing Awards for
the fifth year running and was recently named AdWeek's 2023 Global
Agency of the Year. WPP global marketing effectiveness consultancy
Gain Theory was recognised by Forrester as a Wave Leader in
marketing measurement and optimisation.
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 realise a more sustainable, equitable
future in our 2022 Sustainability Report .
Balance sheet highlights
Average adjusted net debt for the twelve months to 30 September
2023 was GBP3.5bn, compared to GBP2.5bn for the twelve months to 30
September 2022, an increase of GBP1.0bn. The increase was primarily
due to the 2022 share buyback programme.
Net debt at 30 September 2023 was GBP3.9bn, compared to GBP3.5bn
reported on 30 September 2022, an increase of GBP0.4bn.
Outlook
We are updating our guidance for 2023 as follows:
Like-for-like revenue less pass-through costs growth of around
0.5-1.0% (previously 1.5-3.0%); Headline operating margin of 14.8-15.0%
(excluding the impact of FX) (previously around 15.0%)
Other 2023 financial guidance:
-- Mergers and acquisitions will add 0.5-1.0% to revenue less pass-through costs growth
-- FX impact: current rates (at 20 October 2023) imply a c.1.0%
headwind on revenues less pass-through costs and a c.0.25pt
headwind on headline operating margin
-- Headline income from associates is expected to be around GBP40m[3]
-- Effective tax rate (measured as headline tax as a % of
headline profit before tax) of around 27%
-- Capex of around GBP250m
-- Restructuring and property impairment charges of around GBP400m[4]
-- Trade working capital expected to be broadly flat
year-on-year, with operational improvement offsetting increased
client focus on cash management
-- Non-trade working capital expected to be an outflow of GBP150m
-- Year-end adjusted net debt flat year-on-year
-- Average adjusted net debt/headline EBITDA slightly above the
top end of our range of 1.5x-1.75x (previously within the
range)
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
and conflicts arising in other international markets; 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] 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. WPP's cumulative reported share of
losses in Kantar reduced the carrying value of the investment to
zero at the end of December 2022.
[4] Excluding any additional non-cash charges in the fourth
quarter that may result from the impairment of the carrying value
of brands impacted by the creation of VML and simplification of
GroupM.
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