Market Overview

WPP 2018 Interim Results

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New CEO appointed; strategy update by year end

WPP (NYSE:WPP) today reported its 2018 Interim Results.

Mark Read, Chief Executive Officer, WPP, stated:

"The second quarter of 2018 was WPP's first quarter of like-for-like
growth since Q1 2017, and the company has performed strongly in terms of
winning and retaining business over the period.

"At our first quarter trading update we said there was no standing
still, and in the last few months we have made progress in a number of
important areas.

"We have focused our efforts on providing more effectively integrated
solutions to clients and, in competitive pitches, we have won or grown
business with clients including Adidas, Hilton, Mars, Mondelez, Shell
and T-Mobile.

"We have looked at our offering and begun to focus our portfolio through
15 disposals and divestments, including Globant and AppNexus, generating
cash proceeds of £676 million so far this year, which will also
strengthen our balance sheet and improve our average net debt to EBITDA
ratio.

"And we have accelerated initiatives that will simplify our
organisation, making it easier for us to manage and clients to access,
with, for example, co-locations opened or announced in New York, Kuala
Lumpur, Prague and Toronto.

"The mix of performance by geography and function and a decision to
invest in the growing areas of our business resulted in a slightly lower
headline PBIT margin.

"As Chief Executive, my focus will be on invigorating our company and
returning the business to stronger, sustainable growth. Our review of
strategy is underway, addressing our structure, our underperforming
operations, particularly in the United States, and how we position the
company for the future. We will provide an update by the year end."

Highlights

  • Reported revenue down 2.1% at £7.493 billion, impacted by currency
    headwinds of 5.0%. Constant currency revenue up 2.9%, like-for-like
    revenue up 1.6% (Q2 up 2.4%)
  • Constant currency revenue less pass-through costs up 1.4%,
    like-for-like revenue less pass-through costs up 0.3% (Q2 up 0.7%)
  • Headline profit before interest and tax £821 million down 7.0%, down
    2.3% in constant currency
  • Headline PBIT margin 13.3% down 0.5 margin points reportable and
    constant currency, down 0.4 margin points like-for-like
  • Headline profit before tax £735 million down 7.4%, down 2.5% in
    constant currency
  • Profit before tax £846 million up 8.6%, up 14.2% in constant currency
    primarily reflecting net exceptional gains
  • Profit after tax £705 million up 11.3%, up 16.8% in constant currency
  • Headline diluted earnings per share 42.6p down 6.2%, down 1.3% in
    constant currency
  • Diluted earnings per share 53.4p up 14.6%, up 20.3% in constant
    currency
  • Dividends per share 22.7p flat with 2017
  • Share buy-backs of £201 million, equivalent to 1.3% of the issued
    share capital

In this press release not all of the figures and ratios used are
readily available from the unaudited interim results included in
Appendix 1. These non-GAAP measures, including constant currency and
like-for-like growth, revenue less pass-through costs and headline
profit measures, management believes are both useful and necessary to
better understand the Group's results. Where required, details of how
these have been arrived at are shown in the Appendices.

Key figures

£ million     H1 2018    

∆ reported1

   

∆ constant2

   

∆ LFL3

   

H1 20174

Billings     26,656     -1.0%     4.1%           26,920
Revenue     7,493     -2.1%     2.9%     1.6%     7,650
Revenue less pass-through costs     6,149     -3.6%     1.4%    

0.3%

    6,376

Headline EBITDA5

    948     -6.7%     -1.9%           1,016

Headline PBIT excluding share of associates6

    783     -6.3%     -1.6%           836

Headline PBIT7

    821     -7.0%     -2.3%           882

Headline PBIT margin8

    13.3%    

-0.59

    -0.59     -0.49     13.8%
Profit before tax     846     8.6%     14.2%           779
Profit after tax     705     11.3%     16.8%           634

Headline diluted EPS10

    42.6p     -6.2%     -1.3%           45.4p

Diluted EPS11

    53.4p     14.6%     20.3%           46.6p
Dividends per share     22.7p     0.0%     0.0%           22.7p
                   

Reported billings were down 1.0% at £26.656 billion, but up 4.1% in
constant currency. Estimated net new business billings of $3.2 billion
were won in the first half of the year, a return to a strong
performance. The Group won new assignments from Adidas, Hilton,
Mondelez, Office Depot and T-Mobile and expanded its relationships
including Danone, Mars and Shell.

Reported revenue was down 2.1% at £7.493 billion. Revenue on a constant
currency basis was up 2.9% compared with last year, the difference to
the reported number reflecting the strengthening of the pound sterling
in the first half, primarily against the US dollar. On a like-for-like
basis, which excludes the impact of acquisitions and currency, revenue
was up 2.4% in the second quarter, a significant improvement compared
with the first quarter growth of 0.8%, giving 1.6% for the first half.

Revenue less pass-through costs was up 1.4% in the first half, on a
constant currency basis, and up 0.3% like-for-like, again a significant
improvement on the first quarter growth of 1.0% and -0.1% respectively.
In the second quarter, like-for-like revenue less pass-through costs was
up 0.7%, the first quarter of growth since the first quarter of 2017,
following -0.1% in the first quarter, giving 0.3% for the first half.

Operating profitability

Headline EBITDA was down 6.7% to £948 million, down 1.9% in constant
currency. Headline PBIT before income from associates was £783 million,
down 6.3%, down 1.6% or £13 million in constant currency. Headline PBIT
was down 7.0% to £821 million from £882 million, down 2.3% or £20
million in constant currency.

Headline PBIT margin was down 0.5 margin points at 13.3%, down 0.5
margin points in constant currency, and down 0.4 margin points on a
like-for-like basis. On the same basis, excluding all incentives,
margins were down 0.2 margin points, with staff costs excluding
incentives favourable 0.2 margin points and property and other operating
costs worse by 0.4 margin points. In part this reflects continued focus
on salary and freelance costs through control of staff numbers, with
like-for-like average headcount, down 1.7% compared with the increase in
like-for-like revenue less pass-through costs of 0.3%. In the first
half, incentive costs amounted to £115.7 million or 12.9% of headline
PBIT before incentives and income from associates, compared to £104.4
million or 11.1% last year, an increase of £11.3 million or 10.8%.

Exceptional gains and investment write-downs

In the first half of 2018, the Group generated exceptional gains of
£188.5 million, primarily relating to the gain on the sale of the
Group's investment in Globant S.A. These were partly offset by the
Group's share of associate company exceptional losses of £28.4 million
and restructuring costs of £45.5 million, the majority of which comprise
severance costs arising from the continuing structural assessment of
parts of the Group's operations. This gives a net exceptional gain of
£114.6 million. This compares with exceptional gains in the first half
of 2017 of £18.9 million, relating primarily to the Group's share of
associate company exceptional gains, offset by restructuring costs of
£19.2 million, giving a net exceptional loss of £0.3 million.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments)
were £85.9 million compared to £88.6 million in the first half of 2017,
a decrease of £2.7 million, or 3.0%, reflecting foreign exchange and
higher levels of average net debt, more than offset by lower funding
costs and more efficient management of cash pooling.

The headline tax rate rose by 0.5% to 22.5% (2017: 22.0%), reflecting
the levels and mix of profits in the countries in which the Group
operates. The tax rate on the reported profit before tax was 16.7%
(2017: 18.7%), lower than the headline tax rate, due to the revaluation
of financial instruments, and gains on disposal of investments and
subsidiaries not being taxable.

Earnings and dividend

Headline profit before tax was down 7.4% to £735 million from £793
million and down 2.5% in constant currency.

Reported profit before tax rose by 8.6% to £846 million from £779
million, or up 14.2% in constant currency. This reflected the
significant difference between the net exceptional gains in the first
half of 2018 compared with the small net exceptional loss in the first
half of last year. Reported profits attributable to share owners rose by
12.8% to £672 million from £596 million, again reflecting the impact of
exceptional items in 2018. In constant currency, profits attributable to
share owners rose by 18.4%.

Diluted headline earnings per share fell by 6.2% to 42.6p from 45.4p. In
constant currency, diluted headline earnings per share fell by 1.3%.
Diluted reported earnings per share rose by 14.6% to 53.4p from 46.6p
and by 20.3% in constant currency, as a result of the net exceptional
gains in the first half of 2018 compared with the first half of 2017.

Given the first half results, your Board considers it appropriate to
declare an interim dividend of 22.7p per share, the same as last year, a
pay-out ratio of 53%. The record date for the interim dividend is 5
October 2018, payable on 5 November 2018. Further details of WPP's
financial performance are provided in Appendices 1 and 2.

Revenue analysis

£ million     2018     ∆ reported    

∆ constant12

   

∆ LFL13

    acquisitions    

201714

First quarter     3,555     -4.0%     2.0%     0.8%     1.2%     3,704
Second quarter     3,938     -0.2%     3.7%     2.4%     1.3%     3,946
First half     7,493     -2.1%     2.9%     1.6%     1.3%     7,650
 

Revenue less pass-through costs analysis

£ million     2018     ∆ reported     ∆ constant     ∆ LFL     acquisitions     201714
First quarter     2,948     -5.1%     1.0%     -0.1%     1.1%     3,107
Second quarter     3,201     -2.1%     1.8%     0.7%     1.1%     3,269
First half     6,149     -3.6%     1.4%     0.3%     1.1%     6,376
 

Regional review
Revenue analysis
Second
quarter

£ million     Q2 2018     ∆ reported     ∆ constant     ∆ LFL     % group     Q2 2017     % group
N. America     1,346     -5.0%     0.6%     -0.3%     34.2%     1,417     35.9%
United Kingdom     560     2.0%     2.0%     1.0%     14.2%     549     13.9%
W. Cont. Europe     850     8.4%     7.8%     4.6%     21.6%     783     19.9%

AP, LA, AME, CEE15

    1,182     -1.2%     5.2%     4.5%     30.0%     1,197     30.3%
Total Group     3,938     -0.2%     3.7%     2.4%     100.0%     3,946     100.0%
 

First half

£ million     H1 2018    

∆ reported

    ∆ constant     ∆ LFL     % group     H1 2017     % group
N. America     2,598     -7.8%     0.4%     -0.7%     34.7%     2,818     36.8%
United Kingdom     1,092     4.2%     4.2%     3.1%     14.6%     1,047     13.7%
W. Cont. Europe     1,610     5.5%     4.4%     1.7%     21.5%     1,526     20.0%
AP, LA, AME, CEE     2,193     -2.9%     4.1%     3.7%     29.2%     2,259     29.5%
Total Group     7,493     -2.1%     2.9%     1.6%     100.0%     7,650     100.0%
 

Revenue less pass-through costs analysis
Second quarter

£ million     Q2 2018     ∆ reported     ∆ constant     ∆ LFL     % group     Q2 2017     % group
N. America     1,100     -8.6%     -3.1%     -3.3%     34.4%     1,204     36.8%
United Kingdom     428     2.3%     2.3%     1.4%     13.4%     418     12.8%
W. Cont. Europe     693     8.8%     8.1%     3.9%     21.6%     637     19.5%
AP, LA, AME, CEE     980     -3.0%     3.3%     2.9%     30.6%     1,010     30.9%
Total Group     3,201     -2.1%     1.8%     0.7%     100.0%     3,269     100.0%
 

First half

£ million     H1 2018     ∆ reported     ∆ constant     ∆ LFL     % group     H1 2017     % group
N. America     2,155     -10.5%     -2.4%     -2.9%     35.0%     2,407     37.7%
United Kingdom     833     2.2%     2.2%     1.5%     13.5%     815     12.8%
W. Cont. Europe     1,319     6.7%     5.5%     1.9%     21.5%     1,236     19.4%
AP, LA, AME, CEE     1,842     -4.0%     3.1%     2.6%     30.0%     1,918     30.1%
Total Group     6,149     -3.6%     1.4%     0.3%     100.0%     6,376     100.0%
 

As shown in the tables above like-for-like growth in revenue less
pass-through costs improved in the second quarter, with a deterioration
in North America but significant improvement in Western Continental
Europe, with the United Kingdom slightly slower than the first quarter.
There was a marked improvement in the faster growing markets of Asia
Pacific, Latin America, Africa & the Middle East and Central & Eastern
Europe.

North America showed continued pressure in the second quarter,
with like-for-like revenue less pass-through costs down 3.3%, compared
with -2.4% in the first quarter, as parts of the Group's advertising,
direct, digital & interactive, data investment management and brand
consulting businesses came under pressure, partly offset by improving
performance in the Group's media investment management, public relations
and public affairs and health & wellness businesses.

United Kingdom like-for-like revenue less pass-through costs
growth was 1.4% in the second quarter, slightly down on the first
quarter of 1.6%, with the Group's public relations and public affairs,
health & wellness, direct, digital and interactive and specialist
communications businesses stronger, offset by slippage in the Group's
advertising and media investment management businesses.

Western Continental Europe was the strongest performing region in
the second quarter, with like-for-like revenue less pass-through costs
up 3.9%, a significant improvement over the first quarter of -0.2%.
Germany performed particularly well, boosted by strong growth in the
Group's media investment management, public relations & public affairs
and direct, digital & interactive businesses. The strong growth in the
second quarter was also helped by improved performance in Denmark,
France, Greece, Italy, Portugal, Spain and Sweden with Austria and
Ireland slower compared with the first quarter.

In Asia Pacific, Latin America, Africa & the Middle East and Central
& Eastern Europe
, like-for-like revenue less
pass-through costs improved to 2.9% in the second quarter compared with
2.3% in the first quarter. In Asia Pacific, mainland China showed
significant improvement in the second quarter with like-for-like revenue
less pass-through costs up 9.0%, driven by strong performance in the
Group's media investment management, data investment management and
brand consulting businesses. Japan also improved, together with Korea,
Malaysia, Pakistan and the Philippines, with India and Thailand slower.
On the same basis, growth in Latin America remained strong, similar to
the first quarter, with like-for-like revenue less pass-through costs up
over 8%. The Middle East & Africa improved slightly but remains
difficult.

Business sector review
Revenue analysis
Second
quarter

£ million     Q2 2018     ∆ reported    

∆ constant16

   

∆ LFL17

    % group     Q2 2017     % group

AMIM18

    1,829     -1.7%     2.1%     3.1%     46.4%     1,861     47.2%

Data Inv. Mgt.19

    640     -4.9%     -1.5%     -1.8%     16.3%     673     17.1%

PR & PA20

    306     1.2%     5.3%     5.8%     7.8%     302     7.6%

BC, HW & SC 21

    1,163     4.7%     9.1%     2.8%     29.5%     1,110     28.1%
Total Group     3,938     -0.2%     3.7%     2.4%     100.0%     3,946     100.0%
 

First half

£ million     H1 2018     ∆ reported     ∆ constant     ∆ LFL     % group     H1 2017     % group
AMIM     3,441     -3.6%     1.1%     2.2%     45.9%     3,570     46.7%
Data Inv. Mgt.     1,236     -5.9%     -1.9%     -2.2%     16.5%     1,314     17.2%
PR & PA     581     -2.7%     3.0%     3.7%     7.8%     597     7.8%
BC, HW & SC     2,235     3.0%     8.7%     2.4%     29.8%     2,169     28.3%
Total Group     7,493     -2.1%     2.9%     1.6%     100.0%     7,650     100.0%
 

Revenue less pass-through costs analysis
Second quarter

£ million     Q2 2018     ∆ reported     ∆ constant     ∆ LFL     % group     Q2 2017     % group
AMIM     1,382     -6.3%     -2.7%     -0.7%     43.2%     1,475     45.1%
Data Inv. Mgt.     491     -4.3%     -0.5%     -1.3%     15.3%     513     15.7%
PR & PA     288     0.9%     5.1%     5.8%     9.0%     285     8.7%
BC, HW & SC     1,040     4.5%     8.9%     2.2%     32.5%     996     30.5%
Total Group     3,201     -2.1%     1.8%     0.7%     100.0%     3,269     100.0%
 

First half

£ million     H1 2018     ∆ reported     ∆ constant     ∆ LFL     % group     H1 2017     % group
AMIM     2,639     -7.3%     -2.8%     -0.8%     42.9%     2,848     44.7%
Data Inv. Mgt.     946     -5.1%     -0.8%     -1.5%     15.4%     997     15.6%
PR & PA     551     -3.0%     2.6%     3.5%     9.0%     568     8.9%
BC, HW & SC     2,013     2.5%     8.4%     1.9%     32.7%     1,963     30.8%
Total Group     6,149     -3.6%     1.4%     0.3%     100.0%     6,376     100.0%
 

In the second quarter of 2018, like-for-like revenue less pass-through
costs in the Group's advertising and media investment management
businesses improved slightly compared with the first quarter, with
significant improvement in media investment management, particularly in
North America, Continental Europe and Asia Pacific. The Group's
advertising businesses remain difficult, with all regions, except
Western Continental Europe, slower, but particularly in North America,
where the Group's major networks remain under pressure.

Data investment management showed some improvement in the second
quarter, with like-for-like revenue less pass-through costs down 1.3%
compared with -1.7% in the first quarter. Although North America remains
difficult, there was improvement in the United Kingdom, with double
digit growth in Latin America and Asia Pacific up almost 3%. The Kantar
Insights businesses, Kantar Public and Kantar Health remain challenged,
but both Kantar Media and Kantar Worldpanel were stronger compared with
the first quarter.

Public relations and public affairs was the strongest performing sector
in the second quarter, with like-for-like revenue less pass-through
costs up almost 6% compared with 1.1% in the first quarter. This was
driven by strong growth in both the United Kingdom and Germany through
the Group's financial public relations businesses and double-digit
growth in Latin America and the Middle East.

In the Group's specialist communications businesses, direct, digital and
interactive together with health & wellness were up strongly, but brand
consulting remains challenging, particularly in the United States
following some client losses towards the end of 2017.

Cash flow highlights

In the first half of 2018, operating profit was £842 million,
depreciation, amortisation and goodwill impairment £211 million,
non-cash share-based incentive charges £42 million, net interest paid
£50 million, tax paid £251 million, capital expenditure £178 million and
other net cash outflows £216 million. Free cash flow available for
working capital requirements, debt repayment, acquisitions, share
buy-backs and dividends was, therefore, £400 million.

This free cash flow was boosted by £469 million of disposal proceeds,
offset by £136 million of new acquisition payments and £38 million of
earnout payments, resulting in net cash proceeds of £295 million. These
proceeds were offset by £201 million in share buy-backs, giving a total
inflow of £94 million.

As a result, total net cash inflow amounted to £494 million, before any
changes in working capital.

A summary of the Group's unaudited cash flow statement and notes as at
30 June 2018 is provided in Appendix 1.

Balance sheet highlights

Average net debt in the first six months of 2018 was £4.979 billion,
compared to £4.706 billion in 2017, at 2018 exchange rates, an increase
of £273 million. The increase in the average net debt figure, reflects
the increase in capital expenditure and dividends in the twelve months
to 30 June 2018, together with a worsening net working capital position
in the second half of 2017.

Net debt at 30 June 2018 was £4.632 billion, compared to £4.716 billion
on 30 June 2017, at 2018 exchange rates, a decrease of £84 million. The
decrease in the net debt figure at 30 June 2018 reflects £469 million
proceeds in relation to disposal of the Group's interest in certain
associates and investments, the principal one of which was Globant S.A.,
largely offset by a deterioration in net working capital in the month of
June. At 31 July 2018 net debt was £5.038 billion compared to £5.546
billion at 31 July 2017, at 2018 exchange rates, a decrease of £508
million, following an improvement in net working capital.

The average net debt to EBITDA ratio in the 12 months to 30 June 2018 is
2.1x. As outlined in the First Quarter Trading Update, a decision was
taken to reduce the target range of the average net debt/EBITDA ratio
from 1.5-2.0x to 1.5-1.75x, to be achieved over the next 12 to 18
months. The cash disposal proceeds of £469 million, the majority of
which were received in June 2018 will help in achieving the revised
target ratio. In addition, the Group's interest in AppNexus was sold,
the proceeds of which amounted to £169 million, which were received in
August, and more recently the sale of the Group's interest in oOh!media
was announced.

A summary of the Group's unaudited balance sheet and notes as at 30 June
2018 is provided in Appendix 1.

Return of funds to share owners

Your Board considers it appropriate to declare an interim dividend of
22.7p per share, the same as last year, a pay-out ratio of 53% for the
first half, slightly above the target ratio of 50%.

During the first six months of 2018, 15.9 million shares, or 1.3% of the
issued share capital, were purchased at a cost of £201 million and an
average price of £12.63 per share.

Current trading

In July, like-for-like revenue and revenue less pass-through costs were
up 2.1% and 0.4% respectively, in line with the first half growth rates.
Cumulative like-for-like revenue and revenue less pass-through costs
growth for the first seven months of 2018 is now 1.7% and 0.3%
respectively.

Financial guidance

For 2018, reflecting the first half revenue less pass-through costs
growth and second quarter revised forecast:

  • Like-for-like revenue and revenue less pass-through costs growth
    similar to the first half
  • Target full year headline PBIT margin similar to the first half
    decline of 0.4 margin points on a like-for-like basis

Strategy update

We intend to update share owners on the Group's strategy before the end
of the year. This update will address the actions that we will be taking
to better position the business for growth and to address
under-performing units and detail any restructuring costs that will be
necessary, as well as the associated benefits.

Long-term targets

  • Revenue and revenue less pass-through costs growth in line with the
    industry average
  • Improvement in headline PBIT margin of between zero and 0.3 margin
    points, before the impact of currency
  • Annual headline diluted EPS growth of 5% to 10% p.a.
  • Average net debt/EBITDA ratio of 1.5-1.75x

To access WPP's 2018 interim results financial tables, please visit: www.wpp.com/investors

This announcement has been filed at the Company Announcements Office of
the London Stock Exchange and is being distributed to all owners of
Ordinary shares and American Depository Receipts. Copies are available
to the public at the Company's registered office.

The following cautionary statement is included for safe harbour purposes
in connection with the Private Securities Litigation Reform Act of 1995
introduced in the United States of America. This announcement may
contain forward-looking statements within the meaning of the US federal
securities laws. These statements are subject to risks and uncertainties
that could cause actual results to differ materially including
adjustments arising from the annual audit by management and the
Company's independent auditors. For further information on factors which
could impact the Company and the statements contained herein, please
refer to public filings by the Company with the Securities and Exchange
Commission. The statements in this announcement should be considered in
light of these risks and uncertainties.

 

1 Percentage change in reported sterling
2 Percentage change at constant currency rates
3 Like-for-like growth at constant currency exchange
rates and excluding the effects of acquisitions and disposals
4 Prior year figures have been restated for the impact of
the adoption of IFRS 15: Revenue from Contracts with Customers as
described in note 2 of Appendix 1
5 Headline earnings before interest, tax, depreciation
and amortisation
6 Headline profit before interest, tax and share of
results of associates
7 Headline profit before interest and tax
8 Headline profit before interest and tax as a percentage
of revenue less pass-through costs, previously referred to as
revenue less pass-through costs margin
9 Margin points
10 Diluted earnings per share based on headline earnings
11 Diluted earnings per share based on reported earnings
12 Percentage change at constant currency exchange rates
13 Like-for-like growth at constant currency exchange
rates and excluding the effects of acquisitions and disposals
14 Following the implementation of IFRS 15, 2017 first
half results restated resulting in an increase in revenue of £247
million (Q1 £107 million; Q2 £140 million) and an increase in
revenue less pass-through costs of £14 million (Q1 £7 million; Q2 £7
million)
15 Asia Pacific, Latin America, Africa & Middle East and
Central & Eastern Europe
16 Percentage change at constant currency rates
17 Like-for-like growth at constant currency exchange
rates and excluding the effects of acquisitions and disposals
18 Advertising and Media Investment Management
19 Data Investment Management
20 Public Relations & Public Affairs
21 Brand Consulting, Health & Wellness and Specialist
Communications
 

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