Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP Q3 2022 Trading Update conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. At which time, if you wish to ask a question, please press star one on your telephone keypad. Today's conference is being recorded. At this time, I would like to hand the conference over to WPP CEO, Mr. Mark Read. Please go ahead, sir.
Thank you very much, and good morning, everybody, and welcome to WPP's third quarter results for 2022. I'm here in Sea Containers in London, joined by John Rogers, our CFO, and our investor relations team. On page two, I just draw your attention to our cautionary statement as we start the meeting, and on page three, the agenda. I'll talk through the highlights before handing over to John to talk about the financial performance. We'll come back to a quick overview and summary, and then we'll take your questions. On page four, I'll highlight. Look, I think our performance for the quarter has been strong.
We delivered growth of 3.8% for the quarter on the back of really a very strong performance in the third quarter last year, up close to 16%. I think more importantly, our three-year stack accelerated from Q1 to Q2 to Q3 this year, so from 9.2 to 9.7 to 10.9%, and that reflects important progression in the business. You know, acceleration against, you know, really a more challenging macro environment, I think reflects the strength of our clients, of each of the sectors of our business, increasing all of which, you know, contributing to the company's growth and the broad geographic mix of WPP's business.
While we achieved 4.5% growth in the U.S. or 4.2% in the U.K., we're up 19.7% in Brazil and 10.7% in India. You know, our offer, which is increasingly integrated, topped the new business league tables. We'll come back to those in some detail, but we won $1.7 billion of new business in Q3, and I call out our wins with Nestlé in media in Germany, Samsung in CRM in Europe, and SC Johnson, you know, the consolidating the creative and the shopper marketing business into Ogilvy and VMLY&R, particularly important wins, in the quarter. Of course, we continue to need to invest in our offer.
We're doing so organically in fast growth and strategically important areas like commerce, data and media, and also through acquisitions where we've remained disciplined, but strengthened our business through four acquisitions in the quarter. Net-net, I'd say our performance in the third quarter and confidence in our offer and our work with clients gives us the ability to raise our guidance for the full year to the top end of the range of 6.5%-7%. And at the same time, we're slightly tempering our margin guidance to 30-50 points to reflect the continued investments that we're making in the business. In my view, it's a creditable performance, particularly we gave our original guidance at the start of the year on the day that Russia invaded Ukraine.
The fact that some nine months later, we have to raise our revenue guidance again and still deliver solid margin improvement reflects, you know, the importance of the work we do for clients, our ability to drive their results. With that as introduction, John can take us through the financial performance.
Thank you, Mark, and good morning, everyone. Coming on now to revenue less pass-through costs by quarter. As a reminder, we delivered like-for-like growth of 9.5% in Q1, 8.3% in Q2, and like-for-like growth in Q3 was 3.8%, delivering a year-to-date growth of 7.1%. The 3.8% growth was impacted by ongoing China lockdowns and obviously COVID-related contract benefit in Q3 of 2021. If you reverse out that benefit, would result in a 4.8% growth for the quarter. On a three-year basis, i.e., versus 2019, as Mark's already alluded to, growth has continued to improve through the year with 9.2% in Q1, 9.7% in Q2, and 10.9% in Q3.
As Mark's already said, as a result of this momentum, we've upgraded our guidance to like-for-like growth for full year of 6.5%-7%. Coming on now to growth across our business lines. The global integrated agencies delivered 4.3% like-for-like growth in the quarter, made up of 4.7% for GroupM and 4% for the creative agencies. Both ahead of our overall growth for the business. PR delivered like-for-like growth of 5.8%, with strong growth across all of our major businesses there, BCW, Hill & Knowlton, and FGS Global. Our specialist agencies declined by 3.9%, again, reflecting the COVID-related contract I made mention of earlier on. Actually excluding that impact, growth would have been 8.6% for our specialist agencies.
On a three-year basis, we continue to see good growth in GroupM at 20%, PR at 19%, and 17% in our specialist agencies. Coming on now to our continued investment in our growth, you know, whether that's organically through Choreograph, our data business, or in GroupM Nexus, our media planning and performance business, and most importantly in our people, investing in new talent and events like Making Space initiative, giving our people a company-wide break and a series of events across our offices to inspire and allow them to reconnect. We also continue to invest in acquisitions. As Mark said, four acquisitions in the quarter. Corebiz, a Latin American e-commerce agency. JeffreyGroup, a leading corporate communications and public affairs business in LATAM. Newcraft, a European e-commerce consultancy based in Amsterdam.
Most recently, Passport Brand Design, a leading brand design agency based in the U.S. We also continue to invest in our transformation, our campus program, our procurement initiatives, our new systems rollout and shared services. Pleased to say we're on target to achieve annual savings of GBP 300 million for the year against 2019 baseline. Coming on now to our major market, where we've seen varied performance. Growth in the U.K. and U.S. ahead of the overall business, and on a three-year basis, we've seen an acceleration in performance in our U.K. business to 13.9%. Germany has been down 8.7%, again, given the impact of the COVID-related contract. Excluding that, Germany would have been up 3.3%. China, down 9% on the back of down 6% in the second quarter due to the continued impact of lockdowns.
We did expect that to recover a little bit in the third quarter and the second half. We haven't yet seen that come through, and that is weighing on both our revenue and our margins as a consequence. India is still strong, 10.7%, albeit down on Q2 reflecting the IPL benefits we saw in the second quarter. Australia is still recovering, but yet to get back to 2019 levels. Canadian growth remains strong. France, still a little disappointing given client losses in 2021. Brazil is still delivering very strong growth, double-digit growth in the quarter, and Spain is lapping some tough comparatives. Varied performance across our major markets. Coming on now to our net debt.
There's been a year-on-year increase from GBP 1.6 billion to GBP 3.5 billion, driven mainly through GBP 1 billion of share buybacks, over a billion share buybacks for the last 12 months, as well as CapEx and acquisition spend to fuel our future growth and drive efficiencies in our business. We expect our year-end adjusted net debt to be around GBP 2.3 billion, reflecting the usual improvement we would see in working capital in Q4, allowing for flat trade working capital year-on-year as we previously guided. Also, of course, there's been an outflow in our non-trade working capital of GBP 300 million-400 million, reflecting the high 2021 bonus that of course gets paid out in 2022. Finally coming on now to our 2022 guidance.
As I've already said, we've upgraded our revenue less pass-through costs guidance to 6.5% to deliver an operating margin up 30-50 basis points, reflecting our continued investment in our people, our data and technology to support this growth. Net debt is expected to end the year at GBP 2.3 billion with an average adjusted net debt to EBITDA ratio slightly below the 1.5-1.75 guidance range that we've given in the past. M&A contribution of 0.3%, consistent with what we said at our interims. We're upgrading the FX benefit now to 7% as a result of recent exchange rate movements. As we've previously guided, we've got restructuring costs of GBP 220 million, including GBP 100 million of Workday costs anticipated in this year, 2022, and a headline tax rate of 25.5%.
CapEx of GBP 350 million-GBP 400 million, again, in line with our previous guidance. Free working capital flat and the GBP 300 million-GBP 400 million outflow on non-trade I've just mentioned, and around the GBP 800 million of share buybacks which we committed to at the beginning of the year. When you add all those together, that should get you to your net debt number, that we've guided to. With that, I'll hand you back to Mark.
Thank you very much, John. Turning to slide 12, I thought I'd touch on a little bit about what we're hearing from clients and maybe start by saying how we're doing in new business, which I think is a strong indicator of the vitality of our offer and perhaps a leading indicator of our performance. I think in terms of wins, we've won or retained a number of important assignments, you know, against tough competition. I called out the broad range of assignments and agencies that have been contributing to this overall new business performance. For example, in media, the Nestlé media win in Germany, Foodpanda media in Asia, Discover Media with Mindshare in the U.S., and Tesco Media with EssenceMediacom in the U.K. We won the Samsung CRM business in Europe.
We won Wunderman Thompson, driven really in close partnership with Adobe, that they use their technology operations. A very good creative win with H&R Block at Ogilvy, and I called out their performance. We're onboarding Costa into the Open X structure for The Coca-Cola Company. An integrated win at SC Johnson, both creative with Ogilvy and shopper marketing with VMLY&R. If you look at the two tables from COMvergence and then from R3, we're very well-ranked. Number one in media overall with Mindshare, coming out strongly after probably a tough couple of years, followed by Wavemaker, who had a really credible performance on the technology front. I'd say net-net, we remain very competitive in new business. A few words on what I'm hearing from clients.
You know, overall, I'd say that they've decided to invest behind their brands and in their transformation remains strong. It may be surprising to some, but I think it persists while consumer spending remains strong and while clients need to support their brands in a more, inflationary environment, as well as invest for the future and transform their business. I don't think this is the point to give guidance for the next year, and, you know, it's because it's not formal guidance. I would say that the net mood among clients does remain positive, you know. In recent discussions with two major FMCG companies, they're looking to increase their spend in Q4 'cause the business is slightly stronger than perhaps they'd anticipated earlier in the year.
You saw comments from the Coca-Cola Company on their spending in Q4 and actually crediting, I think previously they credited, our performance on Fanta. Also seen the comments from Nestlé and P&G, and the first looking to slightly increase their spend and the latter saying that while it's looking to reduce overall spend, they really wanted to achieve the same impact through efficiencies and shifting money from linear, non-targeted television into programmatic and digital media, both of which, by the way, we have strong businesses to help the clients. I'd say broadly speaking, this is the pattern we see persistent across most clients. I don't think we yet see many who are yet looking to dramatically cut spend.
I'd say most have a more positive attitude, and I think that gives us the confidence just to raise our guidance, if you like, to the top end for the year. I think one point that's not on this chart is Ford. As you know, Ford's our largest client, and we're delighted to hear recently that we'll be working with Wieden+Kennedy on their creative assignment, expanding our current creative remit to meet Ford's changing needs, deliver more efficiency to them, but also to leverage the creative strengths of two strong agency partners for Ford. I think it's particularly important to remember where we were four years ago with Ford.
I think we've seen good performance, you know, in our top four clients, in Ford, Google, Unilever and The Coca-Cola Company, you know, having confidence to expand their work with us recently. The summary on page 13, I'd say we go to 22 with confidence, despite the challenges that we know we will face. Our plan, you know, as in other times, is to come through them stronger as we did with COVID. A number of reasons for this confidence. You know, first, client demand remains strong. Our underlying growth has accelerated during the year. Secondly, we have a strong offer, excellent talent, significant investments in technology, and this is really what's driving our current performance. I'd say that each element of our business is contributing to our overall performance.
Creatively, you know, I'd call out AKQA growing double digits this year. A really strong performance at Ogilvy. Devika has recently joined or been promoted to CEO. We've seen really an excellent new business performance, most recently with H&R Block and SC Johnson. They have a good pipeline of opportunities. Wunderman Thompson continues to perform well. Hogarth, our production agency, particularly important, I call out their relevance, you know, going into slightly tougher times, their ability to deliver the breadth of production that clients need while saving money through efficiencies and offshoring is also critical. In media, we continue to lead the new business tables. In public relations, public affairs, we talked about that business has been much more resilient both during COVID and continues strongly, and our integrated offer is proving particularly powerful.
I think the third reason we approach 2023 with confidence is the strength of our performance this year. We've upgraded our growth and will deliver 30-50 basis points of margin improvement despite the investments that we're making in our people and some headwinds in China. I think we deliver you know the performance this year demonstrates the resilience of our business and our ability to help clients navigate a more challenging macro environment in 2023. Thank you very much. I think it's been you know a good quarter. Thank our people for their hard work and our clients for their support. Open the line to questions to me and to John.
Thank you, sir. If you would like to ask a question at this time, please press the star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you are also watching the webcast, please make sure to mute the computer's volume to prevent feedback through the phone while asking a question. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will pause for a moment to allow everyone to signal. We will now take our first question from Laura Metayer of BNP Paribas. Your line is open.
Hi, good morning, Mark, John. I hope you can hear me well. Thanks for.
Yeah.
the presentation.
Morning.
I have three questions, please. The first one is on the margin guidance. Could you elaborate a bit around the moving parts of the new guidance and how you think of the margin for next year in the context of the current consensus, which is, I believe, -0.6%?
The second one is on the organic guidance for this year. The top end of your guidance implies a rather stable three-year stack between Q3 and Q4. My question is, what visibility do you currently have on the quarter? Is it 50% of the revenue, 70% of the revenue?
Yeah.
That'd be helpful. Lastly, obviously on 2023, it's clear that the business is building up pretty well, which is a sharp contrast with what we hear from Snap typically. You mentioned some confidence for 2023. My question is, how long, in your opinion, can it last? If agencies suffer from cuts, when would you expect some cuts to come? Would you rather think from the conversation you have with clients that the cuts would be sharp or rather fading slowly as macro deteriorates? I believe some of the peers refer to contingency planning with clients, so it would be great to hear your feedback. Thank you so much.
Okay. Why don't I start, and then John adds sort of particular comments on the margin and the guidance on Q4. I think that, you know, our business has remained resilient this year. To sort of take your last question first on Snap. Probably performed better than financial analysts expected. Some have said better than we expected. Mind you, we gave our guidance of like 4%-5% at the beginning of the year, actually on the day that Russia invaded Ukraine. We're now at the point to upgrade it to the top end of the 6.5%-7% range. You know, I think. You know, your last question, why has it performed better than the platforms?
I think, you know, the first is we do have a broader business. You know, we're not just dependent on advertising. Advertising is an important part of our business, but we're not just dependent on advertising. We have a much broader business. Secondly, I think we have a different client mix from the platforms. Our clients tend to be, you know, major advertisers and major marketers who understand the value of continuing to invest. They have strong balance sheets, they have strong consumer demand and take a long-term approach to their marketing. They're not venture capital backed startups looking to acquire customers. Lastly, I think, you know, we have more growth opportunities, as I said, outside of advertising. I think that it's. One shouldn't draw a conclusion from any individual platform like Snap.
You know, if you think about it, Snap first surprised the market back in Q1 of this year, and everyone called the advertising recession on the basis of the Snap results. I think they were wrong at that time. I wouldn't over-infer things into their Q3 results either. I think there's a lot of competitive dynamics around data privacy, around the growth of TikTok, around the growth of many advertising platforms that that inform that. So I think, you know, that's what gives us the confidence. Now, to answer your question directly on, you know, when will cuts come, you know, we'll give you our guidance for next year as we see more visibility. But I don't think we're hearing that yet from clients. And I think clients recognize and understand the value of what we do.
We're a very different business from where we were five years ago or 10 years ago. It doesn't mean we're not subject to the macro environment, but I think there's a lot to look at in this year's results to understand where we'll go next year. John, do you want to comment on the guidance for this year?
Sure. Yeah. Look, as Mark's already said, we've got, you know, really good momentum going into Q4 on new business and our net sales growth. You know, we want to continue to invest in that growth. You know, as you said, there's a lot of moving parts in our margin. We want to continue to invest in our people, make sure we're being competitive on our salary increases, investing in events like Making Space. You know, we've actually got sort of roughly 9% more people in the business today than we had at the start of this year. We have been dialing back a little bit on the use of freelancers as we guided at the interim, albeit we've actually probably needed slightly more freelancers than we planned to support the right growth of our business.
It's really important that we ensure we've got the right resources, the right capabilities to serve our clients, to make sure we can continue the growth on that top line. We've had the planned investments, of course, in Choreograph, in our data business, continued savings from transformation and of course, the extended impact of lockdowns in China, which weren't in our forecasts, and we expected that to slightly improve in the second half, and that's not been the case. That's added to margin pressure. Actually, if you looked at that particular dynamic alone, that would have given us headwinds of about 20 basis points of margin pressure for the full year. Those are all the moving parts. That's why we've slightly tempered our guidance. We previously said we'd outturn at around 50 basis points.
We're now saying it will be somewhere between 30 and 50 bps for the full year. Just on your second question with regards to the three-year stack and visibility, I mean, you're right to highlight that the implied three-year growth in Q4 should be similar to Q3. Well, actually, I think we're forecasting a little bit less, around 9%-10% or so, but similar to Q3. I think we've got, you know, pretty good visibility on that. I'd say 80%-85% visibility on that, those net sales coming in. Of course, you know, clients can still cut spend. That's always the case. But as Mark's already alluded to, we've had a number of very, very positive conversations with clients about the fourth quarter in and of itself.
With regards to 2023, as Mark says, we won't give specific guidance for the year, but as you would expect, like all companies.
You know, we're doing various scenario planning to look at whatever the economic scenarios could throw at us next year. We've got a good track record of flexing our cost base through natural attrition of our people and dialing into or out of freelance resource in order to flex our cost base whatever the economic climate might throw at the business.
Great. Thank you.
Thank you. We have the next question from Thomas Singlehurst of Citi. Your line is open.
Yeah.
Hi, Tom. Good morning. Thank you.
Hey, morning. I'm Tom Singlehurst here from Citi.
Hi.
Thank you very much for taking the questions. Sort of 2.5 questions I think, actually. First one, agencies in general have begun to talk about pricing power, and you yourselves have alluded to this as well, I think. I was wondering whether you could quantify this impact this year and whether you think there's gonna be sort of incremental pricing power sort of based support running into next year. That's the first question. Second question in a similar vein, have you or can you quantify the contribution this year from new business performance? And then the follow on question from that is, you know, is it as simple as saying that you've won more business in 2022 than you did in 2021, so therefore this contribution should move up in 2023 versus 2022?
Those are the two questions on growth. Very briefly, I just missed it as you said it. I think you said there was a 20% drag on margin just from the China effect alone, but I wanted to confirm that. More broadly, the factors moving margin for this year from around 50% to 30% to 50% are one-off in nature such that regardless of what happens in the top line, we'll see a bit of relief next year, all things being equal? Thank you.
Yeah. Look, when I start with new business, I'll make some comments on pricing more generally, and then maybe John can add to that and talk about margin. I think we've already answered the margin question once so far. On new business, I think as others have said, you know, I think new business adds, you know, 1%-2% to our growth in a good year and detracts 1%-2% in a bad year. You know, there's a lot of moving parts, and organic growth with existing clients is really what drives the performance in the macro environment.
I think, you know, a good new business year will support us going into next year, but I don't think I'm gonna see a significantly different approach next year from this year, but I think it's a sign of, you know, the health of the business, if you like. In terms of pricing power, look, our job is to deliver results to our clients, and we do that in many ways through media plans and saving money on media, through producing work more efficiently, by moving our business, you know, to parts of our business that can be done in lower cost locations.
There's many moving parts in what we charge our clients, and overall our goal is to deliver results at, you know, the same or reduced cost in the part, then deliver them ROI. I think at the same time we are a people-based business, and at times when, you know, we're having to pay our people more money to support them, we're having to some extent, increase our prices. There's many factors in that, what gets billed to clients, and I think overall our job is to deliver results, you know, at an efficient price to clients.
John can talk about that from a sort of quantification perspective, but I think we have to sort of look at it in the overall mix and range of what we're doing, not just a question of sort of putting up prices, which is not, I think, a constructive conversation to have with clients.
Yeah. Maybe I can just build on what Mark said. You know, I see our role as managers of the business to, you know, really help protect our clients from price increases. We want to ensure that we remain competitive in the market. You know, clearly a major part of our cost base is our people. About 60% of our cost base is our people, and we've seen inflationary pressures in terms of our permanent colleagues. We wanted to make sure that they are properly rewarded, reflecting the hard work they do. We've seen inflationary pressures on freelancers as well. We've had to dial into freelancers, as we said at the half, in order to make sure that we're supporting our clients.
We're certainly seeing inflation on our key cost base of our people at around, sort of 6%-7% or so. Equally, as Mark said, you know, there's lots of things that we can do to help mitigate that. We've made savings in other parts of our cost base, particularly on things like rent, things like travel and so forth. We also can redistribute where the work gets done in our businesses so that we can utilize much more offshoring, which is a cheaper cost base. In effect, we can protect our clients from some of that inflationary pressure that we're seeing in our business.
I said in the first half of the interims that I you know I thought we were probably on average putting price increases through of 1.5%-2%, but I said at the time that there was still more work to do in order to push price increases through for the full year. I suspect when we look at things in the round at the end of the year, we'll see overall price increases of 2%-2.5%. As you can see, evident from the fact that our core cost base going up at 6%-7% and our price increases at about 2%-2.5%.
We've done a pretty good job of protecting our clients from those inflationary pressures, at the same time as planning to deliver 30-50 basis points of margin accretion for the full year. In terms of, again, just I don't wanna sort of come back to the margin question or clarification. What I said was I think in some ways it's wrong to pull out individual components because as I've already made clear, the margin is made up of a lot of different moving parts. You did ask specifically about China. Just to ensure understanding, we said that actually China alone, as a consequence of the lockdowns that we've seen throughout this year, will be a drag on margins of about 20 basis points in and of itself.
Again, I think it's wrong to probably shine a light on one particular factor. There's a multiplicity of factors that ultimately contribute to our overall margin and to our guidance of 30-50 basis points, but China certainly is a headwind of 20 basis points that we hadn't foreseen at the start of this year.
That's very clear. Thank you very much.
Thank you, Tom. We now have Silvia Cuneo of Deutsche Bank. Your line is open, Silvia.
Thanks. Good morning, everyone, and thanks for taking my questions. The first one is on macro. Just wondering if there are any markets where perhaps you've seen macro having more of an impact already, and if you could comment on that. For example, in the U.S. or Spain, we noticed you reported slightly lower momentum on a three-year basis for like-for-like growth. Just wondering if there is anything more than comp effect. Second question is around the cost savings. You confirm today that you are on target to achieve the annual savings of GBP 300 million. I've seen that during the quarter, you reported the opening of another WPP campus in Canada, for example.
Just wanted to ask if, you know, there are potential areas for more savings, looking at next years and how you are tracking with the WPP campus program. Then, third question just on Choreograph. Can you please share an update about the investments, and can you quantify that? What's been the adoption so far on the new business negotiations? Thank you.
Okay. John, do you wanna take those?
I mean, look, on the macro, I wouldn't read too much into the variances country by country. I think it depends more a little bit on new business and competitive performance in the market. I think we're seeing extraordinary results, maybe, you know, continued resilience in the U.S., surprising resilience in the U.K., slightly tougher performance in Western Continental Europe. I think it really tells through what you see in the quarter really, to answer that question. John, do you wanna tackle the cost savings in campus? What was the last question about?
Choreograph.
Choreograph. Okay. You can talk about the financial impact of that as well.
Well, maybe just share some numbers. I think you particularly asked a question on the U.S. market and the three-year growth. Actually, I think on the U.S. market, we saw, just to be clear, three-year growth in Q1 of 7.6%. In Q2, we saw three-year growth of 10%. Sorry, 12.3%. Beg your pardon. So 7.6% in Q1, 12.3% in Q2. To give overall growth on a three-year basis for the U.S. in half of 10%. Actually, in Q3, we saw that growth at 11%. We saw an acceleration of our three-year growth in the U.S. We feel very confident about the performance of the U.S.
As you said, in the past, it's been perhaps a challenging market for us, but throughout this year it's grown ahead of the rest of the business, and we seem to be recovering strongly. In terms of Q4, again, I'd expect to see a similar sort of three-year wrap in Q4 as well. The U.S. business continues to move ahead, I think, in a positive manner. I think on cost savings, obviously, cost savings come from a number of areas, you know, across our campus program, our procurement program, and some of the changes we're making through shared services and standardized systems, for example.
We set out our guidance on our cost transformation program at the Capital Markets Day in December of 2020, where we said that by 2025, 2026, we'd save GBP 600 million, of which two-thirds we'd reinvest back into our business and GBP 200 million of which will drop through to the bottom line. That's the overarching guidance on our transformation cost savings. As we highlighted in the statement today, we're on track with that plan. GBP 300 million of savings this financial year. We did actually set out in December 2020, there's actually a graph in the presentation that shows a broad forecast of what we anticipate to deliver in each of the years following, 2023, 2024, 2025 and 2026.
It's not an accurate forecast, but it's indicative in terms of the savings levels. We remain on track with that trajectory, so we're comfortable with our savings plan. With regards to our campus program, we've made really good progress. I think certainly by the end of this year, we'll have over half of our people located in about 38 campuses. We remain on track to have about 75% of our people in campuses by about 2025, 2026. You know, that's obviously delivered cost savings as a consequence of moving into those campuses. But as importantly, I think it's created fantastic collaboration across our agencies. I was in our Jakarta campus recently in Indonesia, and it was great to see how by bringing the teams together, they really work much more closely together.
Actually, they have an executive team that comprises of all the CEOs of the agencies, different agencies in Indonesia, who sit and operate and collaborate and work together, which is a great positive of moving people into the same buildings. On Choreograph, I mean, I wouldn't want to split out the investments specifically that we're making to Choreograph other than to say that, you know, they are substantive, and rightly so. We're very proud so far the progress being made in terms of the investments that we're making there, and we'll update to give more detail when we come to our prelims in February.
Thank you.
Thank you. We now have Lisa Yang of Goldman Sachs. Please go ahead when you're ready, Lisa.
Good morning. I have three questions as well. The first question is coming back.
Good morning.
Hi, morning. Coming back to the margin, still trying to understand what has happened here, because obviously you've graded your organic growth guidance by 2 points, so you should see some operating leverage from this faster growth. I understand the 20 bps drop from China, and I guess that explains like-for-like the downgrade from the 50 to 30 to 50. Yeah, I'm just wondering why we're not seeing more operating leverage. Is there higher growth coming with lower margin? That's the first question. Secondly, I think you gave a useful update on the cost inflation you're seeing on your staff. Is that for permanent or is that permanent and freelancers? And what's your plan in terms of headcount growth for permanent and freelancers for the year?
On incentives, are you still happy with going back to the sort of more normalized GBP 300 million-GBP 400 million for the year? Thirdly, yeah, just wondering, obviously China was very weak and there's a lot of uncertainty there still. In your guidance of 4%-6% for Q4, for the group, like what are the assumptions you're making for China? What's baked into that guidance? Thank you.
Yeah, look, I mean, maybe just on margin, Lisa. Look, you know, I don't think it's a great mystery. You know, I think we've. You know, the business has continued to perform strongly. We've continued to invest in people and, you know, to support that growth. Q4, the most important quarter of the year, and we ended it very slightly from 50 to 30 to 50. You know, I don't think it's a significant difference. You could attribute all of that to China if you wanted. You know, I think rather than have a sort of laundry list of reasons, net-net is really just a result of the investments we've made in people and continue to support our clients. We continue to support the growth going into next year.
You know, that's really where we are. I mean, John talked a little bit about cost inflation. Look, I think on China itself, you know, our guidance for the year takes into account all the factors of which we're aware, including China. There's much more to say to it than that either.
Just on cost inflation, as we said, we sort of based across our sort of permanent headcount, we'd say average sort of salary increase is around sort of 5%-5.5%. There's a little bit in there that's including promotions as well. As we've already said, you know, on freelance, which is about 10% of our workforce, we're seeing inflation of around 15%. You sort of net all that together, that's a sort of circa 7% average increase.
Hence, you know, that's, you know, part of our key cost base inflation. We've done a great job of protecting our clients from those increases by changing the way that we support them in serving the business. In terms of your specific question, or just in terms of numbers, we've actually, as I said already, we've increased our permanent headcount, broadly speaking, about 9% from the start of the year. We've actually successfully, as I said at the half, at the interims, we've managed to reduce our dependency on freelancers, albeit, as I alluded to, perhaps not as much as we would have planned to, because we wanted to continue to support our clients, and that's been a little bit of a drag on margins.
Again, not to labor the point on margins, we probably answered that question already. You know, if there were two factors that I would call out at this point, I would say one of which is China with a sort of 20 basis points or so headwind as a consequence of the lockdowns that we've seen, which weren't forecast at the beginning of the year. I'd also say while we've done, you know, a reasonable job of reducing our dependency on freelancers, you know, there's a little bit more that we can do there. I think those two factors combined have resulted in a slight softening. I mean, we were saying around 50 basis points. We're now saying 30-50 basis points. We could still deliver the 50.
We'll see where we get to at the end of the year. But I think those two factors would explain that away. I think that covers it. Thank you. Oh, no. That's right. You had one more question, didn't you? I've got on the bonuses for the year. Last year, just again for clarification, we paid out total bonus pools of just over GBP 500 million. As you said, you know, we're comfortable with a sort of GBP 300 million-GBP 400 million range for 2022. Somewhere in the middle of that range probably will be where we'll end up for the year. Thank you.
Thank you.
We now have Julien Roch of Barclays. Please go ahead when you're ready.
Yes. Good morning, Mark. Good morning, John, and the gang.
Hi.
Three questions if I may. Mark, as you highlighted creative as an area of turnaround, how much will creative be up organically this year, assuming, quite likely, you make your 6.5%-7% organic for the full year. It's probably easy for you to give us a number, taking into account, like, AKQA and Wunderman Thompson, but I was wondering whether you could try to split the more digital business within AKQA and Wunderman Thompson and the more traditional creative to have an idea of turnaround of traditional creative, which was a drag in the 2017-2019 year. That's my first question. The second one is on macro. Rather than trying to ask you to dust off your crystal ball for next year, a different question.
Do you think clients have really learned their lessons from previous cycles and will cut brand advertising less in a downturn? Or same as usual, they will cut if macro is weak. The WFA survey of 55 of the world's largest advertisers indicating that 74% of them said that their budgets linked to macro would indicate that nothing has changed. But wanted to have your view on that. I'll stick with two, actually. Thank you.
Yeah, look, I think on the creative agency question, we can't split out. There's no such thing as traditional creative and non-traditional creative any longer. There's just creative. So, I can't really answer that question. You know, our creative agencies grew year to date 5.2% on growth last year. I think it's a pretty creditable performance. In terms of the cyclicality of the business, look, I think that we are a cyclical business. As I pointed out before, we have a much broader business than just advertising, and there's some reasons to think that that may or may not be less cyclical depending on what happens next year. I'd just be careful not to sort of catastrophize 2023.
You know, I think there are parts of our business that, so India, you know, growing this year at 10%, Brazil growing this year at 20%, Southeast Asia that will be less affected. You know, I think the consumer remains relatively strong. I think clients' attitude, I would describe as constructive. I'm not to say we're not a cyclical business, but I think that you just need to keep things, you know, in perspective. In an environment of, you know, rising prices and clients needing to put through price increases and innovate, they're gonna continue to invest in supporting their brands.
Okay. Thank you.
Maybe just a little bit of color on, you know, what Mark said on the creatives. We don't obviously break out the individual agencies, but just to give you a little bit of color, I mean, as Mark says, growth year to date, 5.2%. You know, Ogilvy, a really strong performance. So ahead of that, I'd say they're ahead of the pack, and we've seen some really good new business wins in Ogilvy. It really feels that Ogilvy has started to turn the corner in building that new business momentum. So that's really a positive sign. Wunderman Thompson, you know, a little bit behind the 5.2%, but not far off. VMLY&R, I think, has had quite a relatively tough year.
Let's not forget that in 2021 and 2020, they were not, you know, the standout performer among our agencies. Had a really strong performance in those two years. On a three-year basis, they're very strong. But a little bit more challenged in 2022. AKQA Group, again, ahead of the pack. You know, as Mark says, AKQA itself, double-digit growth, so a really positive performance. Then Hogarth, again, going great guns, double-digit growth, for the year to date. I think that gives you a little bit of a flavor across that creative spectrum, but some very solid and good performing businesses.
Thank you.
Bye.
Thank you, Julien. We now have Omar Sheikh of Morgan Stanley. Your line is open.
Yeah, morning, everyone. I've got a couple of questions if I could. Maybe to start with China. Could you just remind us how much China is as a portion of the total? I think it's about 10% or 11% of revenues. What kind of business is that? Does the business mix reflect the rest of WPP, or is it more media related? Some sort of color on that would be helpful. Just on the outlook for 2023, Mark, I don't know whether you could sort of give some comments about how you're thinking about the growth of the China business next year, just in the context of all the you know, kind of growth concerns about China more broadly that are currently out there. That's the first couple questions.
Just secondly, maybe for John on hiring plans. I think you said year to date, FTE headcount was up 9%, for the year. Just want to clarify that. Are you still seeing the same level of attrition as you normally do? Is that, does that give you a little bit of flexibility as you go into next year, you know, perhaps to kind of lay the ground for perhaps a slightly more challenging market conditions? Some sort of commentary on your hiring plans would be helpful. Thanks.
China's about 5% of our business, mainland China. It's probably a little bit different from the rest of WPP. It's probably a little bit more media focused. We have a strong multinational client base, but actually a strong domestic Chinese client base, probably 60% multinational, 40% domestic Chinese. It's more digital. You know, to the other question too, 90% of ad spend today is more e-commerce driven, more social.
Media is probably a bigger percentage of the mix overall, which makes the market, I think, a little bit more volatile than it is for WPP overall. That's why you do see a little bit more volatility in our performance in China. You know, on the basis of w hat goes down must come up. If things open up next year, probably we'll see a little bit of volatility going the other way. John, do you wanna talk a little bit about hiring?
Just to confirm, Omar, the increase in headcount year on from the start of this year to now is, as I said, 9%. You're right in that respect. On attrition, we've seen attrition come off a little bit over the last month or so. We were running at about 30%. We're now starting to come back to around 25%-26%, which is the normal level that we would see in this industry. Again, to give you the history, of course, we saw attrition come off through COVID. When we came out of COVID, we then saw attrition rise to the 30%. Then more recently, we started to see that come off again, but it's still at around the industry norm of 25%.
In terms of your comments around, you know, going into next year, I mean, just to be clear, you know, as is true of every year, you know, when we move from Q4, one of our biggest quarters, to Q1, our lightest quarter, we always go through an exercise of planning and forecasting and thinking about how we manage our cost base. I would say often the success of the year is often dependent on how successfully we've managed that Q4 into Q1 transition. That is no less important this year, for obvious reasons. You know, we will, you know, as we said, we're doing a lot of planning going into next year. There's a full range of potential outcomes.
The fact that we can, you know, virtually almost rely on a 25% churn rate naturally in our business, as well as flexing our 10% freelance mix, again, gives us great confidence going into 2023 that we can manage our cost base accordingly, whatever the economic headwinds may throw at us.
Great. That's very clear. Thanks a lot.
Thank you.
Thank you. Your next question comes from Richard Kramer of Arete Research. Please go ahead when you're ready, Richard.
Thanks very much. Mark, on Google's call last night, they cited some pullback in some advertisers in areas like financial services and crypto and so forth. There's been a bit of a debate among investors whether agencies have simply not seen these sort of pullbacks because you deal with larger clients. I guess, my question is, do you see a gap opening up between some of the larger brands you've mentioned with some of the SME or DTC brands that have emerged as challengers in the past few years that seem to be struggling with sustaining brand spend? My second question is, you know, you mentioned the shift from linear to addressable TV, you cited P&G as an example. We see some big new pools of inventory opening up, maybe in private marketplaces or programmatic guaranteed deals.
Is there an opportunity for WPP to capture a greater share of that TV ad spend by direct media buying onto those platforms instead of going through some of the CTV DSPs? Thanks.
Yeah. Look, I think on sustainability spend, you know, we don't have a major client base in crypto. I think there's no doubt that some of the, you know, the digital spend has been driven by, let's call, you know, venture capital backed customer acquisition, sort of longer term funded or short term funded businesses that have pulled back as the economy has changed. I think our client mix is different. Now, there were times five or 10 years ago where perhaps that made life tougher for us in comparison. There may be times like now where it makes it slightly, you know, better for us.
You know, I think in the main, our clients continue to spend and probably do view this as a long-term investment rather than something that's sort of funded by short-term capital. On your question, I think there is a big opportunity from this shift from linear to addressable television. You know, I think firstly, you know, clients were beginning to wonder about the availability of advertising inventory and the growth of advertising on Netflix, the growth of Peacock, the number of platforms. I think it gives them more opportunities to invest in content. I think that's positive. I think we have a strong business in connected television through Finecast.
You know, Finecast, you know, has been growing 10%, 20%, 30% over the past few quarters, you know, very strongly. There is ability for us to connect and work in different ways with these platforms, just as we have with Xaxis, and help clients into connected television. I think that net-net will be another positive to us. I'd say, you know, there are reasons why the growth of the holding companies, if that's what we're called, in the first half was better than the growth of the digital platforms in the first half.
I think it talks to, you know, the broader business that we have, the different client mix we have, the new, the newer growth opportunities in other areas that actually we have beyond advertising and the changing nature of our business.
Thanks. That's great.
Uh.
Thank you. We now have Richard Eary of UBS. Please go ahead when you're ready.
Thank you. Good morning, Mark, John. Three questions from myself.
Hi, Rich.
The first one just comes back to looking at sort of the inflation impacts on the business, both on revenues and costs. You talked obviously about upgrading guidance this year from the start of the year from 4%-5% now to 6.5%-7%. You also talked on the call about cost increases, you know, of 2%-2.5%. Is that the large reason for the upgrade is that as inflation has come through, you've been able to pass that on and therefore that's had a positive impact on the organic growth? Or is it a mix issue where you're seeing better demand for other services? So just to try and get clarity on that, because as we go into next year, there's still inflation in the system.
Does that protect against any sort of weaker volume growth, or does that not help in a weaker market environment? That's the first question. The second question just on Q4. I think relative to your peers, your guidance is obviously for a stronger Q4 relative to the peers, which are around 4%, I know you're at probably 5%-6%. I'm just trying to understand, is that due to your view on account win momentum, where you've obviously got that 80%-85% guidance? Or is it more about conservatism from your peer group? I'm just trying to understand, is the outperforming Q4 just around account win momentum, or is there something else in there?
Just lastly, going back to, let's say, auto is a large component, which has probably been, let's say, out of the ad market or less prevalent in the ad market in the last couple of years because of supply chain issues. I'd be interested to get your thoughts now that you're getting greater involvement with Ford as your largest customer, to see what their plans are for 2023 and whether auto comes back in a little bit better shape, and that helps provide some protection as well for, let's say, the advertising mix.
Yeah. Look, I think on Q4, I mean, I can't comment on what we are thinking compared to the competitors. Our peers, I don't know what they're thinking. I think our guidance takes into account everything we know about the year, and we're confident that we'll deliver it. I think on the inflation mix, again, I think it's hard to disentangle price versus volume. What I'd say is that I think clients, if clients are seeing strong top line growth, they tend to invest more in marketing, and I think that's what we're benefiting from, not really a price impact on our business. I think it's just overall aggregate client spend. Within that mix, we're trying to earn, you know, a fair price for our services.
On the auto question, you know, there's no doubt that the auto market has been challenged the last couple of years. You know, can't comment specifically on Ford's plans, but I think auto companies, like everyone, are looking to drive brand. We're looking to drive sales. We hope that the chip shortage will alleviate. You know, they have a, you know, Ford have attractive range of new models coming through. Have to see what their plans are. But I think all clients are looking to drive a greater efficiency and greater return on their marketing spend, and that's what we'll see. We'll have to see how that translates, you know, into 2023, 'cause there's many moving parts. You know, there's the chip shortage, there's the build up of cars, there's the macro environment.
Look, I think it's just sort of hard to read more broadly. What I would say is that, you know, the auto market is becoming more competitive. There's a lot of EVs being launched and a lot of new models being launched. Typically, in a more competitive market, clients tend to spend more. We'll have to see what Tesla does. If Elon Musk ends up owning Twitter, maybe he'll, you know, push more through that. We'll see.
Thanks. Can I just ask a follow-up question? I don't know whether you can sort of answer this. Is it as the business mix has shifted, you know, could you give us an indication as to, you know, how much of the business is now sort of priced out on a sort of cost plus basis relative to where it was in previous cycles? I mean, you mentioned obviously the business is very different from where it was five years ago, but I'd be trying to get a better understanding in terms of how we think about it from a sort of cost plus perspective.
I don't think that's significantly different from five years ago or even ten years ago. I think what's most important is the extent to which clients take a long-term view, which I think more clients are doing. I think the breadth of our service beyond advertising or media spend, which is no doubt the most, you know, cyclical part of our business, and I think that is now broader. I think importantly to understand is the geographic breadth of our business. You know, that goes beyond, you know, the U.S., you know, or indeed the U.K., where we tend often to focus. I don't think you can read too much into the pricing point.
Okay, thanks.
Thank you. We now have Matti Littunen of AllianceBernstein. Your line is open.
Hello, good morning. Just a quick follow-up on that pricing discussion. So thank you, John, for that 2%-2.5% effect from price increases, or rather 2%-2.5% price increases that you mentioned. Now, I just want to connect to the earlier question about is that just for the business where you bill on a scope of work basis? Or in that effect, do you calculate anything from, for example, the impact of higher media prices on the absolute level of commissions you get in GroupM, for example? The other question I had was on Xaxis. So could you give us an update on how that business performed this year so far, and what the main growth drivers have been? Thank you.
Do you wanna take that, John?
On the question on pricing, I think the 2%-2.5% is a blended rate across the business. It includes all the component parts that you've described, and we wouldn't wanna sort of break it out in any more detail than that, but the 2%-2.5% across the board. In relation to Xaxis, it's been a little bit more of a challenging time in Q3, I would say, than historically, but on the back of very, very strong comps in Q3 of last year. Last year, we were up 23% or so in Q3. This year we're down a little bit, but over a two-year basis, we continue to progress and go forward.
Very clear. Thank you.
Thank you. We now have Matthew Walker from Credit Suisse. Your line is open, Matthew.
Thank you, operator.
Hi, Matt.
Hi. Hi, Mark. Hi, John. Thanks for taking the question. The first one is on visibility. Obviously you've got the commerce and technology business, you've got the media, and you've got this creative production. How much visibility do you have in terms of, like, number of months, number of quarters for the different types of businesses? Is it significantly longer in commerce and technology versus the other buckets? That's the first question. The second question is on factor pricing. I think John commented before that price increases were kind of, like, going through on one third of the client base, and then one third was in discussion, and then one third was grandfathered.
Can you give us a bit of an update there, like, this is just 2% to 2.5%, coming from just one third of the client base, or has it moved to be broader than that now? Then the last question is on what is the cash spend on, say, for all the deals that you've done year to date, please?
Okay. I'll talk about visibility. Look, I think the visibility question is, you know, we start the year, you know, we're starting to have conversations with clients about budgets for next year. I'd say, without giving guidance, those conversations fall into the category of what I described before. You know, things change, don't they? I think it's our visibility is no more or less than it is, I think, at any other time. I don't think the visibility has changed. I think sort of market analyst paranoia has increased more than market visibility has reduced. You have to just look at the breadth of our business, breadth of our offer, types of service we offer to clients and, you know, just we're cognizant that plans change.
I mean, I'd advise you just to read. If you look at what, you know, was said on the Coca-Cola call yesterday, I think this is a good example of how clients think about it. They want to continue to invest, but they're willing to adjust in short term if they need to. I think that's what's more important than visibility. I'll let John go into the degree of detail he's willing to, on pricing.
Just to also talk about. You asked the question very specifically about commerce experience and technology. I just wanna remind you what we said at the half. It isn't, as Mark has often said in the past, the way that we look at our business, 'cause we very much think about ourselves as having an integrated offer across our agencies into our clients. We do look at it on a six-monthly basis, so at the half and the previous, we try and break out component parts of our work that are related to commerce and experience with technology.
If you remember what we said at the first half was that we'd seen you know, in our globally integrated agencies, excluding GroupM, an increase in the percentage of work that those agencies did to about 39% being commerce and experience and technology related. What that really meant in practice for that 39% of those GIAs excluding GroupM, was that we'd seen commerce experience and technology grow by about 10%, double digit. On average, the global integrated agencies excluding GroupM grew by just over 5%. You can work out the math that therefore the rest of the business grew at about 3% or so. That's what we said at the half.
It gives an indication of the split of work in those areas across our global integrated agencies and the nature of the growth that we're seeing in those parts. Hopefully that's helpful. On pricing, I don't wanna get sort of drawn into, you know, too much detail here, but we said at the half again, you know, exactly what you just replayed back, and we said that would translate into, at the time, price increases of roughly 1.5%-2%. We've clearly extended our work, as you described, into those areas, but we haven't seen price increases, and hence why I said on the call today, we'd expect price increases for the full year to end up at around 2%-2.5%. Hopefully that's clear.
The cash spend on the deals to date is just under GBP 150 million.
Okay. Great. Thank you, guys.
There are no further questions at this time. I would now like to hand the call over to Mr. Mark Read for further closing remarks.
Very good. Well, thanks everyone, thanks for listening, and thanks for your questions. I think in conclusion, I'd say we've had a strong quarter with an accelerating kind of three-year growth during the year. As we look at next year, I'd just make these, you know, three observations. You know, first, what we do is critical to our clients, and that's demonstrated by the strength of our growth this year. Secondly, we have a very strong offer, very strong people, agencies, technology, and good new business momentum and a good pipeline going into next year. Third and last, we're a very different business from where we were, you know, five and certainly ten years ago. We're an important advertiser business, but we're not just dependent on advertising.
We have broad growth opportunities and a fantastic business in markets like Brazil and India and Southeast Asia that give us resilience. You know, that said, you know, we are aware of the macro issues. To give you an easy caveat, we're able to react to protect our profitability as needed, but the key thing has to be to come out of, you know, 2023 in a stronger position. That's what we intend to do. Thanks to our people and the strength of our relationships with our clients, I'm confident that we'll be able to do that. Thanks everybody for listening, and we'll keep in touch. Thank you.