4th Aug 2023 09:35
(Alliance News) - WPP PLC lowered its yearly guidance, as it expects its top-line to be hurt by some of its US tech clients deciding against digging deeper into their coffers amid uncertain market conditions.
The company reported first-half revenue of GBP7.22 billion, up 6.9% from GBP6.76 billion a year prior. Pretax profit, however, slumped 51% to GBP204.3 million from GBP418.6 million. WPP reported finance costs of GBP230.7 million, a 59% rise from GBP144.9 million.
"Our performance in the first half has been resilient with Q2 growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects. This was felt primarily in our integrated creative agencies. China returned to growth in the second quarter albeit more slowly than expected. In the near term, we expect the pattern of activity in the first half to continue into the second half of the year," Chief Executive Mark Read said.
WPP now expects like-for-like revenue growth, less pass-through costs, of 1.5% to 3.0% for 2023, its guidance cut from a range of 3% to 5%. Its headline operating margin target of "around 15%" was maintained, however. Its headline operating profit margin in 2022 had climbed to 14.8% from 14.4%.
Hargreaves Lansdown analyst Sophie Lund-Yates commented: "Technology spending, especially in the US, has slowed, leading to a dent in performance from the group's substantial integrated creative agencies. This outcome is unwelcome but not wholly surprising, given that corporations are in wait-and-see mode when it comes to splashing the cash and handing margin over, at a time when demand is very tough to profile. While demand for WPP's suite of services hasn't been totally washed out, it has faded this half, and investors will be wanting to see a clear path to return to full colour."
WPP CEO Read noted the company has "exciting future plans in AI".
"We are delivering work powered by AI for many clients including Nestle, Nike and Mondelez. AI will be fundamental to WPP's future success and we are committed to embracing it to drive long-term growth and value," Read added.
Using AI could be key to future WPP growth, Lund-Yates added, though it does come with execution risk.
"Harnessing AI correctly, and swiftly, could be one way to propel large amounts of growth, but change of this magnitude always comes with risk," the Hargreaves Lansdown analyst added.
By Eric Cunha, Alliance News news editor
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