WPP plc(WPP) - 2023 Q1 - Quarterly Report

2022 Preliminary Results Full Year 2022 Performance Highlights WPP reported strong 2022 growth across key metrics, including a 12.7% revenue increase and 25.5% headline diluted EPS growth, while returning over £1.1 billion to shareholders FY 2022 Key Financial Figures (£ million) | | 2022 | 2021 | +/(-)% reported | +/(-)% LFL | | :--- | :--- | :--- | :--- | :--- | | Revenue | 14,429 | 12,801 | 12.7 | 6.7 | | Revenue less pass-through costs | 11,799 | 10,397 | 13.5 | 6.9 | | Reported: | | | | | | Operating profit | 1,358 | 1,229 | 10.5 | - | | Diluted EPS (p) | 61.2 | 52.5 | 16.6 | - | | Dividends per share (p) | 39.4 | 31.2 | 26.3 | - | | Headline: | | | | | | Operating profit | 1,742 | 1,494 | 16.6 | 10.0 | | Operating profit margin | 14.8% | 14.4% | 0.4pt | 0.4pt | | Diluted EPS (p) | 98.5 | 78.5 | 25.5 | - | - The company achieved strong performance across its major agencies, with GroupM LFL revenue less pass-through costs up 9.1%, Public Relations up 8.2%, and Specialist Agencies up 5.6%[17] - WPP won $5.9 billion in net new business, including key assignments with Audible, Danone, SC Johnson, and Verizon[17][34] - The transformation program delivered gross annual savings of approximately £375 million against a 2019 base, surpassing the planned £300 million[17] - Over £1.1 billion was returned to shareholders in 2022, comprising £807 million in share buybacks and £365 million in dividends[17] Overview and Strategic Progress WPP's 2022 performance was driven by strong client demand, strategic acquisitions, and transformation progress within a resilient global advertising market, while addressing geopolitical impacts Market Environment The global advertising market grew 6.5% in 2022, driven by digital and retail media, with 5.9% growth projected for 2023 including a China rebound - Global advertising spend grew by 6.5% in 2022, slightly lower than forecast due to slower growth in China[21] - Digital advertising grew 9.3% in 2022, making up 67% of total advertising, with retail media estimated at $110.7 billion[22] - GroupM forecasts 5.9% growth in global advertising spend for 2023, including a projected 6.3% rebound in China[25] Performance, Clients, and Partnerships Since 2019, WPP achieved 10% LFL growth, bolstered by strong client demand in key sectors, securing $5.9 billion in new billings and expanding strategic tech partnerships - Since 2019, LFL revenue less pass-through costs has grown 10%, headline operating profit is 15% higher, and headline EPS has grown by 26%[30] - Key client sectors (technology, healthcare & pharma, CPG) showed strong three-year LFL growth of 27.9%, 19.4%, and 21.4% respectively[33] - Secured $5.9 billion of net new billings in 2022, with key wins including Audible, Danone, SC Johnson, and Verizon[34] - Formed new strategic partnerships with Instacart, Stripe, and BigCommerce to bolster commerce and digital capabilities for clients[37] Investments, Transformation, and Creativity WPP invested £237 million in strategic acquisitions, exceeded its transformation savings target with £375 million, and was recognized as the most creative company for the second consecutive year - Invested a net £237 million in acquisitions, focusing on high-growth areas such as influencer marketing, marketing technology, and ecommerce in regions like North America and Latin America[42] - The transformation programme delivered £375 million in gross annual savings, ahead of the £300 million plan, and is on track to reach its £600 million target by 2025[17][46][47] - Continued to expand its campus program, opening five new locations in 2022, bringing the total to 36 campuses housing approximately half of its employees[48] - Recognized as the most creative company of the year at the Cannes Lions International Festival of Creativity for the second year in a row[39] Purpose and Sustainability WPP advanced its purpose-driven strategy, committing to net-zero emissions by 2025/2030, and made significant strides in DEI, including a $30 million investment for racial equity - Committed to reaching net-zero carbon emissions in direct operations (Scope 1 & 2) by 2025 and across its supply chain (Scope 3) by 2030, with targets verified by the Science-Based Targets initiative (SBTi)[59] - GroupM launched a media decarbonisation framework and a client coalition representing $10 billion in ad investment to accelerate the decarbonisation of the media supply chain[60] - Pledged to invest $30 million over three years to fund inclusion programs and support external organizations to advance racial equity[58] - Expanded employee support programs, including training over 550 Mental Health Allies and launching women's network Stella across EMEA[55][57] Outlook and Guidance WPP guides for 3-5% LFL growth and around 15% headline operating margin in 2023, with medium-term targets of 3-4% growth and 15.5-16.0% margin, noting a £40-50 million Kantar income non-recognition 2023 Guidance | Metric | Guidance | | :--- | :--- | | LFL revenue less pass-through costs growth | 3% to 5% | | Headline operating profit margin | Around 15% (ex-FX) | | Capex | £300 million | | Restructuring costs | Around £180 million | | Effective tax rate | Around 27.0% | Medium-Term Guidance | Metric | Guidance | | :--- | :--- | | Annual revenue less pass-through costs growth | 3% to 4% | | M&A contribution to growth | 0.5% to 1.0% | | Headline operating profit margin | 15.5% to 16.0% | - Due to the carrying value of the investment in Kantar reaching zero, WPP expects that around £40-50 million of Kantar's headline income will not be recognized in its 2023 results[66] Financial Review WPP's 2022 financial performance was strong, with 12.7% reported revenue growth and a 40 basis point margin improvement, though adjusted net debt increased to £2.5 billion due to shareholder returns Overall Financial Results Reported profit before tax rose 22.0% to £1.2 billion, headline diluted EPS grew 25.5% to 98.5p, and the operating margin improved by 40 basis points, leading to a 39.4p full-year dividend Headline Income Statement Summary (£ million) | | 2022 | 2021 | +/(-) % reported | | :--- | :--- | :--- | :--- | | Revenue less pass-through costs | 11,799 | 10,397 | 13.5 | | Operating profit | 1,742 | 1,494 | 16.6 | | Profit before tax | 1,602 | 1,365 | 17.3 | | Profit attributable to shareholders | 1,100 | 954 | 15.3 | | Diluted EPS | 98.5p | 78.5p | 25.5 | - Headline operating profit margin increased by 40 basis points to 14.8%, supported by transformation savings and operating leverage[87][88] - Reported diluted EPS was 61.2p, while headline diluted EPS grew 25.5% to 98.5p[93] - The Board proposed a final dividend of 24.4p, bringing the total for 2022 to 39.4p, an increase of 26.3% year-on-year[9][94] Business Sector Review All business sectors achieved positive LFL growth in 2022, with Global Integrated Agencies up 6.9%, Public Relations up 8.2%, and Specialist Agencies up 5.6%, reflecting broad client demand FY 2022 Revenue Less Pass-Through Costs by Sector (£ million) | Sector | 2022 | 2021 | +/(-) % reported | +/(-) % LFL | | :--- | :--- | :--- | :--- | :--- | | Global Integrated Agencies | 9,742 | 8,683 | 12.2 | 6.9 | | Public Relations | 1,157 | 910 | 27.1 | 8.2 | | Specialist Agencies | 900 | 804 | 11.9 | 5.6 | | Total Group | 11,799 | 10,397 | 13.5 | 6.9 | FY 2022 Headline Operating Profit by Sector (£ million) | Sector | 2022 | % margin | 2021 | % margin | | :--- | :--- | :--- | :--- | :--- | | Global Int. Agencies | 1,432 | 14.7 | 1,222 | 14.1 | | Public Relations | 191 | 16.5 | 143 | 15.7 | | Specialist Agencies | 119 | 13.2 | 129 | 16.0 | | Total Group | 1,742 | 14.8 | 1,494 | 14.4 | Regional Review All geographic regions showed positive LFL growth in 2022, with North America up 6.6% and Rest of World up 8.0%, despite a Q4 decline in China due to lockdowns FY 2022 Revenue Less Pass-Through Costs by Region (£ million) | Region | 2022 | 2021 | +/(-) % reported | +/(-) % LFL | | :--- | :--- | :--- | :--- | :--- | | North America | 4,688 | 3,849 | 21.8 | 6.6 | | United Kingdom | 1,537 | 1,414 | 8.7 | 7.6 | | W. Continental Europe | 2,319 | 2,226 | 4.2 | 5.5 | | AP, LA, AME, CEE | 3,255 | 2,908 | 11.9 | 8.0 | | Total Group | 11,799 | 10,397 | 13.5 | 6.9 | FY 2022 Headline Operating Profit by Region (£ million) | Region | 2022 | % margin | 2021 | % margin | | :--- | :--- | :--- | :--- | :--- | | North America | 771 | 16.4 | 656 | 17.0 | | United Kingdom | 187 | 12.3 | 181 | 12.8 | | W. Continental Europe | 301 | 13.0 | 289 | 13.0 | | AP, LA, AME, CEE | 483 | 14.8 | 368 | 12.7 | | Total Group | 1,742 | 14.8 | 1,494 | 14.4 | - In Q4, LFL revenue less pass-through costs in China declined by 8.4% due to widespread COVID-related lockdowns[10][85] Cash Flow and Balance Sheet Net cash outflow increased to £1,398 million in 2022, driven by working capital and shareholder returns, leading to adjusted net debt rising to £2.5 billion, with an average net debt/EBITDA ratio of 1.46x Cash Flow Summary (£ million) | Twelve months ended | 31 December 2022 | 31 December 2021 | | :--- | :--- | :--- | | Adjusted free cash flow | 53 | 1,265 | | Disposal proceeds | 51 | 77 | | Net initial acquisition payments | (274) | (464) | | Dividends | (365) | (315) | | Share repurchases and buybacks | (863) | (819) | | Net cash flow | (1,398) | (256) | - Adjusted net debt at year-end was £2.5 billion, up from £0.9 billion in 2021, primarily reflecting £1,172 million returned to shareholders (£807 million buybacks and £365 million dividends)[96] - The average adjusted net debt to EBITDA ratio for 2022 was 1.46x, slightly below the target range of 1.5 - 1.75x[98] Appendix 1: Unaudited Preliminary Consolidated Financial Statements This appendix presents the unaudited consolidated financial statements for 2022, including the Income Statement, Balance Sheet, and Cash Flow Statement, with detailed notes on segmental performance, taxation, and debt - The appendix contains the full unaudited consolidated financial statements: Income Statement, Statement of Comprehensive Income, Cash Flow Statement, Balance Sheet, and Statement of Changes in Equity[101][103][105][107] - The notes to the financial statements provide detailed breakdowns and accounting policies, covering areas such as segmental analysis (Note 7), taxation (Note 8), debt (Note 12), and financial instruments (Note 21)[116][137][140][154] - The financial statements were prepared in accordance with IFRS recognition and measurement criteria, but the announcement does not constitute full statutory accounts[117][119][121] Principal Risks and Uncertainties The company identifies principal risks across strategic, operational, financial, and compliance categories, including economic downturns, client loss, cyber-attacks, and data privacy, with emerging climate-related risks - Strategic and External Risks include adverse economic conditions, geopolitical tension, failure to execute the strategic plan, and risks associated with the IT transformation[180][181][184][185] - Operational Risks involve the potential loss of a major client, failure to attract and retain key talent, reputational damage, and cyber-attacks[186][188][189][190] - Compliance Risks stem from data protection and privacy legislation, environmental regulations, and laws concerning anti-corruption, sanctions, and taxation[191][192][193][195] Appendix 2: Alternative performance measures for the year ended 31 December 2022 This appendix defines and reconciles key non-GAAP financial metrics like 'revenue less pass-through costs' and 'headline operating profit', used for internal analysis and comparability, and includes a glossary of terms - Defines 'Revenue less pass-through costs' as revenue minus directly charged client costs (predominantly media), which management believes better reflects top-line growth[204][237] - Defines 'Headline operating profit' by excluding significant, non-recurring, or volatile items such as goodwill impairment, restructuring costs, and gains/losses on disposals to assess the underlying performance of the business[205][228] - Explains that 'Like-for-like' (LFL) comparisons are calculated on a constant currency basis and adjusted for the impact of acquisitions and disposals to illustrate underlying performance trends[216][236]