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.
WPP (NYSE: WPP) today reported its 2023 Third Quarter Trading
Update.
£m
% reported1
% LFL2
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
- Trading highlights: Q3 revenue -1.8%; LFL revenue
+2.3%
- 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
- 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
- $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
- Strengthened offer: Two significant moves to further
strengthen our competitive offer, simplify our business and benefit
from scaled technology platforms:
- Launch of VML, the world’s largest creative agency with
world-class creativity and deep expertise in commerce, data and
technology
- Further integration of GroupM with common products and single
technology platform, streamlining of operations and back-office
functions supporting client-facing agencies
- Together these moves are expected to drive stronger revenue
growth and net annualised cost savings of at least £100m in FY25
with a part-year benefit in FY24
- 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%)
- 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.
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 £100m 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 £600m in gross annual cost efficiencies by 2025 (with
£200m net savings). We are on target to achieve an annual run-rate
of £450m 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 £3.5bn, down 1.8% from £3.6bn
in Q3 2022, and up 2.3% like-for-like. Revenue less pass-through
costs was £2.8bn, down 5.0% from £3.0bn in Q3 2022, and down 0.6%
like-for-like.
Q3 2023
£m
%
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
£m
%
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
£ million
Q3 2023
Q3 2022
+/(-) % reported
+/(-) % LFL
+/(-) % 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
£ million
Q3 2023
Q3 2022
+/(-) % reported
+/(-) % LFL
+/(-) % 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
% share
Q3 % growth +/(-)
YTD % growth +/(-)
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 £3.5bn, compared to £2.5bn for the twelve months to 30
September 2022, an increase of £1.0bn. The increase was primarily
due to the 2022 share buyback programme.
Net debt at 30 September 2023 was £3.9bn, compared to £3.5bn
reported on 30 September 2022, an increase of £0.4bn.
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
£40m3
- Effective tax rate (measured as headline tax as a % of headline
profit before tax) of around 27%
- Capex of around £250m
- Restructuring and property impairment charges of around
£400m4
- 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
£150m
- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231025640116/en/
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
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