WPP downgrades full-year forecast for 2023

WPP's CEO Mark Read said that AI will be fundamental to WPP’s future success.

WPP announces its 2023 interim results. The group has lowered its like-for-like (LFL) forecast for full year from 3-5% to 1.5-3.0%.

Mark Read, Chief Executive Officer of WPP, said, “Our performance in the first half has been resilient with Q2 growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects. This was felt primarily in our integrated creative agencies. China returned to growth in the second quarter albeit more slowly than expected. In the near term, we expect the pattern of activity in the first half to continue into the second half of the year.

“Our media business, GroupM, grew consistently across the first six months as did our businesses in the UK, Europe, Latin America and Asia-Pacific. Client spending in consumer packaged goods, financial services and healthcare remained good and, despite short-term challenges, our technology clients represent an important driver of long-term growth. Our agencies performed extremely well at the Cannes Lions Festival winning five Grand Prix and 165 Lions with Mindshare recognised as the most-awarded media agency. We won major new business assignments with clients including: Reckitt, Mondelēz, easyJet, Lloyds Banking Group, Pernod Ricard and India’s second largest advertiser, Maruti Suzuki.

“We have exciting future plans in AI that build on our acquisition of Satalia in 2021 and our use of AI across WPP. We are leveraging our efforts with partnerships with the leading players including Adobe, Google, IBM, Microsoft, Nvidia and OpenAI. We are delivering work powered by AI for many clients including Nestlé, Nike and Mondelēz. AI will be fundamental to WPP’s future success and we are committed to embracing it to drive long-term growth and value.”

H1 and Q2 financial highlights:

• H1 reported revenue +6.9%, LFL revenue +3.5% (Q2 +2.3%)
• H1 revenue less pass-through costs +5.5%, LFL revenue less pass-through costs +2.0% (Q2 +1.3%)
• In Q2, ex-US growth accelerated to mid-single digits, with China growing albeit less strongly than expected. North America declined in Q2, primarily due to lower revenues from technology clients
• H1 headline operating profit margin 11.5%, down 0.1pt, and on a constant FX basis improved by 0.1pt. Efficiency benefits offset by investment in IT and higher severance costs
• Trade working capital favourable movement of £165m year-on-year. Non-trade working capital adverse movement of £316m
• Adjusted net debt at 30 June 2023 £3.5bn, up £0.3bn year-on-year, £0.4bn lower than Q1 2023. Expect year end net debt to be flat year-on-year

Performance, strategic progress and outlook

• Global Integrated Agencies H1 LFL revenue less pass-through costs growth +2.2% (Q2 +1.5%): within which GroupM, our media planning and buying business +6.1% (Q2 +6.1%), partially offset by a 0.8% LFL decline at other Global Integrated Agencies (Q2 -2.3%)
• Solid new business performance: $2.0bn net new billings in H1 with the pipeline of potential new business larger than at the same point in 2022
• Acquisitions of Goat and Obviously in the fast-growth area of influencer marketing and an investment in Majority, a diversity-led creative agency
• Transformation programme on track to deliver at least £450m of annual savings this year over a 2019 base
• Planned review of our property portfolio resulting in a consolidation of our office space with an impairment charge for the full year of approximately £220m which is largely non-cash (H1 2023: £180m)
• 2023 interim dividend of 15.0p declared (2022: 15.0p)
• Full year 2023 LFL growth of 1.5-3.0% (previously 3-5%); FY 2023 headline operating profit margin around 15.0% (excluding the impact of FX)