Hello, and welcome to the WPP first quarter 2022 results. My name is Lauren, and I'll be coordinating your call today. There'll be an opportunity for questions at the end of the presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand you over to your host, Mark Read, CEO, to begin. Mark, please go ahead.
Thank you, operator, and welcome everyone, and thanks for joining our first quarter update. I'm here in Sea Containers House with John Rogers, our CFO, and Peregrine Riviere, who heads up our Investor Relations activities. Turning to the presentation, and before we begin, I'd like to ask you to take note of the cautionary statement on slide two. Turning to page three, our agenda for today, really, I'll briefly go through the highlights of another strong quarter. John will take you through our financial performance and guidance, and we'll come back just quickly to summarize and then take your questions.
On page four, as I said earlier, we did have a strong start to the year, continuing our momentum from last year with 9.5% growth in Q1. Actually 9.2% on a three-year stack in the first quarter, which if you look at it's your compound rate to pretty much exactly 3%, the top end of our medium-term guidance. It shows what we've done, you know, during a period of COVID and some uncertainty. I think further proof of the continued strong demand for our services across digital media, data commerce, and marketing technology underpins our medium-term guidance.
We had good growth in all of our business lines despite the strength of the prior period, including 8.6% in our global integrated agencies. We saw 12.8% growth in GroupM in a strong media market. Importantly, we saw all of our integrated agencies grow year on year, and together they grew around 5.6%. We discussed before the transformation of our offer within these agencies is key to underpinning our long-term growth, and progress here continues to be very encouraging. That's, I think, a key strategic goal for us as a company.
Our public relations activity is up 14.1%, and that reflects the ongoing importance of issues management around reputation, purpose, sustainability, and employees. We're now home to three of the world's leading public relations strategic communications firms with BCW, Hill & Knowlton, and now the Finsbury Glover Hering and Sard Verbinnen merger bedding down very well. Specialist Agencies grew 13% with strong client demand in brand transformation.
On a geographic basis, we had good growth broad-based across the board, and John will dig into that at a country level in a minute. Our new business track record was good, both in retaining, expanding, and winning new clients, including the likes of Mars, JDE Peet's, Sky. We're definitely seeing a trend, I think, interesting within our media business to the integration of digital and analog media in these reviews. It very much plays into our strengths. A little bit behind the reorganization, GroupM we had earlier this week. I think it's at odds with the view that clients are fitting out digital media or taking it in-house. You know, on Coke, our onboarding is proceeding well and will continue to support our growth, over the year as it onboards.
We have a strong balance sheet, as you'll see. We've taken the opportunity to do around GBP 360 million of share buybacks, which is consistent with our GBP 800 million target for the year overall. That sort of talks about the continued growth momentum. What I'm particularly pleased about is the investment in our client offer. We simplified GroupM with the merger of MediaCom and Essence, delivering a more integrated solution to our clients. We announced the launch of Everymile, our dedicated D2C commerce business, and the Metaverse Foundry brings together 700 experts from GroupM. I think that demonstrates a continued and sustained organic investment in the business alongside what we can do from acquisitions.
We created the GroupM Premium Marketplace in partnership with Magnite and PubMatic to bring more transparency and control to premium digital media. I think again, another benefit to our clients. We continue to invest in Xaxis and Finecast, where we're investing in technology innovation and product development and bringing those businesses together so we have scale where scale is needed, and they can support our agency brands within GroupM. Finally, we made one acquisition in the course of the purchase of Village Marketing, a New York-based influencer marketing specialist, around 150 people, which is gonna give us a strong strength in social media. In summary, I'd say a very good quarter. We've done a lot despite the challenges as I touch on in a minute, and that enables us overall to update our growth guidance for the year to 5.5%-6.5%.
On page four, really just to update you on the events in Ukraine and Russia. You know, I have to say our main priority has been to support and look after our 200 people from Ukraine in the face of this horrific attack on their country. We're working with the local leadership to provide financial and well-being support, job opportunities to our Ukrainian employees who continue to express their desire to, you know, work and live in a normal way. I was in Poland about four weeks ago, and I saw this firsthand, talked to our people there from Ukraine. I've been extremely impressed by, you know, the offers of support from our people in other countries, picking our people up at the border, providing them with accommodation, and essential goods and services, and really, you know, coming together, you know, as one WPP family to look after them.
We've been partnering with the UNHCR to run an emergency fundraising appeal. More than 4,000 of our people across WPP have donated to that, raising over $1.3 million, including our match funding, with a broader appeal raised around $150 million to date. Really, fantastic effort from our agencies, particularly Blue State Digital, who supported that.
Now, turning to Russia, we announced on the March 4th our decision to exit the Russian market. I'm pleased to say that we've now really reached agreement to divest our businesses there. We'll be selling the businesses back to the management, and that process is substantially complete. We have a complex portfolio of companies in Russia, and that naturally takes some time, but we have made that decision. I mean, I think our 1,400 colleagues in Russia, you know, have been dedicated, valued members of WPP for some time, and we obviously regret the decision. The Board decided that operating in Russia is not consistent with our values as a company, and I'm pleased that we've been able to move relatively quickly on that. That's really sort of a summary of where we are for the quarter. John, take us through the financial results in more detail.
Thank you, Mark. On to the financials for the first quarter of 2022. You may notice we somewhat streamlined the deck so that we could focus more time on the Q&A. Rest assured, all the usual detail, of course, is in the appendices. Coming first to slide seven, revenue less pass-through costs. At the reported level, we've seen an increase of 10.3% for the quarter. A small tailwind in relation to FX, and obviously a contribution from acquisitions of 0.5% leads to an overall like-for-like growth for the first quarter of 9.5%, and that's on the back of 3.1% this time last year.
Moving now on to slide eight and business sector performance. Again, we've seen very strong growth across all of our business sectors. Starting off with our Integrated Agencies at 8.6%, which is on the back of a 2.8% growth this time last year. GroupM in particular showing strong growth of 12.8%, again, on the back of 5.8% growth for the same quarter last year.
Taking the Integrated Agencies excluding GroupM, growth of 5.6%. As Mark said at the very beginning, all of our creative agencies growing in the quarter. PR, really strong, 14.1% in the quarter, ahead of 2% this time last year. Again, our specialist agencies also growing 13% in the quarter on the back of 7.5%, this time last year. Really good growth, solid growth across all our different business sectors. Really calling out perhaps PR with, you know, BCW, Hill & Knowlton and, FGH all growing double digits over the quarter.
Turning now to slide nine onto our major markets, which also I'm pleased to say are growing well across the board. Strong growth in the U.S. and the U.K. markets, around 8.9, 8.1% respectively. Germany's been one of our most successful European markets, growing at 16.1%. China continuing to grow on the back of a very strong quarter this time last year, 11.9%. India is a real success story at 25.1%.
Australia, a little bit more challenging, but certainly showing signs of recovery, you know, as a result of the recent change and the buying in of that business into the WPP fold. Canada growing healthily. France may be a little bit disappointing, reflecting a slow recovery from COVID and some client losses in that region. Brazil, again, huge growth, 28.5%, and Spain at 8.2%. So good growth across our key markets.
Actually, what's interesting, you know, I pulled out also the three-year growth numbers. So this is the growth versus 2019, i.e., you know, our pre-COVID year, to look at how we've grown these markets over the last three years. When you look at that, you know, across the U.S. and the U.K. both growing at 7.6% over those three years, which is again, as Mark alluded to, the 9.2% average over the last three years, effectively equating to an annual growth of 3%, which we think reflects strong performance in line with our medium-term guidance.
Germany over the three years growing at 13.9%, China at 17.2%, India at 32.1%. Again, a real success story there with India. Australia still behind 2019 levels, so down 9.1%, I think reflecting the opportunity to really recover that business. Canada up 21.1%. France down a little bit again, reflecting a very slow recovery from COVID. Brazil at 37.6% and Spain roughly flat. I think looking at those three-year growths, you can really see where the growth engines are in terms of our geographic focus.
Coming on now to slide 10 and looking at our main movements in our net debt through the quarter. Net debt on March 31 , 2022, at GBP 2.6 billion. Average net debt over the quarter, GBP 1.6 billion. We saw the normal seasonal outflow of working capital since the year-end. Our trade net working capital actually improved quarter-on-quarter, or you know, year-on-year by GBP 180 million, again, which gives us comfort, I think, on our flat trade working capital guidance for the full year. As Mark said, we made... We actually made GBP 405 million of total share purchases in Q1, GBP 362 million of which was a share buyback, GBP 43 million related to the employee benefit trust. Again, in line with the guidance of GBP 800 million that we gave at the prelim.
Coming on now to our guidance, as Mark has already mentioned, we're updating our guidance on our like-for-like revenue less pass-through costs to an increase of 5.5%-6.5% for the year. Previously, it was around 5%. We've effectively actualized the first quarter, and in effect, kept whole Q2- Q4. Headline operating margin, we reiterate the guidance at 50 basis points, around 50 basis points increase for the year. Again, I alluded to it at the prelims that we're expecting the first half to be slightly negative, probably about 50 basis points or so negative, and the second half to be positive year-on-year, about 120 basis points. When you aggregate the two together, we're expecting to see a 50 basis points overall increase for the year.
We're not actually changing that guidance. You might ask why not in the context of an upgrade on the top line, but we're effectively seeing the upgrade on the top line drop through as we would normally expect, albeit slightly offset by a slightly higher assumption on salary inflation and that the two offset, hence why we're keeping the guidance at 50 basis points for the full year.
CapEx in at GBP 350 million-GBP 400 million. Trade working capital, as I said earlier, expected to be flat. Foreign exchange benefit for the year on a reported basis, about 2%-2.5%. We saw 0.3% in the first quarter, some more will come through in subsequent quarters. M&A of between 0.5%-1%. We saw 0.5% in the first quarter, and we expect that to build through the year. As I've already touched upon, the GBP 800 million share buybacks in 2022, of which we've done GBP 362 million already in Q1. We would expect to do about GBP 600 million by the end of H1, in line with the current run rate in purchasing over the last six months or so, but again, consistent with the 800 overall that we guided to. That's the full guidance. I'm gonna hand back to Mark just for the outlook, and then we'll go into Q&A.
Brilliant. Thanks very much, John. You know, we had a strong start to the year, and we have pretty broad-based growth across the business. I think, you know, what's important is we continue to invest in the company to expand our offer and drive long-term growth through acquisitions, partnerships, and perhaps most importantly, you know, continued investment in innovation, in Choreograph, in Finecast, in Everymile. I'd say that the demand from our clients remains strong, but we are very mindful of the broader economic environment. As we said, we're upgrading our guidance after the first quarter outperformance. That's just how we see the year. Operator, we're happy to take questions.
Of course. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Dan Salmon from BMO Capital Markets. Dan, please go ahead.
Hi, Dan.
Great to have you.
It's early.
Hey, Dan.
Thank you. I appreciate it. Thank you for the question. First, maybe could we. I did jump on a little bit late, but I was hoping, I'm sure you touched on it a little bit, were the changes announced at GroupM yesterday. Would love to just hear a little bit more about the reasons for those changes and, in particular, the consolidation of Essence and MediaCom, and the creation of Nexus, and just, you know, what you're aiming to achieve out of those moves.
Then second, you know, obviously, Mark, your own organic revenue guidance here ticks up. We've heard that from your peers as well. We continue to get some questions from investors, you know, asking about, you know, do agency fees typically lag the ad cycle? Does the ad cycle typically lead the economic cycle? Which I think has been, you know, the general pattern in the past. Maybe taking a step back just from WPP's organic growth guidance, you know, any color you can add to what you're hearing just broadly from clients as they look out over the ecosystem that is relatively volatile right now. Thanks.
Okay. Look, I think on GroupM, I mean, there were three major changes announced. Maybe in order of significance, perhaps, you know, the merger of Essence and MediaCom, so it brings together Essence, probably or certainly the world's largest, you know, historically pure digital agency with MediaCom, the, I think, Agency of the year the last two years. I think the integration of their digital, and I wouldn't describe MediaCom as a traditional media agency. It's very much not. I think the integration of those businesses talks to continued simplification of WPP, continued demand for scale, and a continued drive for clients for an integrated solution. I think the same is true of Mindshare and Neo, when... You know, Neo and Mindshare were-
Mm-hmm
Working together under one management, but there's now more integration. I think that builds. You know, Neo was historically an outcome-based media. Actually, it started as the digital media arm of OgilvyOne about 25 years ago, if you want to go back into ancient history.
Mm-hmm.
You know, it's sort of the integration of outcome-based media with a broader media office. I think both of those talk to that. GroupM Nexus is really bringing together the more technology and operational elements of digital media into one company that can both drive Finecast and Xaxis, but also support the agencies in analytics and technology and operations. We're looking really for scale, where scale matters in data, technology, volume, media volume. Agencies where they matter to provide client service, strategy and conflict management.
Turning to what we're hearing from clients, you know, I think that it's a very different story from where we were probably exactly two years ago. I think clients were, you know, looking to cut their spend in the face of, you know, what they knew would be a very weakened demand. I think clients at the current time are cautious of the experience for the balance of the year, but many have experienced very strong first quarter. You know, Coca-Cola, organic growth of 18%, L'Oréal, organic growth of 13.5%. You know, you saw Google's 23% growth. Google's a top three client for WPP. I think many of our clients are seeing strong, continued strong growth as economies open up and consumer spending holds up, you know, strongly.
I think they are concerned about the inflation pressure on consumer spending, but they're seeing that, you know, as more of a sort of second half impact potentially than a first half impact. We'll have to see whether inflation continues to increase or comes off somewhat in the second half of the year. I think I'd describe their stance as wanting to protect their budgets to invest in media. You are seeing some margin squeeze in many companies. I think it's a different picture. You know, we are mindful of the economic risk, but our guidance takes into account, you know, what we've seen from clients to date and the economic outlook over the year. If John wants to add to that as we think about the guidance, and I'm sure other people will have more questions.
Yeah. I'm not sure there's much I can add to that. You know, obviously when we set our guidance, we look forward at the range of forecasts that the business could experience over the rest of this year. I think it's fair to say if you look forward, if you carried the momentum of Q1 into the rest of the year, we would expect to see some upticks in guidance over time. Equally, to Mark's point, if you're a bit more bearish and you thought that inflationary impacts were going to dampen consumer demand in the second half of the year and that was gonna impact marketing spend, then you might bring the guidance down slightly.
I think we've taken, in my view, a very sensible position, which is reflected in the first quarter's outperformance in our overall guidance for the full year, but effectively held steady assumed growth in Q2- Q4. I think it's fair to say what we're seeing in the market at the moment, we're not hearing any particular negativity from clients at this point in time. We've got reasonable visibility, of course, into Q2. But there is undoubtedly huge uncertainty out there, and we have to be mindful of that. I think we made that very clear in the statement today.
Great. Thank you both. Very helpful.
Thank you.
Our next question comes from Lina Ghayor from Exane BNP Paribas. Lina, please go ahead.
Hi. Good morning. Lina here. I hope you can hear me well.
Yeah.
I have three questions, if that's okay. First one, just to come back on your guidance, could you just explain a bit more what you have factored in terms of supply constraint, inflation risks, but also the evolution of the health situation in some of your markets, such as China, and what assumptions have you taken for your guidance? The second question is on Q2. Q2 last year was your strongest quarter, so how should we think about the growth in Q2 versus the rest of the year? Lastly, on the margin, I believe you kept the margin guidance unchanged, so could you explain the reason behind that? Is it just that there's no incremental operating leverage from the additional organic revenue growth, or there are other factors affecting it? Thank you very much.
Maybe I'll have a go at those, Lina, and then Mark may want to add. Look, I think in relation to guidance, what we said is very clear that there's a whole bunch of, you know, uncertainties out there, supply constraints, market GDP growth, particularly in the European region, inflationary impacts, both in terms of on our cost base, but perhaps more importantly on the consumer and how they respond and marketing spend accordingly. I think that there are huge amounts of factors that go into our guidance, and that, as I said, leads to a range of potential forecasts and outcomes, both on the upside and downside. You know, what we're assuming in the guidance that we're giving today is an actualization, in effect, of the upside we've delivered in Q1, but really holding flat.
You know, the balance to achieve for that guidance for the full year is actually a growth per quarter of around 4.8%. I think that's in our view a reasonable estimate based on where we see our market going forward. There is certainly upside potential to that, as I said, if we carry the momentum through. There is equally downside potential if inflationary pressures impact on the second half. I would say that we're experiencing, at the moment, more uncertainty than you would on an average basis. That won't be any surprise to you. I think we're being sensible in the way that we set our guidance out, and I don't think I've got much more to add than that.
In relation to the second quarter, I think we've got good visibility over growth and obviously not gonna give specific guidance quarter by quarter. We are expecting obviously this time last year, Q2 was a strong quarter. That said, we are expecting a continued momentum coming through from Q1 into Q2. The only caveat I would make to that would be China, where we actually saw quite strong performance in Q1. Given the recent lockdown, we've moved from having office occupancy of around 60% or 70% back down to 5%. That will have an impact in China in the second quarter, I'm sure. In most other markets, we remain confident and have got good line of sight of growth.
In relation to the margin guidance being unchanged, again, the math on this, and you can break it out a little bit, obviously we upgraded our net sales guidance by around 1% or so. You know, that 1%, all else being equal, will drop through. I think you can argue that the margin dropped through 25%-30%, maybe a little bit higher. So we do definitely get that upside. At the same time, I think we said at the prelims that we expected our salary inflation to be 4%-5%. On average, 4.5%, which is what we had baked into our budget for the year.
I think we're now saying that will be 5%, so a half percent increase. When you offset that half percent increase across, say, 60% of our costs with the incremental drop through on the 1% net sales upgrade, the two broadly offset, hence why we are maintaining our 50 bps of margin for the full year. Again, I'll just take the opportunity 'cause I want to make this clear that there is definitively a half one, half two split because of the phasing of increases in travel costs and salary increases from last year, as I outlined at the prelim. We're expecting to see margin in the first half go backwards by roughly 50 basis points, and we're expecting to see that recover in the second half by roughly 120 basis points to net out for the 40 basis points-50 basis points for the full year. Hopefully that's clear.
Very clear. Thank you.
Our next question comes from Lisa Yang from Goldman Sachs. Lisa, please go ahead.
Good morning, and congratulations on the results. Three questions as well, please. The first one is just to come back to you. I think the first question that was asked on this call, could you maybe just remind us of the cyclicality of the various businesses within WPP? And is it fair to assume, given the strong demand you're seeing from clients on data, tech, et cetera, that, you know, increasing part of your business is less cyclical, even countercyclical? Any color on that would be helpful. And related to that question, could you maybe just tell us, like, how much of the remaining revenue for the year is already so secure, or how much visibility do you have on that? That's the first question.
The second is on your new D2C initiative, Everymile. Just wondering if you can give us a bit more color in terms of the expected benefit from this new offering over time, maybe initial investments required, if it's significant or not. What percentage of your client base do you think could be interested in taking this? Does that also give you the opportunity to tap into, for instance, SMEs, which I think is an opportunity you talked about for a long time, and I'm just wondering whether that could get you to tap into that market.
The third question is on the buyback. I mean, you said you probably will be doing GBP 600 million by the end of H1. Do you think there's a little flexibility to increase that GBP 800 million target that you had given for the year, given the strength of your balance sheet, obviously, depending on the evolution of the share price, or you're basically, you know, strictly, you wanna stick to that GBP 800 million? Thank you.
Why don't I start on the first question and then, John, take over, and add to it and then answer the rest. Look, I think, you know, we based our guidance on our best judgment for the year. I think our business is a cyclical business, but clients do react differently depending on the economic pressures. I think my sense is we're in a very different point from where we were this time two years ago, as I said before, where clients were looking to cut spend to maintain profitability and margin in the business. I'd say now they're looking to hold spend where they can, and even in the case of some companies, at the expense of margin, to protect the business and drive revenue growth.
I you know, I think that different media have different levels of cyclicality depending on the point in the cycle. Probably the media part of our business, you know, may be the most cyclical. Even there, you know, there's a difference between what clients spend on media and our fees, and if clients start to replan media budgets, actually spend more money on fees doing the replanning. A lot of what we're doing, you know, if we get to that point, is incremental work to think through clients' plans. I don't think that there's parts of the business I'd say are less cyclical or more cyclical. I think the way to think is we are in a cyclical business, but our guidance is based on our best judgment of what will happen during the year, and sort of that's where we are. John.
Yeah, I think that's right. I think there's some areas, you know, if you look back over the last couple of years and you look at the performance impact of COVID and the bounce back, I think you can draw attention to parts of the business that actually have remained relatively robust over those three or four years. I mean, I'd point to the great performance in PR. Yeah. We actually didn't see PR particularly impacted in COVID. And we've seen that sort of also that bounce back pretty strongly, subsequently.
I think PR certainly seems, I would say, is not particularly cyclical in nature in terms of the spend that we've seen. I think there are key parts of our business. As you alluded to in your question, on the data side and technology side, the digital, the e-commerce, which, you know, while cyclical in nature, you know, they're strong structurally, Mark, they're strong structurally. You know, strong foundation, strong structural growth, and I think they do help underpin. I would say, you know, Mark's right. We are cyclical in nature, but I think we are becoming less cyclical over time.
Do you want to touch on Everymile then?
Yes, on Everymile. Look, I just think it's a really exciting opportunity. And why do I think that? Because, you know, for years we've worked with our clients in building websites, in providing CRM solutions, in helping with their marketing plans. Very frequently, our clients will come to us and say, "You know, that's great, but actually what we're really interested in, you know, can you help fulfill? Can you do the whole end-to-end solution for us in these certain markets?" We have had an active demand over the last couple of years from our clients asking us to do this type of work for them. It's great to be able to announce that we've now built a team of people and some infrastructure that will enable us to provide this end-to-end solution to those clients over time.
I think it's a really interesting opportunity, a very attractive opportunity in my view. We've had to make investments, and the overall investment in Everymile for this year will be in the order of $20 million or so, and we expect that investment over time to be around $50 million, so another $30 million over the next couple of years. We do expect to over time create a lot of client interest and a lot of growth going forward. We think that's a very attractive investment for us. In relation to We think a lot of our client base are very interested in this proposition. Obviously since the announcement, we've had a lot of incoming from our clients who are very interested to learn more.
That said, I think you also raised the point, Lisa, about SMEs. I do think this is in particular an offer that is both attractive on a selective basis to large scale FMCG companies in particular markets and particular product lines, but is equally attractive to SMEs who do not have the infrastructure to be able to provide that end-to-end solution themselves. As you know, you know, we tend to, as an organization, over-index on the large corporates and under-index on the SMEs. I do think this is actually quite an interesting opportunity as well to start to get into that side of the market in a way that perhaps we haven't been historically. I see it as a very interesting opportunity.
In relation to the buyback, as I said, we guided to GBP 800 million for the year. I think we will do GBP 600 million by the half. I'm not anticipating at this stage increasing that for this year. I think we want to keep our options open, keep that balance sheet flexibility, but obviously we'll update as the year goes. But I would expect it to be about GBP 600 million through the first half and another couple of hundred million in the second half as we guided.
Thank you. Can I just add a very quick follow-up? What was the contribution from new business in Q1, and how do you expect that to ramp up for the rest of the year?
Look, we don't sort of break those figures out in detail. Obviously, as Mark's already alluded to, we you know a lot of work onboarding Coke, and the feedback from the client there has been exceptionally positive. You know, when we look at our new business for the year to go, we're in a better position than we were last year vis-à-vis our forecast. You know, I think we're in a comfortable position in terms of new business and bringing on new business into the Group.
Okay, great. Thank you.
Our next question comes from Silvia Cuneo from Deutsche Bank. Silvia, please go ahead.
Thank you and good morning, everyone.
Good morning.
My first question is a follow-up on the launch of Everymile. Can you please talk a bit more about what are the differences in offering compared to the early initiatives you discussed for the commerce opportunity at the 2020 CMD? Is that the vision of this end-to-end solution? Also how could we think about the revenue models for this new service?
My second question is on the progress in simplifying and integrating the agency structure following the merger of MediaCom and Essence. Can you please share your thoughts about how you attack your agenda to drive efficiency gains and margins towards the target range that were previously provided for 2023? Finally, if you could just comment on the other drivers of the headline operating profit margin improvement beyond the organic improvement. Can you say anything about how to think about M&A and tax impact? Thank you.
I didn't totally hear the Everymile question, to be honest. Yeah. It was a very poor line on our side, so apologies. I think I got the gist of what you were asking, so I'll have a go. Look, I mean, in terms of this, I think you asked how it compared to some of the things we talked about at the Capital Markets Day back in 2020.
Look, I think in our eyes, it's one of many interesting opportunities we have in the business to invest in our future growth. We've already talked to you many times about the opportunities in areas like Finecast and Xaxis and Choreograph and data, and we see Everymile very much as being adjacent to those in terms of an investment for future growth. We know this is going to be a huge market going forward.
That's absolutely clear. There's massive growth just in the U.K. alone, frankly, in the last year in this area, so this is gonna be a huge market going forward. We know that our clients are asking us for solutions in this area. You know, the intention is to provide an end-to-end solution from website design and build, through to order management, through to inventory management, through to warehousing, supply chain logistics, order and fulfillment and returns and so on and so forth. That's not a trivial exercise, and we brought on a very strong team of people who've got great experience in this area that the business is being led by Mark Steel, who when I was the CEO at Argos was my Digital Director.
A really strong individual, and he's built a very strong team of people around him from some great branded retailers to bring that expertise together. In terms of potential revenue opportunity, you know, I wouldn't want to be guided at this point as to what we think we can achieve. We'd like to have a number of clients live by the end of this financial year, and we're certainly on track to deliver that. We'll see how that revenue builds over time. There's clearly a massive market out there, and the intention will be to launch, as we have done in the U.K. first and then look at selective geographic opportunities, probably driven by the U.S. in the main next in order to grow the business. Hopefully that addressed your question. I didn't quite catch all of it, as we said at the beginning.
We all-
I think that.
Go ahead, Silvia.
No, no. That, your answer perfectly captured my question.
Okay, good. On the structural point, you know, I mean, we continue to streamline and simplify the business in some respects, like EssenceMediacom, but we continue to launch new brands like Everymile. I think we say we believe there's attractive opportunities in our industry to expand and grow, you know, particularly organically as well as by acquisition. In our structures designed to capture them. It's much more around a growth focus than it is around, you know, taking cost out of the business or driving margin, though in some cases it can help us meet our financial targets. I think the last question was around M&A and FX. Don't know if you want to tackle that impact on the year.
I think from an M&A perspective, we said that, you know, like-for-like growth of 0.5%-1% as a result of M&A. I think from a margin perspective, we see these things as being broadly neutral. But there's a 0.5 point contribution in the first quarter. We'd expect that to increase slightly through the remainder of the year. Again, FX, we had a tailwind of about 0.3% in the first quarter, which was largely an offset of the dollar and the euro moving in different directions relative to the pound. But we'd expect that tailwind to increase through the year if FX conditions remain the same.
Couple of percentage points coming through, but of course, that could change. There's a lot going on. There's lots of moving parts there. At the moment, we're expecting to see a bit of a tailwind come through, but we'll obviously update at each quarter as we report. I think from a Russian perspective, I think you asked specifically about that. We think, you know, from an overall cost perspective, the exit cost getting out of Russia will be about GBP 40 million-GBP 45 million or so.
We think actually when you look at Russia, we'll also be a little bit diluted on our margin, but that will be more than offset by the foreign exchange, which we think in combination will play a drag and hence, you know, broadly neutral on margin overall. Hence why we are comfortable reiterating the margin guidance that we gave at the beginning of this financial year.
Okay, our next question comes from Julien Roch from Barclays. Julien, please go ahead.
Yes. Good morning, Mark. Good morning, John. My first question is on visibility. How much of the rest of the year is already known and guaranteed? Because I understand that your guidance is best effort, it's sensible, it's based on a very detailed budget, very bottom up, but clients can only give you their current budget, not what they think will happen to the budget. So I'd like to know how much net sales you get if everything stops tomorrow. I mean, John several times says good visibility on Q2, but you said you were only getting organic for the month a week after the end of the month. So has that changed, so it's basically how many weeks of visibility do you have? How much of the rest of the year revenue is guaranteed and set in stone? That's my first question.
The second one is on margin. You said it was unchanged because better top line was offset by a higher inflation cost, 50 basis points on salary. If net sales disappoint, will margin go down? I suppose you have some flex. Until what level of net sales can you keep the fifty basis point margin increase? Is it at 3%, at 1%? Some color on that would be great. The last one, FX impact on next year, 2%-2.5% this year, but the spot is lower than average, so you should have a benefit next year as well. I'm helping Peregrine to get consensus in the right place for next year on FX. Thank you.
Thank you. Well, look, the point on margin, you know, I think the reality is if the net sales disappoint, then we can course correct. You know, I think we've got a great track record actually of managing the business, and we're very agile as an organization. If we see the top line coming through being slightly disappointing, then we can course correct pretty quickly in taking out cost. A lot of our cost of course is in Freelancers, and we can remove or add that resource relatively easily. We do track at quite a detailed level Freelance resource, permanent resource across all the different agencies and the networks and look at the forward thinking about the forecast and make sure we've got a cost base that is very adaptable to that change.
Now all of that said, of course, if the growth starts to come down to that sort of 3% level, then we would expect to see that to impact the margin over time. I think that's just the mathematics of the operating model in the business. I think we could withstand a little bit of pressure on that top line through adjusting our cost base. Obviously if it were to come down a lot beyond that sort of five and a half, six and a half percent growth, then that would start to drop through ultimately the margin. I wouldn't like to say the turning point, but somewhere between 3% and 4% of net sales growth, I would suggest.
In terms of visibility, your question on visibility, and then your question on guarantee, I mean, it's visible, but it's not guaranteed. You know, when we do our forecast for the organization, you know, we get each of the operating units to base their forecasts on their understanding of their client budgets. I would say, you know, that's a pretty good visibility. Now, of course, budgets can change, and I think we do put in a great conservatism into our forecasts. But nothing is guaranteed, and particularly in a world of uncertainty that we live in today. I would say we've got good visibility for most of, certainly for Q2 and for Q3, and in some ways arguably for Q4 as well.
Our new business requirements, as I said, in our forecast are lower than they would historically be, this time last year. That's also encouraging. You know, despite the visibility, nothing is guaranteed. There is uncertainty out there. I hope that gives you a little bit of color as to our thinking. I'd written down a third question as well, and I can't-
Yeah, the FX.
Yeah.
Yeah, FX, yeah.
I'm not gonna get into speculating about the FX impact for 2023. I'm not sure we can accurately predict what will happen in 2022. I think we're probably getting ahead of ourselves if we're trying to think through the FX impact for 2023. What we're saying at the moment, if you bake in the current rates into our forecast, then we'll expect to see a tailwind of 2%-2.5% in Q2, Q3, and Q4. Of course, we've seen quite a lot of movements in FX over the last quarter, and that could certainly change that guidance as we go forward.
Thank you. Very clear. Just an add-on on visibility. It's visible but not guaranteed, and it's based on your understanding of the client budget. I suppose the only thing that is really visible is the spend that has been committed already, because everything beyond that can be cut. You would say, you know, the real visibility on revenue is what? Is it two weeks? Two months?
Julien, I mean, it's not. I don't think that's the way to think about it. I mean, you know, we talk to our clients, they tell us how they see the world. At the moment, they're saying that they don't think they're gonna make major adjustments from what they told us four weeks ago or eight weeks ago. I mean, coming into the year, many of these concerns were known. You know, certainly the inflation concern was known. Budgets did bake in slightly more conservative estimates from, you know, the CPG companies and slightly more, you know, aggressive estimates from the technology companies. We have, as John said, good underpinning from new business with Coke and Google coming in for the year. You know, we're making our new business targets as we go through the year.
You know, there is clearly uncertainty and nothing in life is guaranteed. Our best judgment based on what we hear from clients today and what we're hearing about what they want to do in the future is that we'll meet these numbers. You know, we could, if we had wanted to, have held our guidance, banked the Q1 outperformance for a softer last week. We've chosen not to do that. I think the reason is that what we hear from our clients gives us confidence that we'll make the numbers in the last nine months of the year. That's as much visibility or guarantee as anyone can have in any of those scenarios. I'll come back to it.
It's a very different pattern from what we heard two years ago, where clients were very quick to cut budgets or not. You know, remind you, Coke saw 18% organic growth in Q1. It's a top five client of WPP. L'Oréal saw 14%-13.5% organic growth in Q1. It's a top ten client of WPP. Google, despite apparently disappointing, we saw 23% organic growth in Q1. We have clients whose businesses are performing well, and we have other clients whose businesses are, you know, maybe a little bit more challenged, auto. We knew that coming into the year. I think, you know, it's based on our best judgment on how we see the pluses and minuses.
It's true there are pluses and minuses from clients on spending, but as we sit here today, the pluses and minuses more or less average each other out, and we are where we are on the guidance.
Okay. Very clear. Thank you very much for your answers.
Thank you.
Our next question comes from Tom Singlehurst from Citi. Tom, please go ahead.
Hey, good morning.
Hi, Tom.
Thanks for taking the questions. I suppose implicit in a lot of the questions that you've been asked already, you know, Lisa and Julien and then actually, you know, from the investors, we get the same point, which is there's this sense that it's all going okay now, but you're in that stage where you've run off the cliff and the legs are still turning, and you haven't fallen yet. I just wanted to sort of test whether you think there has been any sort of change that we're just not seeing. For example, within your client base, are we seeing a fall in promotional activity that's just not being reflected in advertising spend and sort of spend on digital transformation.
Is there anything that you can point to that some of these sort of effects are already working through? It's just that you're genuinely not being impacted because, as I say, that would give comfort that we're you know not just in that sort of state of suspended disbelief. That was the first question.
I suppose linked to that; the other question I'm interested in is whether when you see wage pressures whether that's a factor supporting your revenue growth in the sense that it's either cost that are passed on to your clients and therefore recognized as revenue. Those are the questions on sort of the broad picture. One quick narrow one as well. As you mentioned, PR growing really fast. I was just wondering whether there were any one-offs in that and in particular, whether there's any benefit there from the FGH- SVC merger. Thank you.
Look, I mean, maybe I'll continue with the answer to the previous question. I think what we're seeing in our business is improving structural growth in the company. You know, a quarterly statement is not necessarily the point to discuss that, but I think if you come back to, you know, our three-year stack of 9.2%. By the way, if you take annualized 3% a year, it comes to 9.27%. So we're sort of at 9.2% exactly at the top range of our medium term guidance, which underpins, you know, the investment case for WPP. I think we see that over the last three years, despite the ups and downs of COVID.
I think if you come back to what we are trying to do longer term in terms of improving our own competitive performance in North America, we've seen that with strong growth in Q1 on growth in Q1 of last year. Improving the competitive performance of our agencies through restructuring, we've seen that with 5.6% growth in our Integrated Agencies in Q1 on top of growth in the last quarter. I can only really point to, I think, a stronger structural outlook for the market overall. I mean, it's good if you think about what our peers are guiding to, that the industry overall is, broadly speaking, guiding to, you know, the range of 4%-6% growth during the year, right?
I think that's positive. Against that backdrop, we see a stronger structural going through. We're seeing a stronger, more competitive WPP. The cyclical things will be the cyclical things. I mean, a cynic might say back in October last year when our share price was 12%, you were expecting 3% growth this year as analysts, and now our share price is 10%, but your models say we're gonna do 5% this year. Things are sort of a bit the wrong way around. I think that, you know, the share price is what the share price will be, and we're not in any way commenting on that.
I think that our guidance is based on our best estimates for the year, a stronger and more competitive WPP, an industry that I think generally is expected to be in a stronger structural position. Those are the things that we can manage with and things that are in our control.
That makes sense.
Tom-
Oh, sorry, Pal.
Go on, Tom.
Well, I was gonna say I completely agree with that. I mean, obviously, you know, we're bullish on the shares. The question is more is there, you know, for example, with promotional spend, are we seeing budgets change somewhere else that, you know, that's not immediately apparent to us as media analysts and therefore not necessarily immediately apparent to your revenue that are.
I mean, if you look at U.K. media spend, it's interesting, you know. TV is up 17% in Q1. Digital, it's up 7%. You know, things are a little bit all over the place. I think it depends on the opportunities and where things are. I don't think we're seeing a pullback in promotional spend. I mean, a lot of companies are having to drive promotion to drive sales growth. You know, what are the two, you know, you saw the success of the discounters. You know, I think consumers are, you know, clearly being a little bit squeezed in the middle. You know, the U.K. is only 11% of our business.
We've got a big business in the U.S., big business in Latin America, big business in India. You know, yes, we do have a big business in China, it's about 5% or 6% of our sales. You know, I think we're very well diversified, you know, geographically by client sector and by activity. You talked about the strength of our PR businesses, which I don't think there's no one-off effects. I mean, I think the Finsbury Glover Hering and Sard Verbinnen business thing gives us a stronger business, and it's doing well. They're doing extremely well in the M&A league tables this year, advising on you know, several very, very high profile pieces of business. I think that reflects the strength of our business and strength of demand for those services. There's not a one-off element within it.
I mean, Tom, one place I go to look for some of those, what you might describe as early warning indicators, either of a sort of an uptick or a downtick, if you look at our sort of brand consulting businesses that tend to be quite project based. We actually saw that through COVID. I think they were one of the first parts of our business, one of the first sectors of our business to be impacted by COVID because clients cut spend pretty quickly in those areas that they could. I always sort of look at that area as a sort of, you know, a bellwether, if you like, as to the overall business. We're not seeing any cuts in those areas, you know, far from it.
In a way, Landor & Fitch was a, you know, very strong first quarter performance, and Superunion likewise. Now that's not to say that's not gonna change, but I think it's fair to say we're not seeing any early signs yet of any changes in client behavior, and that goes across the board. Maybe coming on now to your question on inflation, which I think I'd characterize as being, you know, I think you were suggesting that, you know, is wage inflation a good thing 'cause ultimately you pass it on to your clients in net sales increases. I think, you know, just to echo Mark's earlier comments on the call that if you look back historically, inflation's not necessarily been a bad thing for our sector.
That said, you know, I do think there is, you know, somewhat of a delay in your ability to pass those on as the increasing costs come in, to your clients. I think there's, all else being equal, a little bit of margin compression that then relieves over time. What I would say is we recognize inflationary pressures coming through in 2020 back in Q3 of last year. We very specifically, you know, spoke to all of our key client relationship managers to look at how we would, in the right way, remain competitive on price, but also have the ability to pass some of these inflation pressures through.
I think we got ahead of the curve on that, and, you know, if I look across the portfolio, I think we've got a good balance in being, you know, very competitive on price, but being able to pass on some increases where appropriate. That helps us manage the margin as we travel through the year. To be absolutely clear, we are seeing more pressure on our cost base coming through than we're able to pass on immediately in form of increased pricing. There's a little bit of a lag there, which is resulting in the margin compression that I've described, particularly in the first half, as I alluded to in terms of the half one, half two margin split. Again, completely consistent with what we guided to at the prelim, so no changes there. Hopefully that helps.
In relation to your question on PR, I think you said were there any specifics. I mean, in some ways, I think the really good news stories here is. Well, there are specifics in the sense that everyone's trading really well, whether it's BCW, Hill & Knowlton, or to your point, FGH. We're seeing really strong performance across the board, and that's most pleasing of all, really. A very strong performance across the sector, reflecting the 14.1% growth. I think FGH probably the standout candidate, but they were all very strong.
That's great. Thank you.
Our next question comes from Richard Kramer from Arete Research. Richard, please go ahead.
Thanks very much. It's Richard Kramer from Arete Research. Two things that maybe haven't been asked yet. First on, we've hosted some investor calls with consultants on media spend, and they're highlighting a different aspect of the dreaded I-word, inflation, coming into media costs. I guess, Mark, the question is, are you seeing this and how do you think it's impacting ROAs for your clients? Is it gonna get harder to deliver that return on ad spend?
The second question I've got, there's just a ton of hype that we're seeing around retail media as the fastest growing segment of digital, especially given how it, you know, directly links to conversion and attribution. Can you talk about the challenges for your CPG clients, for example, of finding audiences now that you have dozens of retailers that are probably also your clients that want to be providers of ad inventory, which makes it much harder to find where you should be advertising?
Yes. I think on the first question, I mean, there's no doubt that inflation does build into media prices. You know, particularly in auction-based media, impacts it directly into those prices. You know, that does lead to a deterioration in return on ad spend. I mean, our reaction to that has to be to look for untapped opportunities. I mean, in much of the growth, let's say, in a platform like TikTok has been you know, shift from higher to low, you know, viewing that as an opportunity to drive you know, return on ad spend because it's you know, historically been, let's say, less in demand than other social media platforms. We help clients respond to that.
That I think is sort of the inverted commas beneficial impact of inflation on our media business. I think on retail media, I mean, there has, as you say, been a lot of coverage of this. I'd say we see a couple of things. Observations made. One is that increasingly we're seeing clients bring retail media or retail spend together with marketing spend. You see that change at Mondelēz and at Unilever, where sort of the CMO is taking increasing responsibility for, you know, for sales. I think that is a positive development. The Unilever media review included retail media within our scope, in many cases, for the first time after a thorough review of competitive providers.
I think the clients do need to bring that spend together because what retailers are trying to do is double dip. You know, they're trying to take spend from the trade media budget, and they're trying to take spend from the brand budgets. I think only by bringing those two things together can we protect the integrity of our clients' budgets and really drive spend where it needs to go.
I think the biggest growth in retailers is as you say is in digital media. You know, clients, retailers had some success in sort of rebadging What was trade spend as brand spend. I think it's really just gonna cause a you know a shift in spend from what CPG companies would have spent on their trade media into really a different budget rather than in aggregate drive up what clients are spending on promotions.
Does this widen your addressable market for the spend you can tap into?
You know, from our perspective, that's correct. I mean, it is a positive impact. You know, I think, you know, you see it in the growth of Amazon's media business. Although Amazon.
Mm.
is trying to tap brand budgets as well. I think broadly speaking, it points to an increase in the addressable market and is positive and another reason why we've been focusing on the commerce sector more broadly.
I think not just reflects an increase in the addressable market, but also reflects an increase in the market complexity. We've always said that actually helping our clients navigate a complex market is where we add value. Of course, if that market is getting increasingly complex, we've got an ability to add even more value. I think given the plethora of choices that our clients face about where they place their marketing spend and how we optimize that.
Mm.
Over an overall campaign is where we can really bring our experience of operating in these different segments to bear.
Okay. Thanks, guys.
Our next question comes from Matthew Walker from Credit Suisse. Matthew, please go ahead.
Thanks. Good morning, everyone. Hope you can hear me okay. The first question was on Europe and U.K. versus U.S. We didn't see particularly big divergence in Q1. I was just wondering, given that the U.S. economy is supposed to be more robust going forward, have you changed the mix of your budgets at all to, you know, privilege the U.S. against maybe Europe or your budgets for Europe remain unchanged because you've actually had a pretty good Q1 in Europe, too?
The second question was really around Google and what they said about YouTube. They mentioned a couple of factors there, one of which they talked about brand budgets in Europe coming down, or some kind of impact. Seems to be very much different to what you're saying. Just any reflections on that. Just a technical one on Russia. I'm guessing you're taking Russia out of the organic growth and the GBP 40 million of exit costs there. Are you including them in operating profit or are you taking them as exceptional costs?
Okay. I'll just tackle the YouTube question and then let John talk about the sort of geographic impact in Russia. Look, I think, you know, YouTube, well, Google grew 23% in Q1, YouTube, I think 14% on a comparative, let's say, of 43% last year. So it's a very strong comparative. I mean, I saw Ruth's comments in the FT. I haven't actually read the transcript, and I think part of what she was referring to was the impact of Russia. You know, obviously, it impacts them organically because they're not disposing of an entity, is somewhat different from the way, you know, we would be accounting for given that we're going through a disposal.
All I'd say is our Q1 numbers reflect our business in Europe, which was up 16% in Germany, which is the largest market close to that region. I don't have the Polish numbers in front of me, but I think we see it somewhat differently. There's a lot of commentary in the Google numbers. I wouldn't read too much into what they saw in Q1. It was a pretty strong quarter for them, let's be honest, if a little bit disappointing versus other people's expectations.
Matthew, maybe just to build on Mark's response there. I mean, I think looking forward in terms of the way that we've constructed our budgets and the range of forecasts that we use, both on the upside and the downside, to help inform our guidance. I think it's fair to say that on balance, right, on average, we would have seen a slight softening in our forecasts across Europe, and to some extent, the U.K, and a slight strengthening, relatively speaking, of our forecasts in the U.S.
I wouldn't want to call it out more than that. To Mark's point, we had a very strong first quarter in both the U.K . And across Europe, as we had it also in the U.S. Going forward, we'd see a slight softening, this side of the pond and a slight strengthening, relatively, the other side of the pond. That helps. On Russia, we're taking that out of like-for-like. In relation to the GBP 40 million, that will be an exceptional.
Okay. That's all very clear. Thank you.
Thanks.
Our final question comes from Omar Sheikh from Morgan Stanley. Omar, please go ahead.
Morning, everyone. Amazingly, I think I just about remember my three questions. Look, maybe to start with, Mark, you've been very helpful in giving some color on the revenue growth by business activity and by geography, but you haven't talked much about verticals, so client verticals. I wonder if you could maybe just give us a bit of color on whether you're seeing any difference in activity from, you know, some of your clients, CPG, autos and so on, which might have been impacted more by commodity price inflation relative to the overall group, whether there's any sort of differences in what you're seeing Q1 and Q2. That's the first question.
Secondly, we'll go back to the visibility point. You know, I heard what you said earlier on, but maybe if you could just say how often you think client budgets are set. Is it sort of monthly? Is it quarterly or is it half yearly? So to sort of give us a sense of when decisions might be made going forward by your clients, insofar as it's able to generalize. Then finally, just wanna clarify the point in the outlook statement where you said that you remain ready to respond to any changes in the economy. I just wanna clarify, do you mean, is there action on costs, so taking out freelance costs, that kind of stuff, or maybe even sort of agency consolidation, or is it something else? Thanks.
I think, you know, by sector, we've seen, you know, strong growth in technology, as you would expect, in retail, as you expect, given it's opening up, in healthcare, you know, continuing. We've seen, you know, weak activity in automotive, which is not surprising, again, given the chip shortage. It does vary a little bit from automotive company to automotive company. I'd say in CPG, it's six of one, half a dozen of the other. We have had some CPG companies, I mentioned Coke and L'Oréal, they're very good start to the year and strong spend.
Obviously, in the case of Coke, as the business is onboarding over the course of this year, you know, the impact it will have in subsequent quarters is bigger than the impact it would have in that it's had in the first quarter. We've seen good growth. Others came into the year more cautious. I think that, you know, while inflationary pressures have intensified, they were, you know, our CPG clients were very aware of them as they set their budgets for the year. I think that comes to your second question, which is, you know, clients, I mean, I don't wanna be unhelpful. Clients can change their mind. You know, clients can reserve the right to change their mind. But I don't think that they want to go backwards and forwards.
You know, I don't think they want to start and stop activity. I'd say, you know, my overwhelming impression to date is that they're looking to protect their budgets. They don't want to make a big leap backwards. Parts of our business, you know, are longer-term programs that they don't want to stop and start. I think many of them have learned the lessons of COVID. I think it's quite clear that those clients actually that maintain their spend, even coming into COVID, came out of it in a stronger position. I don't want to overplay the variability or indeed underplay.
I come back to our guidance is based on our best judgment of where we think we'll end up for the year based on conversations with our clients, conversations with our people, and a kind of top-down review based on how we see the global economic outlook and the risks and the balances of positives and negatives.
Maybe just to, and apologies if this is overplaying the point, but just to leave you with sort of three what we're trying to do in terms of the guidance and the outlook statement, just with three points. You know, the first is that we've upgraded our guidance from the prelims to Q1, reflecting what we see as outperformance in Q1 and confidence and momentum in our business with good visibility going forward. I think that's very clear. That said, there is clearly a range of scenarios out there on the upside and the downside, and there's probably more uncertainty than there would be on average in those forecasts. On the upside, if we keep our momentum in Q1 going through into Q2, Q3, and Q4, we will see upgrades come through during the year.
On the downside, if we see inflationary pressures impact on consumer spending and subsequently advertising spend, then we'll see some downsides. There is a range of upside and downsides. We think that where we've turned out is the midpoint where we expect, on average the market to be, albeit reflecting a degree of uncertainty on both the upside and the downside. Then the third point to make would be irrespective of what the scenarios that transpire actually are, whether positive or negative, we have a track record of being able to adapt our business in a very agile way to reflect that economic scenario. On the upside, an ability to step up and build resource quickly to fulfill client expectations. On the downside, if we need to, an ability to take costs out.
To your point, that is about managing that sort of permanent freelance mix and the cost base in a relatively agile way. We feel that we're well prepared to face into both the positive and negative scenarios, but nonetheless, there's a very clear upgrade in the quarter demonstrating the confidence and the positive track record we've seen come through Q1.
Brilliant. That's very clear. Thanks very much indeed.
Right. Thanks, everybody. Thanks for all your questions. Appreciate it, and we'll keep in touch.