WPP plc Q1 FY2022 Earnings Call

Welcome, everyone, and thank you for joining our first quarter update. I'm here at Sea Containers House with John Rogers, our CFO, and Peregrine Riviere, who leads our Investor Relations activities. Before we begin the presentation, please pay attention to the cautionary statement on Slide 2. On Page 3, I will briefly highlight another strong quarter. John will discuss our financial performance and guidance, and we will wrap up with a summary before taking your questions. On Page 4, we experienced a strong start to the year, continuing the momentum from last year with a 9.5% growth in Q1, or 9.2% over a three-year period, translating to a compound rate of almost exactly 3%, which is at the top end of our medium-term guidance and reflects our achievements during a time of COVID and uncertainty. This serves as further proof of the strong demand for our services across digital media, data commerce, and marketing technology, supporting our medium-term guidance. We saw positive growth across all our business lines, including 8.6% growth in our global integrated agencies and 12.8% growth in GroupM in a robust medium market. Notably, all of our integrated agencies grew year-on-year, collectively achieving around 5.6% growth. As previously discussed, transforming our offerings within these agencies is crucial for sustaining our long-term growth, and we're encouraged by the progress in this area, which remains a key strategic goal. Our public relations activities increased by 14.1%, reflecting the growing importance of issues management related to reputation, purpose, sustainability, and employees. We now house three of the world’s leading public relations strategic communications firms: BCW, Hill+Knowlton, and the recently merged Finsbury Glover Hering with Sard Verbinnen, which has integrated well. Our specialist agencies grew by 13%, driven by strong client demand for brand transformation. Geographically, we saw widespread growth, and John will provide more insight at a country level shortly. Our new business performance was solid, with success in retaining, expanding, and acquiring new clients, including Mars, JDE Peet’s, and Sky. We are also witnessing an interesting trend in our media business toward integrating digital and analog media, which aligns with our strengths. Following a recent reorganization of GroupM, we are ensuring a clear focus on digital media and how it's managed in-house. Core onboarding is progressing well, which will support our growth throughout the year, and we maintain a strong balance sheet. We have conducted around £362 million in share buybacks, aligning with our £800 million target for the year. This reflects our ongoing growth momentum. I am particularly pleased with our investment in our client offerings. We simplified GroupM through the merger of MediaCom and Essence, providing a more integrated solution for clients. We also launched Everymile, our dedicated D2C commerce business, and the Metaverse Foundry, which unites 700 experts from GroupM. These developments illustrate our commitment to organic investment in the business, alongside strategic acquisitions. We have established the GroupM Premium Marketplace in collaboration with Magnite and PubMatic to enhance transparency and control in premium digital media, benefiting our clients. Our investments in Xaxis and Finecast focus on technology, innovation, and product development, consolidating these businesses to achieve necessary scale and support our agency brands within GroupM. Additionally, we made an acquisition with the purchase of Village Marketing, a New York-based influencer and marketing specialist with approximately 150 employees, bolstering our strength in social media. To summarize, we experienced a very good quarter, achieving significant progress despite challenges, leading us to update our growth guidance for the year to 5.5% to 6.5%. On Page 4, I want to provide an update regarding the situation in Ukraine and Russia. Our main priority has been the well-being of our 200 colleagues in Ukraine amid the crisis. We are collaborating with local leadership to offer financial and well-being support, as well as job opportunities for our Ukrainian employees who want to live and work normally. I was in Poland about four weeks ago and witnessed firsthand the support our teams have offered, including transporting people to safety, providing accommodation, and supplying essential goods and services. It has truly showcased the WPP family coming together to support one another. We partnered with UNHCR to run an emergency fundraising appeal, resulting in more than 4,000 employees across WPP donating over $1.3 million, with our matching contributing to a total of around $150 million raised so far—a remarkable effort, especially from our agency Blue State Digital. Regarding Russia, on March 4th, we announced our decision to exit the market. I'm pleased to share that we have now reached an agreement to divest our businesses there, selling them back to local management, and this process is largely complete. Navigating our complex portfolio in Russia takes time, but we've made this decision in alignment with our company values. We regret this outcome for our 1,400 colleagues in Russia, who have long been valued members of WPP. However, the Board concluded that continuing operations in Russia was inconsistent with our values. This summarizes our current status for the quarter. John, please take us through the detailed financial results.

Thank you, Mark. Let's move on to the financials for the first quarter of 2022. You'll see we've streamlined the presentation to allow more time for questions. All the usual details are in the appendices. Starting with Slide 7, revenue less pass-through costs showed a reported increase of 10.3% for the quarter, with a small boost from foreign exchange and an acquisition contribution of 0.5%, leading to an overall like-for-like growth of 9.5% for the first quarter, a rise from 3.1% this time last year. Moving to Slide 8 for business sector performance, we observed robust growth across all sectors, beginning with our integrated agencies at 8.6%, following a growth of 2.8% last year. GroupM demonstrated particularly strong growth at 12.8%, up from 5.8% in the same quarter last year. Excluding GroupM, integrated agencies grew by 5.6%. As Mark mentioned earlier, all our creative agencies reported growth this quarter, with PR showing impressive growth of 14.1% against 2% last year, and our specialist agencies grew by 13% compared to 7.5% last year. This indicates solid performance across all sectors, especially in PR, with BCW, Hill+Knowlton, and FGH all achieving double-digit growth. Now, on to Slide 9, our major markets are also performing well. The U.S. and U.K. grew by around 8.9% and 8.1%, respectively. Germany has been notably successful, growing at 16.1%. China continued to grow strongly at 11.9% after a strong quarter last year, and India is a remarkable success story with a growth of 25.1%. Australia is more challenging but showing recovery due to recent business adjustments within WPP Ford. Canada is experiencing healthy growth, while France is somewhat disappointing due to a slow recovery from COVID and some client losses. Brazil has seen substantial growth at 28.5%, and Spain has grown by 8.2%. Overall, there is good growth in key markets. Analyzing 3-year growth against pre-COVID levels in 2019 reveals the U.S. and U.K. both grew by 7.6%, with an average of 9.2% over the last 3 years, equating to about 3% annual growth, demonstrating strong performance aligned with our medium-term guidance. Germany has grown by 13.9% over 3 years, China by 17.2%, and India leads with 32.1% growth. Australia remains below 2019 levels at down 9.1%, indicating potential for recovery. Canada is up 21.1%, while France shows a minor decline related to slow post-COVID recovery. Brazil is at 37.6% growth, with Spain's growth being relatively flat. This analysis highlights the geographic areas driving our growth. Now, let’s move to Slide 10 to review our net debt changes throughout the quarter. As of March 31, 2022, net debt stood at GBP 2.6 billion, with an average net debt of GBP 1.6 billion for the quarter. We noted the typical seasonal outflow of working capital since year-end, but our trade net working capital improved by GBP 180 million year-on-year, affirming our guidance for flat trade net working capital for the full year. We undertook total share purchases of GBP 405 million in Q1, comprising GBP 362 million in share buyback and GBP 43 million related to the employee benefit trust, consistent with our previous guidance of GBP 800 million. Now regarding our guidance, as Mark mentioned, we’re updating our like-for-like revenue less pass-through costs growth to 5.5% to 6.5%, previously around 5%. We effectively realized the first quarter numbers and will maintain our approach for Q2 to Q4. We reaffirm our headline operating margin guidance at an increase of around 50 basis points for the year. While we expect the first half to be slightly negative by about 50 basis points, the second half should see a positive year-on-year increase of around 120 basis points, resulting in an overall expected increase of 50 basis points for the year. We are not changing this guidance despite the top-line upgrade, as the expected upgrade will offset slightly against higher salary inflation assumptions. Our CapEx is projected between GBP 350 million and GBP 400 million, and trade working capital is expected to remain flat. We anticipate a foreign exchange benefit of about 2% to 2.5% for the year on a reported basis, with 0.3% realized in Q1. M&A is expected to contribute between 0.5% and 1%, with 0.5% already seen in Q1. We maintain our guidance for GBP 800 million in share buybacks for 2022, having completed GBP 362 million in Q1, and we expect to reach around GBP 600 million by the end of the first half based on our current purchasing pace, remaining consistent with the overall GBP 800 million target. That concludes our guidance, and I’ll now hand it back to Mark for the outlook before we move into the Q&A.

Brilliant. Thanks very much, John. So we had a strong start to the year, and we have pretty broad-based growth across the business. I think 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, continued investment innovation in Choreograph, in Finecast, and Everymile. I'd say that, though drive demand from our clients remain strong, but we are very mindful of the broader economic environment. As we said, we're updating our guidance after the first quarter performance. That's just how we see the year. And operator, we're happy to take questions.

Our first question comes from Dan Salmon from BMO Capital Markets.

First, I may have joined a bit late, but I was hoping you could elaborate on the changes announced at GroupM yesterday. I would like to hear more about the reasons for those changes, particularly the consolidation of Essence and MediaCom and the creation of Nexus. What are you aiming to achieve with these moves? Additionally, Mark, your organic revenue guidance has increased. We've also heard similar feedback from your peers. Investors are asking whether agency fees typically lag behind the advertising cycle and if the advertising cycle usually leads the economic cycle, which has been a general trend in the past. So, I would like to take a step back from WPP's organic growth guidance. Can you provide any insights on what you are hearing from clients given the current volatile ecosystem?

I believe there were three significant changes announced regarding GroupM. First, the merger of Essence and MediaCom combines Essence, which is likely the largest pure digital agency in the world, with MediaCom, recognized as Agency of the Year for the past two years. This integration aligns with the trend toward simplifying WPP and demands for scale, as well as the need for integrated solutions for clients. The same applies to Mindshare and Neo, which previously collaborated under one management, but now there's more integration. Neo, which originated as the outcome-based media arm of OgilvyOne around 25 years ago, will now blend outcome-based media with a wider media offering. Additionally, GroupM Nexus is unifying the technological and operational aspects of digital media, supporting Finecast and Xaxis, while also assisting agencies with analytics and technology. Our focus is on achieving scale where it’s vital, especially concerning data, technology, and media volume, while also encouraging agencies to specialize in client service, strategy, and conflict management. When we discuss what clients are saying, the context has shifted significantly from two years ago. Clients were initially focused on reducing their spending due to what they perceived as a weaker demand environment. However, currently, they remain cautious about the economic outlook for the rest of the year. Many clients reported robust performance in the first quarter, with companies like Coca-Cola achieving an 18% organic growth and L'Oréal at 13.5%. Google's growth was 23%, making it one of WPP's top three clients. As economies are reopening and consumer spending remains strong, many clients are experiencing continued growth. They express concerns about inflation impacting consumer spending, seeing it more as a potential risk for the second half of the year rather than the first half. Clients are keen on safeguarding their media budgets, and we observe some margin pressures across various companies. The overall scenario is different now. While we remain aware of economic risks, our guidance reflects what we’ve observed from clients so far and the broader economic outlook for the year. If John has anything to add regarding the guidance, I’m certain others will have additional questions.

Yes, I'm not sure there's much more I can add to that. When we set our guidance, we consider the range of forecasts the business might encounter for the remainder of the year. It's reasonable to say that if we maintain the momentum from Q1 into the rest of the year, we would anticipate some increases in guidance over time. Conversely, if someone is more pessimistic and believes that inflationary pressures will hinder consumer demand in the latter half of the year, which would subsequently affect marketing expenditure, they might lower the guidance slightly. I believe we've adopted a sensible approach, reflected in the outperformance of our first quarter, while effectively maintaining our growth assumptions for Q2 to Q4. As far as the current market is concerned, we aren't receiving any notable negativity from our clients at this time. We have a reasonable outlook for Q2, but there is undeniably significant uncertainty, which we need to remain aware of. We made that clear in our statement today.

Our next question comes from Lina Ghayor from BNP Paribas.

Lina here. I hope you can hear me well. I have 3 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, 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? And 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 are there other factors offsetting it?

Maybe I'll start and then Mark can add if needed. Regarding our guidance, we've been very clear about the numerous uncertainties we face, including supply constraints, growth in market GDP, especially in Europe, and inflationary effects on our cost structure and consumer spending. These factors contribute to a variety of potential forecasts, both positive and negative. For the guidance we're giving today, we are assuming a normalization of the strong results from Q1, aiming for an average growth of about 4.8% per quarter over the full year. We believe this estimate is reasonable based on market trends, but there is potential for both upside and downside, particularly if inflation affects the second half of the year. Currently, we're experiencing more uncertainty than usual, which is not surprising. We're being sensible with how we set our guidance, and I don't have much more to add on that. When it comes to Q2, we have good visibility over growth, but I won't provide specific quarter-by-quarter guidance. Last year, Q2 was strong, and we expect to maintain momentum from Q1 into Q2, with the exception of China. We saw strong performance in China during Q1, but recent lockdowns have drastically reduced office occupancy from around 60-70% down to 5%, which will impact second-quarter performance. Nonetheless, we remain optimistic about growth in most other markets. Regarding our unchanged margin guidance, I’ll explain the details. We've increased our net sales guidance by about 1%. This increase should translate directly into margin growth, estimated at around 25-30%. However, we noted at the prelims that we expected salary inflation to be around 4-5%, with an average of 4.5% included in our budget. We're now adjusting that expectation to 5%, a 0.5% increase. When we account for this increase across roughly 60% of our costs alongside the additional margin from the 1% net sales boost, these elements largely offset each other, which is why we're maintaining our margin guidance of 50 basis points for the full year. It's important to emphasize that we expect a significant difference between the first and second halves due to the timing of travel cost increases and last year's salary hikes. We anticipate a 50 basis point decline in margin for the first half, with a recovery of about 120 basis points in the second half, resulting in a net change of about 40 to 50 basis points for the full year. I hope that's clear.

Our next question comes from Lisa Yang from Goldman Sachs.

Congratulations on the results. I have three questions. First, could you remind us about the cyclicality of the different businesses within WPP? Given the strong demand from clients for data and technology, is it fair to say that a growing portion of your business is less cyclical, even countercyclical? Any insights on that would be helpful. Also, how much of your remaining revenue for the year is already secured? What kind of visibility do you have on that? My second question is about the new D2C initiative Everymile. Can you provide more details on the expected benefits from this new offering over time? What initial investments are required, and are they significant? What percentage of your client base do you think would be interested in this, and does it allow you to tap into the SME market that you've mentioned before? Lastly, regarding the buyback, you mentioned a target of GBP 800 million by the end of H1. Do you see a need to adjust that target based on the strength of your balance sheet and the potential evolution of the share price, or do you prefer to stick strictly to the GBP 800 million target?

I'll begin by addressing the first question, and then John will elaborate and handle the rest. Our guidance is based on what we believe will happen this year. Our business is cyclical, but clients respond differently to economic pressures. I feel we are in a different situation now compared to two years ago when clients aimed to reduce spending to maintain profitability. Currently, clients seem more inclined to maintain their spending, even if it impacts their margins, in order to protect their businesses and promote revenue growth. Different media types exhibit varying levels of cyclicality based on their position in the cycle, with media likely being the most cyclical part of our business. However, there's a distinction between client spending on media and our fees. If clients choose to revise their media budgets, they may end up spending more on our fees for the additional planning work. Overall, while I believe we are in a cyclical business, our guidance reflects our best judgment on what may unfold throughout the year. John, would you like to continue?

Yes, I think that's right. I think there are some areas, if you look back over the last couple of years. You look at the performance, the impact of COVID and the bounce back, I think you can draw attention to parts of the business that actually remained relatively robust over those 3 or 4 years. I mean, I pointed the great performance in PR. And we actually didn't see PR particularly impacted in COVID, and we've seen that sort of also that bounced back pretty strongly subsequently. So I think PR certainly seen, I would say, it's not particularly cyclical in nature in terms of the spend that we see. And I think there are key parts of our business, I think as you alluded to in your question, on the data side and the technology side, digital, e-commerce, which was cyclical in nature, they are strong structurally, strong foundation, strong structural growth, and I think they do help underpin. So I would say, Mark's right, we are cyclical in nature, but I think we are becoming less cyclical over time. Mark Read: So touch on Everymile. Yes, I believe Everymile presents a really exciting opportunity. This is based on our extensive experience working with clients in building websites, offering CRM solutions, and assisting with their marketing strategies. Frequently, our clients express a desire for us to provide a comprehensive end-to-end solution in specific markets. Over the past couple of years, there has been a strong demand for us to take on this kind of work. I'm pleased to share that we've established a team and the necessary infrastructure to deliver this end-to-end solution for our clients gradually. I find this opportunity to be very appealing. We have made investments, and for this year, the overall investment in Everymile will be around $20 million. We anticipate that over time, this total investment will reach approximately $50 million, meaning an additional $30 million over the next couple of years. We expect to generate significant client interest and growth in the future, making this a worthwhile investment for us. Many clients have shown interest since the announcement, eager to learn more. You also mentioned SMEs. I believe that this offering is attractive not only for large FMCG companies in certain markets and product lines but also for SMEs that may lack the infrastructure to provide an end-to-end solution on their own. Historically, our organization has focused more on large corporates than SMEs, so this represents an interesting chance for us to tap into that segment of the market. I view this as a very promising opportunity.

In relation to the buyback, look, 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.

And 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 has already alluded to, we have a lot of work onboarding Coke, and the feedback from the client there has been exceptionally positive. And when we look at our new business to go for the new business we've identified years ago, we're in a better position than we were last year with vis-a-vis our forecast. So I think we're in a comfortable position in terms of new business and bringing on new business into the group.

Our next question comes from Silvia Cuneo from Deutsche Bank.

My first question is a follow-up on the loans of Everymile. Can you please talk a bit more about what are the disadvantages in the early initiatives discussed for the company's opportunity at the 2020 CMD? And then also, how could we think about getting new models for this new site. Then my second question is on the progress in integrating the agency structure following the merger of MediaCom and Essence, can you please share your thoughts about how you attract the agenda to drive efficiency gains and margins towards the target range that were previously provided for 2023? And then 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 FX impact?

Do you want to tackle that. I didn't totally hear the Everymile question, to be honest.

Yes, it was a poor line on our side, so I apologize. I believe I grasped what you were asking, so I will do my best to respond. In terms of how this compares to what we discussed at the Capital Markets Day in 2020, we view it as one of many interesting growth opportunities for our business. We have mentioned before our plans in areas like Finecast, Xaxis, and Choreograph, as well as data. We see Everymile as closely related to these investments for future growth. The market potential is significant, especially in the U.K., where we've seen substantial growth in the past year in this field. Our clients are seeking solutions in this area, and we intend to offer a comprehensive service that includes website design, order management, inventory management, warehousing, supply chain logistics, fulfillment, and returns. This is not a simple task, but we have assembled a strong team with relevant experience. The business is led by Mark Steel, my former Digital Director at Argos, who has created a solid team of experts from well-known retailers. As for potential revenue, I can't provide specific guidance at this moment. Our goal is to have several clients operational by the end of this financial year, and we are on track to achieve that. There's a vast market ahead of us, and we plan to start our launch in the U.K. before exploring selective opportunities, likely starting with the U.S. in the future for business growth. I hope that answered your question, though I didn't catch all of it initially.

We are continuing to streamline and simplify our business, particularly with brands like Essence and MediaCom, while also launching new brands such as Everymile. We see attractive opportunities in our industry for expansion and growth, especially organically and through acquisitions. Our structures are aimed at seizing these opportunities, focusing more on growth rather than just cutting costs or improving margins, although those actions can help us meet our financial goals. Regarding the impact of M&A and foreign exchange, John, would you like to address that for the year?

Yes. From an M&A perspective, we mentioned that our like-for-like growth is between 0.5% and 1% due to M&A activities. Regarding margins, we see these factors as generally neutral, with a 0.5 point contribution in the first quarter that we expect to increase slightly for the rest of the year. Additionally, on the foreign exchange side, we experienced a tailwind of about 0.3 in the first quarter, mainly due to the dollar and euro moving in different directions compared to the pound. We anticipate this tailwind to grow throughout the year if foreign exchange conditions stay consistent, potentially contributing a few percentage points. However, this could change as many dynamics are at play, and we will provide updates each quarter as we report. Regarding Russia, specifically in terms of costs, we estimate that the exit costs for leaving Russia will be around GBP 40 million to GBP 45 million. While our operations in Russia may slightly dilute our margin, this effect will be more than compensated by foreign exchange gains, leading to an overall neutral margin. Thus, we are comfortable reaffirming the margin guidance we provided at the start of this financial year.

Our next question comes from Julien Roch from Barclays.

My first question is about visibility. How much revenue for the rest of the year is already known and guaranteed? I understand your guidance is based on a detailed, bottom-up budget, but clients can only provide their current budgets, not their future expectations. I would like to know what net sales you would have if everything were to stop tomorrow. John has mentioned good visibility for Q2 several times, but I noted that you are only obtaining organic data a week after the month's end. Has that changed? How many weeks of visibility do you currently have? How much of the remaining year's revenue is already secure? My second question pertains to margins. You mentioned that they remain unchanged due to improved top-line performance being offset by high inflation costs, indicating a 50 basis point increase. If net sales do not meet expectations, will margins decline? How much flexibility do you have? At what level of net sales can you maintain that 50 basis point margin increase? Is it at 3% or 1%? Any insight on this would be helpful. Lastly, regarding foreign exchange impacts, you estimated a 2% to 2.5% effect this year, but since the spot is lower than average, it seems you may benefit next year as well. I am assisting Peregrine in aligning consensus on FX for next year.

The key point about margin is that if net sales fall short, we can make adjustments. We have a strong history of managing our business effectively and being adaptable as an organization. If we notice the top line is underperforming, we can quickly respond by cutting costs. A significant portion of our expenses is tied to freelancers, and we can easily adjust that resource. We closely monitor both freelance and permanent resources across various agencies and networks, while planning for forecasts to ensure our cost structure can adapt to changes. However, if growth declines to around 3%, we would anticipate an impact on the margin over time due to the nature of our operating model. We can absorb some pressure on the top line by adjusting our cost base, but if growth drops significantly below 5.5% to 6.5%, we would start to see a decline in operating margin. I wouldn't identify a specific turning point, but it likely falls between 3% and 4% growth in net sales. Regarding visibility and guarantees, we have good visibility but it’s not guaranteed. When forecasting, each operating unit bases their expectations on client budgets which gives us a reasonable overview. However, budgets are subject to change. Our forecasts include a degree of conservatism, and while we have good visibility for much of Q2 and Q3, there remains uncertainty. Our new business needs in forecasts are lower than usual for this time last year, which is positive, but nothing is assured. So there are uncertainties we must consider. I've also noted your third question about foreign exchange.

Yes. FX, yes.

I'm not going to speculate about the foreign exchange impact for 2023. I'm not sure we can accurately predict what will happen in 2022. So I think we are probably getting ahead of ourselves if we try to consider the foreign exchange impact for 2023. At the moment, if we incorporate the current rates into our forecast, we expect to see a benefit of 2% to 2.5% in the second, third, and fourth quarters. However, we have seen significant fluctuations in foreign exchange over the last quarter, and this could certainly alter our guidance moving forward.

Very clear. Just an add-on on visibility. So it's visible but not guaranteed and it's based on your understanding of the client budget. So I suppose the only thing that is really visible is the spend that has been committed already because everything beyond that can be cut. So you would say the real visibility on revenue is what, is it 2 weeks, 2 months?

Julien, this is Mark. I don't think that's the way to think about it. I mean we talk to our clients, they tell us how they see the world. And at the moment, they're saying that they don't think they're going to make major adjustments from what they told us 4 weeks ago or 8 weeks ago. We're coming into the year many of these concerns were known. Certainly, the inflation concern baked in, slightly more conservative estimates from the CPG companies and slightly more aggressive estimates from the technology companies. We have, John said, good underpinning from new business with Coke and Google coming in for the year. And we're making our new business targets as we go through the year. There is clearly uncertainty and nothing is like as guarantee, but 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. 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 9 months of the year. And that's as much visibility or guarantee as anyone has in any of those scenarios, and I'll come back to it. It's a very different pattern of what we heard 2 years ago where clients were very quick to cut budgets or not. Remind you, Coke saw 18% organic growth in Q1 is a top 5 partner for WPP. L'Oréal saw 14%, 13.5% organic growth in Q1 to top 10 clients of WPP. Google despite having disappointed we saw 23% organic growth in Q1. So we have clients whose businesses are performing well. And we have other clients whose businesses maybe a little bit more challenged auto but we knew that coming into the year. So I think it's based on our best judgment on how we see the pluses and minuses. It's true there were pluses and minuses from clients on spending. But as we sit here today the pluses and minuses are more average each other out and we are where we are on the guidance.

Our next question comes from Thomas Singlehurst from Citi.

There seems to be a general feeling among the questions you've received that while things appear to be going well now, there is concern about a potential drop that hasn't yet occurred. I'm curious if you can identify any changes that might not be apparent. For instance, are you noticing a decline in promotional activities among your clients that isn't reflected in advertising spending or digital transformation investments? Is there anything indicating that some of the foreign exchange issues are already being managed? It would be reassuring to know that you're not just in a state of uncertainty. Additionally, I'm interested in whether wage pressures might be contributing to your revenue growth, as those costs could be passed on to clients, thus impacting revenue recognition. Lastly, regarding the rapid growth in PR, are there any one-time factors influencing that, particularly in relation to the FGH SVC merger?

Yes. Regarding the first question, it's clear that inflation impacts media prices, particularly in auction-based media, which directly affects those prices and can lead to a decline in return on ad spend. Our response is to seek untapped opportunities. A significant portion of growth on platforms like TikTok stems from a shift towards lower-demand options, representing an opportunity to enhance return on ad spend. We assist clients in navigating this. This reflects the positive influence of inflation on the media sector. In terms of retail media, as you've noted, there's been considerable discussion about this. We're observing a trend where clients are integrating retail media spending with marketing budgets. Companies like Mondelez and Unilever are showing that the CMO is assuming greater responsibility for sales, which is a positive trend. Unilever's media review has included retail media within its scope, often for the first time, after a comprehensive evaluation of competitive options. Clients need to merge these spending categories since retailers are attempting to capture funds from both trade media and brand budgets. By unifying these areas, we can better safeguard our clients' budgets and ensure spending is allocated effectively.

I believe the main area of growth in retail is in digital media. Retailers have managed to successfully reclassify some of their trade spending as brand spending. However, this will primarily lead to a reallocation of spending from what consumer packaged goods companies traditionally used for trade media into a different budget category, rather than overall increasing the amount clients allocate for promotions.

From our perspective, that's correct. I mean, it's a positive impact. I think you see it in the growth of Amazon's media business, although Amazon is trying to ramp budgets as well. But 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.

And I think not just reflects an increase in the addressable market, but also reflects an increase in the market complexity. And we've always said that actually helping our clients navigate the complex market is where we add value. And of course, if that market is getting increasingly complex, we've got an ability to add even more value. So I think we've given a plethora of choices to our clients base that where they place their marketing spend and how we optimize that over an overall campaign is where we can really bring our experience of operating in these different segments to bear.

Our next question comes from Matthew Walker from Credit Suisse.

I hope you can hear me, okay. The first question was on Europe and U.K. versus U.S. We didn't see a 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 budget at all to privilege the U.S. against maybe Europe or your budgets for Europe remain unchanged because you've actually had a good Q1 in Europe too? And 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. So just any reflections on that? And then 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?

I'll address the YouTube question and then let John discuss the geographic impact in Russia. YouTube grew 14% in Q1, while Google overall grew 23%, showing a strong comparison to last year's 43% growth. I noticed Ruth's comments in the Financial Times, though I haven't read the full transcript. I believe she was addressing the impact of Russia, which certainly affects them organically. Their situation differs from ours since they're not going through a disposal like we are. Our Q1 figures reflect our business in Europe, with a 16% increase in Germany, our largest market. I don’t have the Polish figures available, but we have a different perspective. There’s a lot of commentary regarding Google's numbers, but I wouldn't read too much into their Q1 results. Overall, it was a strong quarter for them, but somewhat disappointing compared to expectations from others.

And 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, 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 forecast 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. But going forward, we'd see a slight softening decided upon the slight strengthening relatively. The other side of the point, if that helps. On Russia, we're taking that out of like-for-like. And in relation to the GBP 40 million, that will be an exceptional.

Our final question comes from Omar Sheikh from Morgan Stanley.

I think just about remember my 3 questions. So maybe to start with, Mark, it would be very helpful in giving some color by, on the revenue growth by business activity and by geography. But you haven't talked much about verticals, so client verticals. So I wonder you can maybe just give us a bit of color on whether you're seeing any difference in activity from some of your clients, CPG, autos, and so on, which might have been impacted more by commodity price inflation relative to the overall group. Are there any sort of differences in what you're seeing in Q1, Q2? That's the first question. Secondly, we'll go back to visibility point. And 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 it just sort of give us a sense of when decisions might be made going forward by your client insofar as it's able to generalize? And then finally, I just want to clarify the point in the outlook statement where you said that you remain ready to respond to any changes in the economy. I just want to clarify, do you mean sort of an action on costs, so taking out freelance costs, that kind of stuff or maybe even sort of agency consolidation? Or is it something else?

By sector, we have observed strong growth in technology, particularly in retail as it reopens, and ongoing growth in health care. On the other hand, automotive activity has been weak due to the ongoing chip shortage, which varies from one automotive company to another. In consumer packaged goods, the performance is slightly below average. However, we have seen impressive starts to the year from some CPG companies like Coke and L'Oréal, with strong spending. In Coke's case, their business is expected to increase significantly throughout the year, with a larger impact anticipated in future quarters compared to the first one. While some companies approached the year with caution due to intensified inflationary pressures, our CPG clients were aware of these challenges while preparing their budgets. Regarding client decisions, clients retain the option to change their minds, but generally, they prefer stability and continuity in their activities. My overall impression is that clients aim to protect their budgets and avoid making drastic changes. Many have learned from the COVID experience that maintaining spending during such times leads to a stronger position afterward. I don't want to exaggerate or downplay the variability of the situation. Our guidance reflects our best judgment based on discussions with clients, feedback from our team, and a thorough review of the global economic outlook, weighing both risks and opportunities.

And apologies if I overemphasize this point, but I want to leave you with three key points regarding our guidance and outlook statement. First, we've upgraded our guidance from the prelims to Q1, reflecting our belief in outperformance for the quarter and our confidence and momentum moving forward, with good visibility ahead. That said, there is a range of scenarios to consider, both positive and negative, with more uncertainty than usual in our forecasts. On the positive side, if we can maintain our momentum from Q1 into Q2, Q3, and Q4, we expect to see further upgrades throughout the year. On the downside, inflation pressures could affect consumer spending and subsequently advertising spend, leading to potential downsides. Overall, we believe we are positioned where we expect the market to be, but recognize the uncertainty surrounding both outcomes. Finally, regardless of whether positive or negative scenarios play out, we have a proven track record of adapting our business quickly to reflect those economic conditions, whether that means ramping up resources to meet client expectations or reducing costs if necessary. We are well-prepared to navigate both positive and negative scenarios, and we believe the significant upgrade this quarter clearly demonstrates our confidence and the positive trends we've experienced in Q1.

Thanks, everybody. Thanks for all your questions. Appreciate it, and we'll keep in touch.