# WPP lowers 2023 LFL growth expectations - Link: https://www.directorstalkinterviews.com/wpp-lowers-2023-lfl-growth-expectations/4121124659 - Published: 2023-08-04T07:30:49+01:00 - Author: Amilia Stone **[WPP plc](https://www.directorstalkinterviews.com/ftse-company/wpp-plc/wpp.l) **( LON:WPP) has announced its 2023 interim results. **Key figures** | £m | **H1 2023** | +/(-) % reported^(1) | +/(-) %LFL^(2) | **H1 2022** | | Revenue | **7,221** | 6.9 | 3.5 | **6,755** | | Revenue less pass-through costs | **5,811** | 5.5 | 2.0 | **5,509** | |   |   |   |   |   | | **Reported:** |   |   |   |   | | Operating profit | **306** | (43.2) | – | **539** | | Profit before tax | **204** | (51.2) | – | **419** | | Diluted EPS (p) | **10.3** | (54.6) | – | **22.7** | | Dividends per share (p) | **15.0** | – | – | **15.0** | |   |   |   |   |   | | **Headline^(3):** |   |   |   |   | | Operating profit | **666** | 4.3 | 2.7 | **639** | | Operating profit margin | **11.5****%** | (0.1pt*) | 0.1pt* | **11.6****%** | | Profit before tax | **546** | (2.9) | – | **562** | | Diluted EPS | **33.1p** | 0.3 | – | **33.0****p** | * Margin points **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)** > **Mark Read, Chief Executive Officer, 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.” ^(1) Percentage change in reported sterling. ^(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 from continuing operations, 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 this press release not all of the figures and ratios used are readily available from the unaudited interim results included in Appendix 1. Management believes these non-GAAP measures, including constant currency and like-for-like growth, revenue less pass-through costs and headline profit measures, are both useful and necessary to better understand the Group’s results. Where required, details of how these have been arrived at are shown in Appendix 2. **First half overview** First half revenue was £7.2bn, up 6.9% from £6.8bn in H1 2022, and up 3.5% like- for-like. Revenue less pass-through costs was £5.8bn, up 5.5% from £5.5bn in H1 2022, and up 2.0% like-for-like. |   | **Q2 2023****£m** | **%****reported** | **%****M&A** | **%****FX** | **%****LFL** | | **Revenue** | **3,761** | 2.7 | 1.1 |          (0.7) | **2.3** | | **Revenue less pass-through costs** | **2,982** | 1.6 | 0.9 | (0.6) | **1.3** | |   | **H1 2023****£m** | **%****reported** | **%****M&A** | **%****FX** | **%****LFL** | | **Revenue** | **7,221** | 6.9 | 0.9 | 2.5 | **3.5** | | **Revenue less pass-through costs** | **5,811** | 5.5 | 0.9 | 2.6 | **2.0** | **Business segment review ^(4)** **Business segments – revenue less pass-through costs** | **% LFL +/(-)** | **Global ****Integrated Agencies** | **Public Relations** | **Specialist Agencies** | | **Q2 2023** | **1.5** | **2.0** | **(1.6)** | | **H1 2023** | **2.2** | **2.1** | **0.2** | **_Global Integrated Agencies_**_:_ GroupM, our media planning and buying business, grew consistently during the half and across all regions, benefiting from continued client investment in media, with like-for-like growth in revenue less pass-through costs of +6.1% (Q2 +6.1%), partially offset by a 0.8% LFL decline at other Global Integrated Agencies (Q2 -2.3%). Ogilvy grew well, supported by recent new business wins including Verizon and SC Johnson. Hogarth, our creative production agency, continued to deliver good growth as it expands its collaboration with other WPP agencies. Other Global Integrated Agencies, Wunderman Thompson, VMLY&R and AKQA Group, felt the greatest impact from reduced spend across the technology sector and delays in technology-related projects. As anticipated, revenue less pass-through costs in the retail sector was impacted by known 2022 client losses. Revenue less pass-through costs from our offer in experience, commerce and technology was around 39% of our Global Integrated Agencies, excluding GroupM, compared to around 35% in 2019 and unchanged from H1 2022, impacted by the previously referenced delays in technology-related projects. Our digital billings mix within GroupM increased to 49%, compared to 48% in FY 2022. **_Public Relations_**: FGS Global continued to grow strongly in the first half. H+K Strategies delivered solid growth, lapping double-digit growth in the first half 2022. BCW saw a small decline in revenue less pass-through costs in the first half. **_Specialist Agencies_**: good growth in design agency Landor & Fitch, and our specialist healthcare media planning and buying agency, CMI Media Group, was offset by declines at smaller agencies affected by delays in client projects. **Regional review** **Regional segments – revenue less pass-through costs** | **% LFL +/(-)** | **North America** | **United Kingdom** | **Western Continental Europe** | **Rest of World** | | **Q2 2023** | (4.1) | 9.0 | 3.9 | 4.3 | | **H1 2023** | (1.2) | 8.2 | 3.7 | 3.1 | North America declined by 1.2% in the first half reflecting the lower revenues from technology clients, which predominantly impacted our integrated creative agencies, and the expected impact of 2022 client losses in the retail sector. This was partially offset by growth in spending from consumer packaged goods, healthcare and financial services. GroupM continued to grow well in the region. The United Kingdom grew strongly led by GroupM. CPG and healthcare were the strongest client sectors. In Western Continental Europe, strong performances in Germany and Spain offset declines in France due to client losses. The Rest of World saw good growth in the half. China grew 4.8% in the second quarter, as that market continued to recover from Covid-related impacts, albeit at a slower pace than anticipated. India moved into growth in Q2 against a strong comparative of 48% growth in Q2 2022. **Top five markets – revenue less pass-through costs** | **% LFL +/(-)** | **USA** | **UK** | **Germany** | **China** | **India** | | **Q2 2023** | (4.5) | 9.0 | 6.6 | 4.8 | 2.5 | | **H1 2023** | (1.2) | 8.2 | 5.4 | (4.0) | 0.8 | **Client sector review** **Client sector – revenue less pass-through costs** | **H1 2023** | **% share** | **% growth +/(-)** | | CPG | 26.1 | 15.1 | | Tech & Digital Services | 17.8 | (4.9) | | Healthcare & Pharma | 12.5 | 4.2 | | Automotive | 10.2 | (0.2) | | Retail | 9.5 | (7.9) | | Telecom, Media & Entertainment | 6.2 | (1.4) | | Financial Services | 6.1 | 10.0 | | Other | 5.5 | (0.3) | | Travel & Leisure | 3.6 | 8.9 | | Government, Public Sector & Non-profit | 2.5 | 3.6 | **Strategic progress** There have never been more opportunities for advertisers to reach consumers, reflected in the plethora of marketing channels available. In this increasingly complex world, WPP’s unique position and offer is more relevant than ever. Our clients continue to invest in their brands and seek our support as they navigate this complexity. **_Clients:_** We have won $2.0bn of net new business billings in the first half( H1 2022: $3.4bn) including the potential loss of certain Pfizer assignments currently held by WPP integrated creative agencies. Key assignment wins included Maruti Suzuki( media), Pernod Ricard (creative), Reckitt (media), Beko (creative), and Costa Coffee( PR). Our Vantage global client satisfaction survey has shown the key measure of “Likely To Recommend” has remained at all-time high levels with an increase in scores related to world-class creativity. **_Creativity and awards_**_:_ Creativity is at the heart of our offer, and we continue to be recognised for our creative excellence. WPP had another successful year at Cannes Lions International Festival of Creativity, winning a total of 165 Lions including one Titanium Lion, five Grand Prix, and 24 Gold awards. Mindshare was also named Media Network of the Year. Earlier in the year, WARC named WPP the top company in all three of their rankings, the Creative 100, Effective 100 and Media 100 lists. Ogilvy ranked as the top network of the year in both the Creative 100 and Effective 100 while EssenceMediacom took first place in the Media 100. In addition, the Effie Awards named WPP the most effective communication company in the world, with Ogilvy placing first in the most effective agency network rankings. **_Investment for growth:_** We have invested in strategically important areas and growth markets. We acquired Goat, a London-based, data-driven influencer marketing agency; Obviously, a New York-based, technology-led influencer marketing agency; 3K Communication, a Frankfurt-based healthcare PR agency; and amp, one of the world’s leading sonic branding companies. We also made a minority investment in Majority, a diversity-focused US creative agency. In July, KKR completed their minority investment to become a 29% shareholder in FGS Global, after acquiring all of Golden Gate Capital’s equity and a proportion of the interests of WPP and FGS Global management. WPP remains the majority owner at 51%. The transaction valued FGS Global at $1.425bn. We have invested organically in new technology platforms to provide a future-facing offer to clients and innovate for the medium term. The main areas of investment are in Choreograph, our data company, and WPP Open, our AI-powered technology platform. We believe that AI will be fundamental to WPP’s business and are excited by its transformational potential. 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 creative production business. Our application of AI includes automation of workflows, speeding up the process of ideation and concepting, and producing innovative creative work for clients. An example is our work for Cadbury’s in India which used AI to allow Bollywood superstar Shah Rukh Khan to produce personalised ads for local businesses which won a Titanium Lion for Creativity at the 2022 Cannes Lions festival and won again at the festival in 2023, securing a Grand Prix for Creative Effectiveness. We are working with technology from all the main AI companies, including Adobe, Google, IBM, Microsoft, Nvidia, and OpenAI, with dedicated enterprise platforms, proprietary to WPP, to deliver work to clients that protects their information.  We recognise the challenges of AI to society and have implemented legal and ethical guidelines to help us responsibly deploy this technology. In May, WPP and Nvidia announced plans to develop a content engine that harnesses NVIDIA Omniverse™ and AI to enable creative teams to produce high-quality commercial content faster, more efficiently and at scale while staying fully aligned with a client’s brand. The new engine connects an ecosystem of 3D design, manufacturing and creative supply chain tools, including those from Adobe and Getty Images, letting WPP’s artists and designers integrate 3D content creation with generative AI. This enables our clients to reach consumers in highly personalised and engaging ways, while preserving the quality, accuracy and fidelity of their company’s brand identity, products and logos. **_T_****_alent_**_:_ Our success is driven by our exceptional talent. We have continued to invest to attract, engage and develop the best talent in our industry. In May, we hired Corey duBrowa, one of the industry’s most highly regarded communications leaders, as Chief Executive of BCW. We have invested in education and training, including through our Future Readiness Academies, a bespoke global learning programme available to everyone across WPP. We also launched the second cohort of our Creative Technology Apprenticeship, a nine-month intensive programme where apprentices learn creative technology skills using the latest software and hardware to prepare them for a career in today’s creative technology field. In addition, we sponsored a cohort of WPP leaders through a Postgraduate Diploma in AI for Business at Oxford University’s Saїd Business School, with 28 senior executives graduating earlier this year. **_Transformation:_** We are making progress on our transformation plan which we set out in December 2020, designed to achieve £600m in gross annual cost efficiencies by 2025. We are on target to achieve our annual run-rate of £450m in efficiencies this year, against a 2019 baseline. We opened five new campuses, in Atlanta, Austin, Guangzhou, Manchester and Paris, in the half, taking the total to 38 campuses. By the end of the year, we intend to open two further campuses and will accommodate around 60,000 of our people in campus buildings. A review of our property portfolio has led to ongoing actions including the further consolidation of our operations in campuses across the US, in New York and other cities. **Purpose and ESG** WPP’s purpose is to use the power of creativity to build better futures for our people, planet, clients and communities. During the first six months of the year we have made good progress in fulfilling our commitments in each pillar of our purpose statement. **_People_**_:_ We are committed to our $30m pledge, set out in June 2020, to fund inclusion programmes within WPP and to support external organisations, as part of our Racial Equity Programme. WPP agencies globally apply to receive resources to create and run impactful programmes to advance racial equity. During the quarter, the programme received applications for its fourth round of funding. **_Planet:_** In 2021, we announced our commitment to reduce carbon emissions from our own operations to net zero by 2025 and across our supply chain by 2030. Our net zero pledges are backed by science-based reduction targets, which have been verified by the Science-Based Targets initiative. We have committed to reducing our absolute Scope 1 and 2 emissions by at least 84% by 2025 and reduce Scope 3 emissions by at least 50% by 2030, both from a 2019 base year. In April, our 2022 [Sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news) Report reported that we have delivered a reduction in Scope 1 and 2 emissions of 71% in absolute terms since our 2019 baseline. WPP maintained a low risk rating in the 2023 Sustainalytics risk rating, which scores the ESG performance of companies. WPP has the lowest risk rating of its peer group and saw an improvement in its score from 12.1 in 2022 to 10.6 in 2023. **_Clients:_** We are proud to enable our clients in their own sustainability journeys and ensure client work is inclusive and accessible. At the Cannes Lions Festival of Creativity 2023 we were recognised for our purpose-driven client work including a Titanium Lion for Corona’s Extra Lime campaign in which Corona partnered with local governments to equip and educate farmers to expand their lime yield, and a Grand Prix for Dove’s #TurnYourBack campaign which raised awareness of the harmful impact of toxic beauty content. **_Communities:_** We make a positive contribution to the communities in which we live and work. WPP collaborated with The One Club for Creativity to introduce ONE School UK, a free intensive portfolio programme spanning 16 weeks, aiming to provide opportunities for promising Black creatives based in the UK. Funded by WPP’s Racial Equity Programme, the virtual ONE School UK welcomed its inaugural cohort in March 2023. **Outlook** We are updating our guidance for 2023 as follows: | Like-for-like revenue less pass-through costs growth of 1.5-3.0% for FY 2023 (previously 3-5%); guidance for FY 2023 headline operating margin of around 15% (excluding the impact of FX) maintained | 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 31 July 2023) imply a c.2.0% drag on FY 2023 revenues less pass-through costs and a c.0.25pt drag on FY 2023 headline operating margin •     Headline income from associates is expected to be around 40m^(5) •     Effective tax rate (measured as headline tax as a % of headline profit before tax) of around 27% •     Capex of around £250m (previously £300m) •     Restructuring and property costs of around £400m, consisting of costs of £ 180m detailed in prior guidance with the addition of £220m of cost relating to the 2023 property review (of which £200m is non-cash) •     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 •     Average adjusted net debt/headline EBITDA within the range of 1.5x-1.75x •     Year-end adjusted net debt flat year-on-year **Medium-term guidance** We remain confident in our ability to deliver annual revenue less pass-through costs growth of 3-4% and headline operating profit margin of 15.5-16%, as a result of the actions we have taken to broaden and strengthen our services, to increase our exposure to attractive industry segments and to leverage our global scale. 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