WPP - Harnessing AI, data and platform

WPP’s capital markets day (CMD) focused on the combination of creativity and AI at scale and how these can be leveraged to boost clients’ businesses. Outline Q423 performance figures were given, along with updated forward guidance, including on restructuring costs and potential payback. We expect market expectations to be broadly unchanged. The overarching narrative of consolidation and simplification, common data platforms and standardised reporting, is coherent and supports the projected margi

Low spending in Technology, improved contract gains

The activity was below expectations in Q3 23. The organic net revenue decline (-0.6%) was still due to low customer spending in the Technology sector in the US and the UK and the negative effect from client losses. The trend deteriorated also in Germany and China. Within the Global Integrated Agencies (82% of the total), GroupM activities were disappointing (+1.6%). On the positive side, there was much higher contract wins in Q3 23 vs Q2 23. 2023 guidance was revised downwards.

Weakness in North America

Organic net revenue growth slowed in Q2 23 (+1.3%) due to a deterioration in the trend in North America and slower than expected growth in China. GroupM continued to outperform with strong organic growth (+6.1%). The headline operating margin was broadly stable (-0.1pt to 11.5% of net revenue). The 2023 guidance has been revised downwards for organic net revenue growth (now +1.5-3.0%) but remains unchanged for the headline operating margin (15% of net revenue) excluding the currency effect.

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Some disappointment in organic growth

In Q1 23, organic net revenue growth (+2.9%) was somewhat disappointing as it was slightly below the low-end of 2023 guidance (+3-5%). While GroupM outperformed with strong organic growth (+6.1%), growth was weak in the Creative agencies (+0.7%) and the Specialist agencies (+1.9%). There were disparities between the geographic areas including low growth in the US and a drop in organic net revenue in China. 2023 guidance was unchanged.

2022 in line with expectation, positive 2023 guidance

In Q4 22, organic net revenue growth (+6.4%) was in line with expectation, including a sequential improvement. GroupM outperformed the group with organic net revenue growth of +8.8%. In 2022, organic net revenue growth was at the high-end of guidance (+6.9%) and was driven by GroupM (+9.1%) and Public Relations (+8.2%). The headline operating margin improvement (+0.4pt to 14.8% of net revenue) was in line with the guidance. The 2023 guidance includes organic net revenue growth and a slight margi

Good organic growth, margin improvement maintained for 2022

Q2 22 was strong with organic net revenue growth of +8.3%. The US activities were a strong growth driver, while the Chinese lockdowns affected the overall performance. In H1 22, the headline operating margin declined (-0.5pt to 11.6% of net revenue) due to wage inflation and the use of freelancers for which wage increases exceeded those of internal staff. 2022 guidance was revised upwards at the top line (organic growth of +6-7%) and unchanged for the headline operating margin.

Better-than-expected organic growth ensures good start to the year

Organic net revenue growth was strong in Q1 22 (+9.5%) thanks a good performance from GroupM, Specialist agencies and Public relations. WPP benefited from the strong demand for digital media, ecommerce, data and marketing technology. Technology, retail and healthcare were the most dynamic sectors inversely to automotive which remained impacted by the chip shortage. WPP raised its guidance on organic net revenue growth to integrate the stronger than expected Q1 22 and maintained its guidance on

Strong rebound

The recovery was strong in Q2 21. Organic net revenue grew by 19.3% thanks to the improvement in the economic environment and strong demand for digital advertising, ecommerce and marketing technology. Consumer packaged goods, Technology and Healthcare & pharmaceuticals were the most dynamic sectors. In H1 21, the ‘headline’ operating margin rebounded to 12.1% of net revenue (+3.9pts). 2021 guidance was upgraded at the top line and WPP should return to the FY19 level in 2021, a year ahead of expe

In line with guidance, back to organic growth in Q2 21

In 2020, the decrease in organic net revenue (-8.2%) and the headline operating margin (14.9% of net revenue) were in line with guidance. The reported losses were due to huge impairment charges related to old acquisitions whose carrying values had to be reassessed. The return to organic growth is expected as from Q2 21 on the back of the better economic outlook and the development in digital advertising. The headline operating margin is expected to be 13.5-14% of net revenue in 2021.

A widespread improvement

In Q3 20, the decrease in organic net revenue slowed sequentially (-7.6% vs -15.1% in Q2 20). The recovery was driven by all the entities within the Global integrated agencies (75% of net revenue) and the Public relations activities. WPP posted the best results in the US, the UK and Germany. On the cost side, the Group is expected to achieve the high range of cost savings.

Cost savings, interim dividend

In Q2 20, organic net revenue decreased by 15.1% (o/w a double-digit decrease in European countries, -9.6% in the US). The headline operating margin reached 8.2% of net revenue (-3.7pts). The first cost savings came in Q2 20 (£296m). WPP should deliver in the high range of the £700-800m cost savings in 2020. Following the cancellation of the final dividend with respect to FY2019, WPP announced an interim dividend of 10p/share thanks to better visibility than four months ago.

Revenue contraction and cost savings everywhere

In Q1 20, organic net revenue decreased by 3.3%, o/w -7.9% in March 2020 due to the containments imposed in a large number of countries in Europe and the US. In this extremely difficult environment, WPP signed new businesses for a total of $1.0bn (Intel global account, Hasbro and Novo Nordisk media accounts for instance). WPP confirmed cost savings of £700-800m in 2020 and added additional measures such as part-time working and voluntary salary sacrifice for some categories of employees.

Gradual organic improvement

Q3 19 was satisfactory with organic net revenue up +0.5% (vs -1.7% in Q2 19, -3.3% in Q1 19) excluding Kantar. The trend improved in all geographic areas including North America (38% of net revenue) which benefited from better advertising spendings at existing customers and a lower impact of losses of business as well. WPP does not see a deterioration in its businesses starting Q4 19 but keeps its 2019 guidance (organic net revenue: -1.5/-2%) considering the economic environment is getting worse