WPP, while increasing its outlook for earnings for the full year, with client spend holding up, and giving shareholders a 20% bigger dividend, sees a slowing in the advertising market for the six months to December and an uncertain outlook for 2023.
The company posted a 8.7% lift in like-for-like revenue to £6.755 billion in the six months to June with client demand “strong” across most segments and regions.
The world’s biggest advertising group again upgraded its full year guidance to organic growth of 6% to 7%, from 5.5% to 6.5%.
The company joins other global advertising holding groups -- Havas, Publicis, Omnicom, and IPG -- posting better than expected June quarter results.
However, the market punished WPP for an "uncertain" outlook for 2023. The company said it would give guidance in February when it announced 2022 preliminary results. WPP shares fell more than 8% to 814.60 pence.
WPP CEO Mark Read told a briefing of market analysts he is seeing continued strong demand from clients, with broad-based growth across creative, media and public relations.
Growth was 8.3% in the June quarter, only slightly lower than first quarter’s 8.9%.
However, during the analysts' briefing, Tim Nollen at Macquarie asked: “Your results seem fine. Your guidance seems fine and yet everyone is worried about what’s going to happen next year.
“We’ve heard some comments from a number of ad-related businesses in the US here talking about slowdown, whether already beginning in Q2 or going to happen in H2.”
Read: “What we said about this year and what we said about next year is not dissimilar from what our peers have said, which is broadly speaking, a strong demand in the first half of the year, no significant cuts by clients, likely to be a somewhat slower second half than first half and an uncertain 2023. And I think I characterise that as pretty consistent across what our peers are saying.”
Read referred to comments from Google that things were stable. Amazon characterised the market as strong. Comcast said choppy with some ups and some downs but no overall slowdown.
“I think those companies have tended to do worse ... those companies will most likely point to the broader macro slowdown. So I don’t know that it’s a broad macro slowdown or results in the competitive dynamics of those companies, but I think it’s more likely to be the latter than the former.”
However, that doesn’t mean the industry is not facing more uncertain times in 2023.
Read says most of WPP’s peers are looking for a slowdown.
“We are looking for things to be somewhat slower in the second half of the year than they are in the first,” he told the analysts.
“But I don’t think you can say that those companies that have seen cuts in their budgets is down to sort of digital being cut more quickly or not.
“Some of it may be -- so I think some of the froth has come out of the market, and maybe some of those companies are a little bit more reliant on venture capital or venture capital-backed, app downloads, that type of nature of business, the Googlers … that might be it. But I think it’s more likely to be that than it is a macro slow down so far.”
For WPP, costs have been rising. Staff costs, excluding incentives, were up 16.7% to £3.8 billion, reflecting higher headcount and the full year impact of the salary reviews in June last.
WPP has been steadily increasing its fees, by 3% to 6%.
CFO John Rogers: “We have a concerted effort to push price increases through in the second half, building on what we’ve achieved in the first half.
“We can’t see it on all clients because there are clients where it’s largely fixed contractually over a period of years. Until those contracts unwind, we won’t be able to push further price increases through.
“But there is a little bit more work to do, so we will expect to see some upside on price increases come through in the second half.”
A slide from the analyst briefing:
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