WPP upgrades forecast after GroupM and PR fuel Q1 growth

WPP has upgraded its annual revenue forecast after Group M, the media division, and the public relations arm fuelled a 9.5% increase to £2.6bn in the first three months of the year.

The world’s biggest agency group by headcount, with more than 109,000 staff, expects revenues to increase between 5.5% and 6.5% in 2022 – up from its February forecast of around 5% – despite uncertainties because of rising inflation and the war in Ukraine.

Mark Read, the chief executive of WPP, told Campaign: “We’re mindful of the economic risks and our guidance takes into account the economic outlook, and as things stand at the moment we haven’t seen any major reductions in spend from our clients. We see some pluses and minuses here and there but they tend to cancel each other out.”

Omnicom also lifted its annual forecast earlier this month to 6.5% at its results while Publicis Groupe stuck with its earlier prediction of 5%, albeit at “the upper end”, because there was “too much uncertainty”.

Overall, WPP’s Q1 performance was marginally behind its two biggest rivals. Omnicom previously reported 11.9% organic growth and Publicis Groupe reported 10.5%.

Public relations was the standout performer for WPP in Q1 as the division was up 14.1%, “continuing its very strong momentum of the past 18 months”, WPP said. “H+K, BCW and Finsbury Glover Hering, now merged with SVC, all achieved double-digit like-for-like growth.”

Group M, which is part of WPP’s Global Integrated Agencies division and announced a big restructure, including the EssenceMediacom merger, was up 12.8%.

By contrast, the rest of the GIA unit, which largely includes the creative agencies, was only up 5.6%.

Hogarth was the strongest performer within GIA excluding Group M. AKQA Group, Ogilvy and Wunderman Thompson “all recorded good growth”, and VMLY&R “also continued to grow despite a strong prior period”.

By region, North America was up 8.7%, the UK 8.1%, Western Europe 8.9% and the rest of the world 11.9% – with Latin America the best performer.

WPP’s share price was virtually unchanged despite the upgrade at 990p. 

Strong client demand

Read said: “We saw strong growth across all business sectors and regions, as client demand for our integrated offer remained very positive. We are benefiting from our excellent new business performance in 2020 and 2021, with the on-boarding of Coca-Cola being a significant focus.

“In new business reviews so far this year, we extended our relationship with Mars, becoming its global media partner, added digital to our Sky media remit, won the global creative account for JDE Peet's and were appointed strategic communications partner by Migros, with a focus on commerce strategy, data and content. We also won new assignments with Samsung and Square.”

Read added WPP had “confidence” in the company’s growth prospects, pointing to the launch of Everymile, a new division specialising in end-to-end ecommerce solutions.

Mark Steel, a former Argos and Google executive, will head Everymile. John Rogers, chief financial officer of WPP, previously worked with Steel at Argos.

What analysts say

Citigroup said WPP’S Q1 growth was about 9.2% above pre-pandemic levels in 2019 – a level that suggests “not only has the group beaten Q1 expectations but is signalling Q2 to Q4 expectations [for the rest of the year] are too low”.

The investment bank added the 5.6% growth in the performance of what it called the “traditional agencies” on the creative side was positive because it was “a material step change relative to pre-Covid performance” when revenues were in decline.

“Given the success of ‘traditional’ agency consolidations (VML and Y&R etc), it strikes us as meaningful that the group is taking further action to integrate/simplify agencies, with the focus on the media space (Essence and MediaCom; Finecast and Xaxis combining to create Nexus),” Citigroup said. “In our view this will not only drive a more integrated service offering (better services, delivered more seamlessly) but also a more efficient one.”

Goldman Sachs was more cautious. “The beat and raise does not come as a major surprise in light of the reporting from global advertising agency peers thus far, with Publicis, Omnicom and Havas having all beaten organic growth expectations,” the bank’s analysts said.

“While these results further confirm our view of an improved structural outlook for WPP and the ad agencies more broadly, the macro uncertainty may pose risk for these businesses especially in 2H/4Q, which underpins our slightly more cautious organic growth forecasts [of 5%] for the year.”