- Reported billings up 6.3% at £26.906
billion, down 4.7% in constant currency
- Reported revenue up 13.3% at £7.404
billion, down 0.4% at $9.328 billion, up 2.7% at €8.609 billion and
up 0.4% at ¥1.047 trillion
- Constant currency revenue up 1.9%,
like-for-like revenue down 0.3%
- Constant currency net sales up 2.2%,
like-for-like net sales down 0.5%
- Reported net sales margin of 13.9%,
up 0.2 margin points versus last year, flat in constant currency
and up 0.1 margin points like-for-like
- Headline reported profit before
interest and tax £882 million up 14.7%, and up 1.9% in constant
currency
- Headline profit before tax £793
million up 15.0%, up 1.8% in constant currency
- Profit before tax £779 million up
83.3%, up 52.4% in constant currency primarily reflecting net
exceptional costs in the first half of 2016 of £122 million and
gains on the fair value of financial instruments in the first half
of 2017
- Reported profit after tax £634
million up 124.7%, up 80.6% in constant currency
- Headline diluted earnings per share
45.4p up 16.1%, up 2.4% in constant currency
- Reported diluted earnings per share
46.6p up 146.6%, up 95.1% in constant currency
- Dividends per share 22.7p up 16.1%,
a pay-out ratio of 50%, in line with target
- Share buy-backs of £290 million in
the first half, up from £197 million last year, equivalent to 1.3%
of the issued share capital against 1.0% last year
- Return on equity up strongly at
16.9% for the 12 months to 30 June 2017 from 15.5% for the previous
12 months period. The weighted average cost of capital at 30 June
2017 was 6.3% down slightly from 6.4% at 31 December 2016
- Including associates and
investments, revenue totals over $26 billion annually and people
average over 200,000
- Reported EBITDA £1.016 billion, over
£1 billion for the first time in a half-year period, up 14.2%, up
1.7% in constant currency
- Net new business momentum returned
together with leadership of net new business league tables in the
first half-year and beyond
WPP (NASDAQ:WPPGY) today reported its 2017 Interim Results.
Key figures
£ million
H1 2017
∆ reported1
∆ constant2
H1 2016 Billings 26,906
6.3% -4.7%
25,319 Revenue
7,404 13.3% 1.9%
6,536 Net
sales 6,362 13.7% 2.2%
5,594
Headline EBITDA3
1,016 14.2% 1.7%
889
Headline PBIT4
882 14.7% 1.9%
769
Net sales margin5
13.9%
0.26
0.06
13.7%
Profit before tax
779 83.3% 52.4%
425
Profit after tax 634 124.7%
80.6%
282
Headline diluted EPS7
45.4p 16.1% 2.4%
39.1p
Diluted EPS8
46.6p 146.6% 95.1%
18.9p
Dividends per share 22.7p 16.1%
16.1%
19.55p
First-half and Q2 highlights
- Reported billings increased by
6.3% to £26.906bn, down 4.7% in constant currency
- Reported revenue growth of
13.3%, with like-for-like down 0.3%, 2.2% growth from
acquisitions and 11.4% from currency, primarily reflecting the
weakness of sterling against the US dollar, the euro and other
major currencies
- Reported net sales up 13.7% in
sterling (flat in dollars, up 3.1% in euros and up 0.9% in yen),
with like-for-like down 0.5%, 2.7% growth from acquisitions and
11.5% from currency
- Constant currency revenue growth in
all regions and business sectors, except data investment
management, characterised by strong growth geographically in the
United Kingdom and Asia Pacific, Latin America, Africa & the
Middle East and Central & Eastern Europe, and functionally in
advertising and media investment management and public relations
and public affairs
- Like-for-like net sales down
0.5%, slower than the first quarter, with the gap compared to
revenue growth reversing in the second quarter, as the Group’s
investment in technology enhanced the growth of advertising and
media investment management net sales and as data investment
management direct costs have been reduced
- Reported headline EBITDA up
14.2%, crossing £1 billion for the first time in a half-year,
with constant currency growth up 1.7%, and reported headline
operating costs up 14.0%
- Reported headline PBIT increased by
14.7%, up 1.9% in constant currency with the reported net sales
margin, a more accurate competitive comparator, increasing by 0.2
margin points, and flat on a constant currency basis, behind the
Group’s full year margin target of 0.3 margin points
improvement
- Reported headline diluted EPS 45.4p,
up 16.1%, up 2.4% in constant currency. Dividends increased
16.1% to 22.7p, a pay-out ratio of 50% in the first half, in line
with target
- Average net debt increased by
£421m (9.6%) to £4.811 billion compared to last year, at 2017
constant rates, an improvement over the first quarter of 2017 and
continuing to reflect significant net acquisition spend and share
repurchases of £1.232 billion in the twelve months to 30 June 2017,
representing an increase in incremental spending of £401
million
- Return on equity9 for the
12 months to 30 June 2017 up strongly to 16.9% from 15.5% for the
previous 12 months period, chiefly reflecting the post-Brexit
impact of a considerable weaker pound sterling on the Group’s net
assets. This includes a weighted average after-tax cost of capital
of 6.3% at 30 June 2017, compared with 6.4% at 31 December
2016
- Creative and effectiveness
domination recognised yet again in 2017 with the award of the
Cannes Lion to WPP for most creative Holding Company for the
seventh successive year since the award’s inception. Three WPP
agency networks, Ogilvy & Mather Worldwide, Y&R and Grey
finished in the top six networks at Cannes in 2017, in positions
two, four and six. For the sixth consecutive year, WPP was also
awarded the EFFIE as the most effective Holding Company
- Resumption of strong net new
business performance and leadership of net new business league
tables
- Continuing implementation of growth
strategy with revenue ratios for fast growth markets and new
media raised to 40-45% over next three to four years. Quantitative
revenue target of 50% already achieved
Current trading and outlook
- July 2017 | July like-for-like
revenue growth of -4.1% and net sales growth of -2.6%
like-for-like, behind budget and the quarter 2 revised forecast.
All regions, except the United Kingdom, Latin America and Central
& Eastern Europe showed lower revenue than the prior year and
all sectors were down, with advertising & media investment
management and data investment management the most affected.
Cumulative like-for-like revenue growth for the first seven months
of 2017 is down 0.9% and net sales down 0.8%
- FY 2017 quarter 2 revised
forecast | Following the pressure on client spending in the
second quarter particularly in the fast moving consumer goods
(fmcg) or packaged goods sector, the quarter 2 full year revised
forecast has been revised down further, with both like-for-like
revenue and net sales forecast to be between zero and 1.0% growth.
Despite the forecast reduction from the quarter 1 forecast, the
headline net sales operating margin target improvement remains, as
previously, 0.3 margin points in constant currency
- Dual focus in 2017 | 1. Stronger
than competitor revenue and net sales growth due to leading
position in both faster growing geographic markets and digital,
premier parent company creative position, new business,
horizontality and strategically targeted acquisitions; 2. Continued
emphasis on balancing revenue and net sales growth with headcount
increases and improvement in staff costs to net sales ratio to
enhance operating margins
- Long-term targets | Above
industry revenue and net sales growth due to geographically
superior position in new markets and functional strength in new
media, in data investment management, including data analytics and
the application of new technology, creativity, effectiveness and
horizontality; improvement in staff costs to net sales ratio of 0.2
or more depending on net sales growth; net sales operating margin
expansion of 0.3 margin points or more on a constant currency
basis, with an ultimate goal of almost 20%; and headline diluted
EPS growth of 10% to 15% p.a. from revenue and net sales growth,
margin expansion, strategically targeted small and medium-sized
acquisitions and share buy-backs
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, 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.
Review of Group results
Revenue and net sales
Revenue analysis
£ million
2017 ∆ reported
∆ constant10
∆ LFL11
acquisitions
2016 First quarter
3,597 16.9% 3.6% 0.2% 3.4% 3,076
Second quarter 3,807 10.0% 0.3%
-0.8% 1.1% 3,460
First half 7,404
13.3% 1.9% -0.3% 2.2% 6,536
Net sales analysis
£ million
2017 ∆ reported ∆ constant
∆ LFL acquisitions
2016 First
quarter 3,100 18.5% 4.8% 0.8%
4.0% 2,616
Second quarter 3,262
9.5% -0.2% -1.7% 1.5% 2,978
First
half 6,362 13.7% 2.2% -0.5%
2.7% 5,594
Reported billings were up 6.3% at £26.906 billion, and down 4.7%
in constant currency. Estimated net new business billings of $4.246
billion were won in the first half of the year, a return to a
strong performance, once again, against $2.992 billion in the same
period last year. Generally, the Group continues to benefit from
consolidation trends in the industry, winning assignments from
existing and new clients, including several very large
industry-leading advertising, media and digital assignments.
Reportable revenue was up 13.3% at £7.404 billion. Revenue on a
constant currency basis was up 1.9% compared with last year, the
difference to the reportable number reflecting the continuing
weakness of the pound sterling against the US dollar, the euro and
other major currencies. As a number of our competitors report in US
dollars, in euros and in yen, appendices 2, 3 and 4 show WPP’s
interim results in reportable US dollars, euros and yen
respectively. This shows that US dollar reportable revenue was down
0.4% to $9.328 billion, which compares with the $7.378 billion of
our closest current US-based competitor, euro reportable revenue
was up 2.7% to €8.609 billion, which compares with €4.843 billion
of our nearest current European-based competitor and yen reportable
revenue was up 0.4% to ¥1.047 trillion, which compares with ¥439
billion of our nearest current Japanese-based competitor.
As outlined in the First Quarter Trading Statement and previous
Preliminary Announcements for the last few years, due to the
increasing scale of digital media purchases within the Group’s
media investment management businesses and of direct costs in data
investment management, net sales are the more meaningful and
accurate reflection of top line growth, although currently none of
our competitors report net sales. The differences are shown below
in a table that compares the Group’s like-for-like revenue and net
sales against our direct competitors’ like-for-like revenue only
performance over the last two years.
First half
WPPRevenue
WPP NetSales
OMCRevenue
PubRevenue
IPGRevenue
HavasRevenue
DentsuRevenue
Revenue (local ‘m) £7,404 £6,362 $7,378
€4,843 $3,639 n/a ¥439 Revenue ($'m)
$9,328 $8,015 $7,378 $5,246 $3,639
n/a $3,912 Growth Rates (%)* -0.3 -0.5
3.9 -0.2 1.5 n/a -0.4 Quarterly
like-for-like growth%*
Q1/15 5.2 2.5 5.1
0.9 5.7 7.1 6.2 Q2/15 4.5
2.1 5.3 1.4 6.7 5.5 6.5 Q3/15
4.6 3.3 6.1 0.7 7.1 5.5
4.2 Q4/15 6.7 4.9 4.8 2.8
5.2 3.1 10.6 Q1/16 5.1 3.2 3.8
2.9 6.7 3.4 5.1 Q2/16 3.5
4.3 3.4 2.7 3.7 2.7 9.5 Q3/16
3.2 2.8 3.2 0.2 4.3 2.0
2.7 Q4/16 0.5 2.1 3.6 -2.5
5.3 4.2 3.9 Q1/17 0.2 0.8
4.4 -1.2 2.7 0.1 3.9 Q2/17 -0.8
-1.7 3.5 0.8 0.4 n/a -4.8
2 Years cumulative like-for-like growth %
Q1/15 12.2
6.3 9.4 4.2 12.3 10.1 n/a
Q2/15 14.7 6.5 11.1 1.9 11.4
13.4 n/a Q3/15 12.2 6.3 12.6
1.7 13.4 11.5 n/a Q4/15 14.5
7.0 10.7 6.0 10.0 6.6 n/a
Q1/16 10.3 5.7 8.9 3.8 12.4
10.5 11.3 Q2/16 8.0 6.4 8.7
4.1 10.4 8.2 16.0 Q3/16 7.8
6.1 9.3 0.9 11.4 7.5 6.9
Q4/16 7.2 7.0 8.4 0.3 10.5
7.3 14.5 Q1/17 5.3 4.0 8.2
1.7 9.4 3.5 9.0 Q2/17 2.7
2.6 6.9 3.5 4.1 n/a 4.7 * The
above like-for-like/organic revenue figures are extracted from the
published quarterly trading statements issued by Omnicom Group
(“OMC”), Publicis Groupe (“Pub”), Interpublic Group (“IPG”), HAVAS
(“Havas”) and Dentsu (“Dentsu”). Havas are due to report their 2017
first half results on 25 August 2017.
On a like-for-like basis, which excludes the impact of
acquisitions and currency, revenue was down 0.3% in the first half,
with net sales down 0.5%, with the gap compared to revenue growth
reversing in the second quarter, as the impact of the Group’s
investment in technology had an increasingly positive impact on net
sales and as data investment management direct costs reduced. In
the second quarter, like-for-like revenue was down 0.8%, lower than
the first quarter’s growth of 0.2%, giving -0.3% for the first
half, with net sales weaker at -1.7%, following +0.8% in the first
quarter, giving -0.5% for the first half, against strong
comparatives of 4.3% and 3.8% for revenue and net sales
respectively, in the first half of 2016.
Global GDP growth remains muted in the nominal range 3.0%-3.5%,
impacted by global socio-political issues, with significant
top-line like-for-like growth amongst the S&P 500, for example,
being virtually confined to the technology sectors and some above
trend growth amongst HMOs in the pharmaceutical sector. With little
inflation and, therefore, limited pricing power there is
considerable focus on cost by client financial and procurement
functions. These trends, that have been in place for much of the
period since the Lehman crisis in 2008, have been increasingly
reinforced more recently by technological disruption, cheap money,
activist investors and zero-based budgeting models, which focus
incumbents on short-term profitability and cost control. As a
result, for example, fmcg or consumer packaged goods have been
under consistent pressure in particular, sectors which account for
approximately one-third of the Group’s revenue. All this has
resulted in spending cuts, which, in turn, have produced little if
any volume gains. In the long-term, this has resulted or will
result in a further reduction in numbers of consumers or users, a
serious warning sign that we believe will be countered in due
course through increased marketing investment spending.
Operating profitability
Reported headline EBITDA was up 14.2% to £1.016 billion, passing
£1 billion for the first time in a half-year, up 1.7% in constant
currency. Reported headline operating profit was up 14.7% to £882
million from £769 million, up 1.9% in constant currency. As has
been noted before, our profitability tends to be more skewed to the
second half of the year compared with some of our competitors.
Reported headline net sales operating margins were up 0.2 margin
points at 13.9%, flat in constant currency, and up 0.1 margin
points on a like-for-like basis. Continued client pressure on costs
and spending, particularly amongst packaged goods clients, was a
significant element in keeping the Group’s operating margin flat in
constant currency in the first half, and below the Group’s full
year margin objective of 0.3 margin points improvement on a
constant currency basis.
Given the significance of data investment management revenue to
the Group, with none of our direct parent company competitors
significantly present in that sector, net sales remain a much more
meaningful measure of competitive comparative top line and margin
performance. Net sales is a more appropriate measure because data
investment management revenue includes pass-through costs,
principally for data collection, on which no margin is charged and
with the growth of the internet, the process of data collection
becomes more efficient. In addition, the Group’s media investment
management sub-sector is increasingly buying digital media as
principal and as a result, the subsequent billings to clients have
to be accounted for as revenue, as well as billings. We know
competitors do have significantly increasing barter, telesales,
food broking and field marketing operations, where the same issue
arises and which remain opaque and undisclosed. As a result,
reporting practices should be standardised, although there is
limited recognition of this to date. Thus, revenue and revenue
growth rates will tend to increase, although net sales and net
sales growth will remain unaffected and the latter will present a
clearer picture of underlying performance. Because of these two
significant factors, the Group, whilst continuing to report revenue
and revenue growth, focuses even more on net sales and the net
sales operating margin.
On a reported basis, net sales operating margins, before all
incentives12, were 15.5%, down 0.4 margin points, compared with
15.9% last year. The Group’s staff costs to net sales ratio,
including incentives, rose by 0.3 margin points to 65.7% compared
with 65.4% in the first half of 2016. As noted above, in part this
reflects the net sales deterioration in quarter two, with limited
ability to quickly adjust the fixed cost base, although staff
numbers have been reasonably well controlled, with average
headcount, including acquisitions, rising 2.4% compared with the
increase in constant currency net sales of 2.2%.
Operating costs
In the first half of 2017, headline operating costs13 increased
by 14.0% and were up by 2.5% in constant currency, compared with
reported net sales up 13.7% and constant currency net sales growth
of 2.2%. Reported staff costs, excluding all incentives, were up
0.8 margin points at 64.0% of net sales and up 0.9 margin points in
constant currency. Incentive costs amounted to £104.4 million or
11.1% of headline operating profits before incentives and income
from associates, compared to £121.6 million last year, or 14.0%, a
decrease of £17.2 million or 14.1%. Target incentive funding is set
at 15% of operating profit before bonus and taxes, maximum at 20%
and in some instances super-maximum at 25%. Reportable severance
costs were £34.5 million versus £29.7 million for the same period
last year. Variable staff costs were 6.1% of revenue and 7.1% of
net sales, at the higher end of historical ranges. Further
improvement has been made in reducing the proportion of non-staff
costs to net sales, including establishment, personal, commercial
and office costs, with the non-staff costs ratio improving 0.2
margin points on a reportable basis and 0.1 margin points on a
constant currency basis. Contribution from share of results of
associates improved reportable margins by 0.4 margin points and 0.3
margin points in constant currency.
On a like-for-like basis, the average number of people in the
Group, excluding associates, was 134,387 in the first half of the
year, compared to 135,646 in the same period last year, a decrease
of 0.9%. On the same basis, the total number of people in the
Group, excluding associates, at 30 June 2017 was 133,931, down 1.8%
compared to 136,406 at 30 June 2016. Since 1 January 2017, on a
like-for-like basis, the number of people in the Group has
decreased by 1.0% or over 1,400 at 30 June 2017, reflecting the
continued caution by the Group’s operating companies in hiring and
the usual seasonality of a relatively smaller absolute first half
in comparison to the second half. On the same basis revenue
decreased 0.3%, with net sales down 0.5%.
Exceptional gains and investment write-downs
In the first half of 2017, net exceptional losses amounted to
£0.3 million, primarily relating to the Group’s share of net
exceptional gains of associates, offset by restructuring costs.
This compares with net exceptional losses in the first half of 2016
of £121.6 million, relating primarily to the write down of the
Group’s investment in comScore.
Interest and taxes
Net finance costs (excluding the revaluation of financial
instruments) were £88.6 million compared to £79.0 million in the
first half of 2016, an increase of £9.6 million, or 12.2%,
reflecting foreign exchange and higher levels of average net debt,
partly offset by lower funding costs and more efficient management
of cash pooling. The weighted average debt maturity is now 10
years, with a weighted average interest rate of 3.0% at 30 June
2017 versus 3.4% at 30 June 2016.
The headline tax rate rose by 1.0% to 22.0% (2016: 21.0%),
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 18.7% (2016: 33.7%), lower than the headline tax rate, largely
because the revaluation of financial instruments were not
taxable.
Earnings and dividend
Headline profit before tax was up 15.0% to £793 million from
£690 million and up 1.8% in constant currency.
Reported profit before tax rose by 83.3% to £779 million from
£425 million, or up 52.4% in constant currency. This reflected the
significant difference between the net exceptional losses of £0.3
million in the first half of 2017, compared with the net
exceptional losses of £121.6 million in the first half of last
year. Reported profits attributable to share owners rose by 142.5%
to £596 million from £246 million, again reflecting the impact of
exceptional items in 2016. In constant currency, profits
attributable to share owners rose by 92.1%.
Diluted headline earnings per share rose by 16.1% to 45.4p from
39.1p. In constant currency, diluted headline earnings per share
rose by 2.4%. Diluted reported earnings per share rose by 146.6% to
46.6p from 18.9p and by 95.1% in constant currency, as a result of
the net exceptional losses in the first half of 2016 compared with
the first half of 2017.
As outlined in the 2015 Preliminary Announcement, the
achievement of the previous targeted pay-out ratio of 45% one year
ahead of schedule, raised the question of whether the pay-out ratio
target should be increased further. Following that review, your
Board decided to up the dividend pay-out ratio to a target of 50%,
to be achieved by 2017, and as a result, dividends increased by an
overall 17.0% in relation to 2015, and a dividend pay-out ratio of
47.7%. In 2016, dividends increased overall by a further 26.7%
(including the proposed final dividend of 37.05p), reaching the
recently targeted pay-out ratio of 50% one year ahead of schedule.
Despite the modest improvement in constant currency operating
profit and headline diluted earnings per share in the first half of
2017, your Board considers it appropriate to declare an interim
dividend of 22.7p per share, an increase of 16.1%, in line with the
increase in reported diluted earnings per share, and a pay-out
ratio of 50% for the first half, in line with target. The record
date for the interim dividend is 6 October 2017, payable on 6
November 2017. Further details of WPP’s financial performance are
provided in Appendices 1-4.
Cyber-attack
On 27 June, the Group, together with several other
multi-national companies who also had operating companies active in
Ukraine using a piece of tax filing software, experienced a network
cyber-attack, which led to a significant disruption of some of the
Group’s operating companies, particularly at GroupM and the Y&R
Group. However, despite the disruption, the majority of the Group’s
systems were restored and operating normally within one week or so
of the attack with the help of its IT partners led by IBM, with
some remaining issues in a few locations, which are being worked
through. Although there was some delay to certain financial
processes, the Group did not experience any significant loss in
revenue from clients or of data and believes that the cyber-attack
cannot be blamed for the weaker performance in June and July.
Whilst it is virtually impossible to prevent 100% of attacks of
this nature, further measures are being taken to assess and
strengthen our controls and recovery procedures.
Regional review
The pattern of revenue and net sales growth differed regionally.
The tables below give details of revenue and net sales, revenue and
net sales growth by region for the second quarter and first half of
2017, as well as the proportion of Group revenue and net sales and
operating profit and operating margin by region;
Revenue analysis
£ million
Q2 2017 ∆ reported
∆ constant14
∆ LFL15
% group
Q2 2016 % group N. America
1,391 11.3% -0.5% -3.0% 36.6%
1,250 36.1% United Kingdom 506 6.4%
6.4% 5.8% 13.3% 475 13.7% W.
Cont. Europe 767 5.6% -2.5% -3.2%
20.1% 726 21.0%
AP, LA, AME, CEE16
1,143 13.3% 0.8% 0.8% 30.0%
1,009 29.2%
Total Group 3,807
10.0% 0.3% -0.8%
100.0% 3,460 100.0% £
million
H1 2017 ∆ reported ∆ constant
∆ LFL % group
H1 2016 % group N.
America 2,767 13.4% -0.4% -3.0%
37.4% 2,440 37.3% United Kingdom 979
5.6% 5.6% 4.5% 13.2% 927 14.2%
W. Cont. Europe 1,494 11.3% 1.8% 0.7%
20.2% 1,342 20.5% AP, LA, AME, CEE
2,164 18.5% 3.2% 0.3% 29.2%
1,827 28.0%
Total Group 7,404 13.3%
1.9% -0.3% 100.0% 6,536 100.0%
Net sales analysis
£ million
Q2 2017 ∆ reported ∆ constant
∆ LFL % group
Q2 2016 % group N.
America 1,206 11.2% -0.6% -3.3%
36.9% 1,084 36.4% United Kingdom 417
4.4% 4.4% 4.0% 12.8% 400 13.4%
W. Cont. Europe 633 4.8% -3.4% -4.2%
19.4% 604 20.3% AP, LA, AME, CEE 1,006
13.0% 0.6% -0.4% 30.9% 890
29.9%
Total Group 3,262
9.5% -0.2% -1.7%
100.0% 2,978 100.0% £
million
H1 2017 ∆ reported ∆ constant
∆ LFL % group
H1 2016 % group N.
America 2,410 14.6% 0.7% -2.2%
37.9% 2,103 37.6% United Kingdom 813
5.0% 5.0% 3.8% 12.8% 775 13.8%
W. Cont. Europe 1,230 10.6% 1.0% -0.3%
19.3% 1,112 19.9% AP, LA, AME, CEE
1,909 19.0% 3.7% -0.3% 30.0%
1,604 28.7%
Total Group 6,362 13.7%
2.2% -0.5% 100.0% 5,594 100.0%
Operating profit analysis (Headline PBIT)
£ million
H1 2017 % margin*
H1
2016 % margin* N. America 401 16.6%
349 16.6% United Kingdom 112 13.8% 98
12.6% W. Cont. Europe 153 12.4% 138
12.4% AP, LA, AME, CEE 216 11.3% 184
11.5%
Total Group 882
13.9% 769 13.7% *
Headline PBIT as a percentage of net sales
North America like-for-like revenue decreased 3.0% in the
second quarter, with like-for-like net sales down 3.3%, slightly
worse than the first quarter, as parts of the Group’s advertising
and media investment management, data investment management and
healthcare businesses continued to come under pressure, together
with a reduction in the pace of growth in the Group’s public
relations and public affairs and digital, eCommerce and shopper
marketing businesses. As a result, like-for-like revenue growth
rates in the first half were the same as the first quarter at
-3.0%, with like-for-like net sales -2.2%, compared with -1.1% in
the first quarter.
United Kingdom like-for-like revenue, was up 5.8% in the
second quarter, the strongest performing region, and a significant
improvement on the first quarter growth of 3.2%, as the Group’s
advertising and media investment management, branding &
identity and digital, eCommerce and shopper marketing businesses
improved over the first quarter.
Western Continental Europe, which remains uneven from a
macro-economic point of view, slowed in the second quarter,
following the strong growth in the first quarter, with
like-for-like revenue down 3.2%, compared with growth of 5.3% in
the first quarter. Austria, Finland, France, Germany, Italy, the
Netherlands and Sweden all slowed in the second quarter, compared
with the first quarter. Greece and Turkey were the only bright
spots. Net sales showed a similar pattern to revenue, down 4.2%
like-for-like, compared with growth of 4.3% in the first
quarter.
In Asia Pacific, Latin America, Africa & the Middle East
and Central & Eastern Europe, revenue growth showed some
improvement over the first quarter, with like-for-like growth of
0.8%, compared with -0.1% in the first quarter. However,
like-for-like net sales declined 0.4%, slightly worse than the
-0.1% in the first quarter. Revenue growth in Asia Pacific and
Latin America showed an improving trend, with Africa & the
Middle East and Central & Eastern Europe slower. Net sales
growth showed a similar trend to revenue, although Asia Pacific was
weaker. In South East Asia, India, the Group’s second largest
market in the region, remains a shining beacon, with like-for-like
net sales growth of 4.0% in the second quarter. Indonesia,
Pakistan, the Philippines, Thailand and Vietnam all grew net sales
well above the average, but Greater China remains sluggish as it
was in the first quarter. Net sales growth in the
BRICs17 slowed in the second quarter, as Brazil and
Russia were more difficult. The Next 1118 continued
to grow more strongly, but slower than the first quarter.
CIVETS and MIST also continued to grow more strongly,
but more slowly in the second quarter.
In Central & Eastern Europe, like-for-like net sales
in the second quarter were affected by the slowdown in Russia, with
the Czech Republic and Poland also performing less well. The bright
spots were Hungary, Romania and Ukraine.
Primarily reflecting the usually lower first-half seasonal
pattern, the continued higher growth rates in some mature markets,
and generally weaker foreign exchange rates in so called faster
growth markets, only 30.0% of the Group’s net sales came from Asia
Pacific, Latin America, Africa & the Middle East and Central
& Eastern Europe, against the Group’s revised and strengthened
strategic objective of 40-45% over the next three to four years.
However, this was up over one percentage point compared with last
year, reflecting in part the merger of most of the Group’s
Australian and New Zealand assets with STW Communications Group
Limited in Australia. The re-named WPP AUNZ became a listed
subsidiary of the Group on 8 April 2016.
Business sector review
The pattern of revenue and net sales growth also varied by
communications services sector and operating brand. The tables
below give details of revenue and net sales, revenue and net sales
growth by communications services sector, as well as the proportion
of Group revenue and net sales for the second quarter and first
half of 2017 and operating profit and operating margin by
communications services sector;
Revenue analysis
£ million
Q2 2017 ∆ reported
∆ constant19
∆ LFL20
% group
Q2 2016 % group
AMIM21
1,816 15.2% 5.2% -0.2% 47.7%
1,576 45.6%
Data Inv. Mgt.22
669 2.7% -6.2% -4.6% 17.6%
652 18.8%
PR & PA23
293 12.6% 2.1% 0.6% 7.7%
260 7.5%
BI, HC & SC 24
1,029 5.8% -3.7% 0.1% 27.0%
972 28.1%
Total Group 3,807
10.0% 0.3% -0.8%
100.0% 3,460 100.0% £
million
H1 2017 ∆ reported ∆ constant
∆ LFL % group
H1 2016 % group
AMIM 3,489 17.7% 6.1% 0.0% 47.1%
2,963 45.4% Data Inv. Mgt. 1,308 5.1%
-5.3% -4.1% 17.7% 1,244 19.0% PR
& PA 584 16.9% 4.4% 2.4%
7.9% 499 7.6% BI, HC & SC 2,023
10.6% -0.8% 0.8% 27.3% 1,830
28.0%
Total Group 7,404 13.3% 1.9%
-0.3% 100.0% 6,536 100.0%
Net sales analysis
£ million
Q2 2017 ∆ reported ∆ constant
∆ LFL % group
Q2 2016 % group
AMIM 1,466 12.6% 2.8% -2.9%
44.9% 1,301 43.7% Data Inv. Mgt. 513
4.9% -4.3% -2.8% 15.7% 489 16.4%
PR & PA 286 11.4% 1.1% -0.1%
8.8% 256 8.6% BI, HC & SC 997 7.0%
-2.6% 0.1% 30.6% 932 31.3%
Total Group 3,262 9.5%
-0.2% -1.7% 100.0%
2,978 100.0% £ million
H1
2017 ∆ reported ∆ constant ∆ LFL %
group
H1 2016 % group AMIM 2,830
16.8% 5.1% -1.7% 44.5% 2,423
43.3% Data Inv. Mgt. 997 8.1% -2.9%
-1.9% 15.7% 922 16.5% PR & PA 568
15.8% 3.4% 1.8% 8.9% 490
8.8% BI, HC & SC 1,967 11.8% 0.4%
1.1% 30.9% 1,759 31.4%
Total Group
6,362 13.7% 2.2% -0.5% 100.0%
5,594 100.0%
Operating profit analysis (Headline PBIT)
£ million
H1 2017 % margin*
H1
2016 % margin* AMIM 432 15.3%
37025
15.3% Data Inv. Mgt. 129 13.0% 125
13.5% PR & PA 80 14.0% 6925
14.1% BI, HC & SC 241 12.3% 20525
11.7%
Total Group 882 13.9%
769 13.7% * Headline PBIT as a
percentage of net sales
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management revenue grew 5.2% in the second quarter, with
like-for-like growth -0.2%, slightly down compared with the first
quarter and continuing to reflect weaker trading conditions in the
Group’s media investment management businesses in North America and
the Middle East, together with slower growth in Western Continental
Europe and the particularly strong comparative in the second
quarter of last year of 5.4%. On the same basis net sales grew 2.8%
and -2.9% respectively, with a reduction in the growth rate in the
Group’s advertising businesses in most major markets, especially
North America, Western Continental Europe and Asia Pacific,
although the United Kingdom showed some improvement.
The Group gained a total of $4.246 billion in net new business
wins (including all losses and excluding retentions) in the first
half, a significant increase compared to $2.992 billion in the same
period last year and which reflects improved net new business
momentum and restored leadership in net new business league tables.
Of this, J. Walter Thompson Company, Ogilvy & Mather Worldwide,
Y&R and Grey generated net new business billings of $1.001
billion. Also, out of the Group total, GroupM, the Group’s media
investment management company (which includes Mindshare,
MEC/Maxus(Newco), MediaCom, GroupM Search, Xaxis and Essence),
together with tenthavenue, generated net new business billings of
$2.101 billion.
On a reportable basis, net sales margins were flat at 15.3%.
Data Investment Management
On a like-for-like basis, data investment management revenue
fell 4.6% in the second quarter, compared with -3.4% in the first
quarter, with Western Continental Europe, Asia Pacific and Africa
& the Middle East slower than the first quarter. North America,
the United Kingdom and Latin America improved over the first
quarter. Like-for-like net sales were down 2.8% in the second
quarter compared with -0.8% in the first quarter, with all regions,
except Latin America slowing. Reportable net sales margins fell 0.5
margin points, to 13.0%, reflecting the difficult trading
conditions in the first half and the strong improvement of 1.8
margin points in the comparative period last year, partly offset by
the benefits of the restructuring actions taken in 2016.
Public Relations and Public Affairs
Public relations and public affairs like-for-like revenue
increased 0.6% in the second quarter, compared with 4.4% in the
first quarter, which was the strongest performing sector.
Like-for-like net sales showed a similar pattern, down 0.1% in the
second quarter, compared with growth of 3.9% in the first quarter,
with North America, Western Continental Europe and Asia Pacific
slower, but the United Kingdom continued the strong growth seen in
the first quarter with growth over 7%, with the Middle East also
improving. Cohn & Wolfe and parts of the specialist public
relations and public affairs businesses in the United States and
Germany performed particularly well. Reportable net sales margins
fell slightly, down 0.1 margin points, although Ogilvy Public
Relations, Cohn & Wolfe, and the specialist public relations
companies, Glover Park and Ogilvy Government Relations, showed
improved margins in the first half.
Branding and Identity, Healthcare and Specialist
Communications
At the Group’s branding & identity, healthcare and
specialist communications businesses (including digital, eCommerce
and shopper marketing) like-for-like net sales grew 0.1% in the
second quarter, compared with 2.2% in the first quarter. The
Group’s healthcare businesses in the United States and digital,
eCommerce and shopper marketing businesses in North America and
Western Continental Europe performed less well, but the United
Kingdom and Asia Pacific improved. Reportable net sales margins for
this sector as a whole, were up 0.6 margin points, to 12.3%, with
healthcare and specialist communications margins up strongly.
Like-for-like, digital revenue now accounts for over 41% of Group
revenue, up over 1 percentage point from the previous first half,
and grew by 2.2% in the first half with net sales up 2.0%.
Associates, Investments, People, Countries, Clients,
Horizontality
Including 100% of associates and investments, the Group has
annual revenue of over $26 billion and over 200,000 full-time
people in over 3,000 offices in 114 countries, now including Cuba
and Iran (through an affiliation agreement). The Group, therefore,
has access to an unparalleled breadth and depth of marketing
communications resources. It services 354 of the Fortune Global 500
companies, 29 of the Dow Jones 30, 71 of the NASDAQ 100 and 813
national or multi-national clients in three or more disciplines.
545 clients are served in four disciplines and these clients
account for over 52% of Group revenue. This reflects the increasing
opportunities for coordination between activities, both nationally
and internationally. The Group also works with 426 clients in 6 or
more countries. The Group estimates that well over a third of new
assignments in the first half of the year were generated through
the joint development of opportunities by two or more Group
companies. Horizontality, or making sure our people in different
disciplines work together for the benefit of clients, is clearly
becoming an increasingly important part of client strategies,
particularly as they continue to invest in brand in slower-growth
markets and both capacity and brand in faster-growth markets.
Cash flow highlights
In the first half of 2017, operating profit was £724 million,
non-cash exceptional gains £6 million, depreciation, amortisation
and impairment £232 million, non-cash share-based incentive charges
£51 million, net interest paid £61 million, tax paid £254 million,
capital expenditure £120 million and other net cash outflows £15
million. Free cash flow available for working capital requirements,
debt repayment, acquisitions, share repurchases and dividends was,
therefore, £551 million.
This free cash flow was absorbed by £241 million in net cash
acquisition payments and investments (of which £62 million was for
earnout payments with the balance of £179 million for investments
and new acquisitions payments) and £290 million in share
repurchases, a total outflow of £531 million. This resulted in a
net cash inflow of £20 million, before any changes in working
capital and also reflects our strategic objectives of investing
approximately £300-£400 million annually in acquisitions and
investments and executing share buy-backs of 2-3% of the issued
share capital.
A summary of the Group’s unaudited cash flow statement and notes
as at 30 June 2017 is provided in Appendix 1.
Acquisitions
In line with the Group’s strategic focus on new markets, new
media and data investment management, the Group completed 23
transactions in the first six months; 9 acquisitions and
investments were in new markets and 18 in quantitative and digital.
Of these, 1 was driven by individual client or agency needs and 5
were in both new markets and quantitative and digital.
Specifically, in the first half of 2017, acquisitions and
increased equity stakes have been completed in advertising and
media investment management in the United States, Croatia,
Russia, China and India; data investment management in the
United Kingdom and Ireland; in digital, eCommerce & shopper
marketing in the United States, the United Kingdom, Ireland,
Spain and China.
A further 8 acquisitions and investments were made in July and
August, with one in advertising and media investment
management in Germany; one in branding & identity in Italy;
and six in digital eCommerce & shopper marketing in the
United States, France, the United Arab Emirates, China and
Brazil.
Balance sheet highlights
Average net debt in the first six months of 2017 was £4.811
billion, compared to £4.390 billion in 2016, at 2017 exchange
rates. This represents an increase of £421 million. Net debt at 30
June 2017 was £4.670 billion, compared to £4.249 billion on 30 June
2016, an increase of £421 million. The increased average and period
end net debt figures, reflect the significant net acquisition
spend, share buy-backs and dividends in the twelve months to 30
June 2017, a weakened pound sterling and the impact of the net debt
acquired on the merger with STW in Australia.
Your Board continues to examine the allocation of its EBITDA of
over £2.5 billion or over $3.2 billion, for the preceding twelve
months and substantial free cash flow of almost £1.7 billion, or
over $2.1 billion per annum, also for the previous twelve months,
to enhance share owner value. The Group’s current market
capitalisation of £20.3 billion ($26.0 billion) implies an EBITDA
multiple of 8.0 times, on the basis of the trailing 12 months
EBITDA to 30 June 2017. Including net debt at 30 June of £4.670
billion, the Group’s enterprise value to EBITDA multiple is 9.8
times. The average net debt to EBITDA ratio is under 1.9x, within
the Group’s target range of 1.5-2.0x.
A summary of the Group’s unaudited balance sheet and notes as at
30 June 2017 is provided in Appendix 1.
Return of funds to share owners
As outlined in the 2015 Preliminary Announcement, the
achievement of the previous targeted pay-out ratio of 45% one year
ahead of schedule, raised the question of whether the pay-out ratio
target should be increased further. Following that review, your
Board decided to up the dividend pay-out ratio to a target of 50%,
to be achieved by 2017, and as a result, dividends increased by an
overall 17.0% in relation to 2015, and a dividend pay-out ratio of
47.7%. In 2016, dividends increased overall by a further 26.7%
(including the proposed final dividend of 37.05p), reaching the
recently targeted pay-out ratio of 50% one year ahead of schedule.
Despite the modest improvement in constant currency operating
profit and headline diluted earnings per share in the first half of
2017, your Board considers it appropriate to declare an interim
dividend of 22.7p per share, an increase of 16.1%, in line with the
increase in reported diluted earnings per share, and with the
target pay-out ratio.
During the first six months of 2017, 16.5 million shares, or
1.3% of the issued share capital, were purchased at a cost of £290
million and an average price of £17.57 per share.
Current trading
In July, like-for-like revenue and net sales were down 4.1% and
2.6% respectively. All regions, except the United Kingdom, Latin
America and Central & Eastern Europe showed lower revenue than
the prior year and all sectors were down, with advertising &
media investment management and data investment management the most
affected. Cumulative like-for-like revenue and net sales growth for
the first seven months of 2017 is now -0.9% and -0.8% respectively.
The Group's quarter 2 revised forecast, having been reviewed at the
parent company level in the first half of August, indicates full
year like-for-like revenue and net sales growth of between zero to
1.0%, lower than previous forecasts of 2%, with a stronger second
half, partly reflecting easier comparatives in the second half of
2016.
Outlook
Macroeconomic and industry context
After another record year in 2016, the Group’s performance in
the first seven months of the new financial year has been much
tougher, as worldwide GDP growth, both nominal and real, seems to
have slowed in the second half of last year and into the new year.
Profitability, however, improved slightly in constant currency,
with like-for-like margins up 0.1 margin points, although constant
currency margins were flat in the first half. Net sales growth in
the second quarter was less than the first quarter, with forecast
client spending in quarter two under considerable pressure.
Like-for-like revenue and net sales were down 0.3% and 0.5%
respectively in the first six months, compared with up 4.3% and
3.8% in the same period last year. As client spending appears, at
least at this stage, to be less predictable, our operating
companies are still hiring cautiously and responding to any
geographic, functional and client changes in revenue – positive or
negative.
For almost a decade since the Lehman crisis of 2008, worldwide
GDP has been growing steadily in the 3.0-4.0% range. The faster
growth markets of the BRICs and Next 11 and the smaller markets of
the CIVETS and MIST, centred mainly in Asia, Latin America, Africa
& the Middle East and Central & Eastern Europe, along with
the accelerating penetration of digital media and ecommerce
provided and continue to provide faster than the average growth
opportunities. After all the next billion consumers are unlikely to
come from North America or Western Europe, with or without the
United Kingdom.
However, in the last year or so, growth has become even more
difficult to find, perhaps due to increasing social, political and
economic volatility, for example with the rise of populism typified
by surprise election results in the United Kingdom and the United
States and bumpy growth in three of the bigger BRIC countries of
Brazil, Russia and China, although India continues to develop
rapidly, despite introductions of demonetisation and a General
Sales Tax. Even the growth of the digital marketplace has been
dogged by issues such as measurability, viewability, fraud, and
fake news, let alone the duopoly of Google and Facebook and the
growing dominance of Amazon in so many spheres, including, but not
exclusively, ecommerce, retail, cloud computing and content.
In a slower growth world, both more recently and post-Lehman,
inflation has been negligible, perhaps also suppressed by digital
deflation. As a result, clients have markedly less pricing power
and finance and procurement departments are very focused on cost.
In this world, it is, perhaps, not surprising that clients have
reduced spending. If you look at the S&P 500 for example,
significant like-for-like top line growth seems confined to the
technology sector and ten or so HMOs in the pharmaceutical sector.
Beyond these, top line growth is anaemic.
The effects of all this have been heightened by the more recent
development of three significant forces. Firstly, digital
disruption has demanded that incumbent or legacy businesses reboot
their structures and reach their customers in new, primarily
digitally driven ways. This can happen by driving their existing
businesses to change, by establishing and developing new digital
businesses and, finally, by making digital investments or through
experimentation. Secondly, cheap money generated by central bank
interest rate policy and bond buying to stimulate growth and
counter austerity has lowered the cost of capital significantly
enabling private equity and general investors to aggressively
target investments. Many of our clients are being subjected to
activist investment and pressure to reduce cost or restructure,
which also reduces client spending. Finally, some investment groups
are practiced in the art of zero-based budgeting, which also puts
pressure on marketing costs, at least in the short-term.
Looking at our top 20 or so clients over the last two or three
quarters, top line growth has been in the 2-3% range, with most if
not all of it coming from pricing increases usually in Asia Pacific
or Latin America. Volume gains have been hard to come by and in
some cases volumes have fallen, which means less consumers or
users, a big warning sign in any consumer focused business and
which cannot be maintained in the long-run. As we know from our
annual global 100 Top Brands BrandZ survey with the Financial Times
over the last twelve years, like-for-like top line growth is the
biggest driver of total share owner return and comes from
investment in innovation and brand. Interestingly, a number of
companies have already said they intend to ramp up spending in the
second half of the year as sales volumes have weakened.
Not helping either in focusing on the long-term, is the average
term life of S&P 500 and FTSE 100 CEOs at 6-7 years, CFOs at
4-5 years and CMOs at 2-3 years. As a result, it is not surprising
that since Lehman at the end of 2008, the combined level of
dividend payments and share buy-backs as a proportion of retained
earnings at the S&P 500 has steadily risen from around 60 per
cent of retained earnings to over 100%. In effect, managements are
abrogating responsibility for reinvesting retained profits to their
institutional investors. In fact, in seven of the last eight
quarters the ratio has exceeded or almost reached 100%, tapering
off in the last two quarters as stock market indices and share
prices reached new highs and the relative attraction of buy-backs
lessened.
Our industry is no different. Competition is fierce and as image
in trade magazines, in particular, is crucial to many, account wins
at any cost are paramount. There have been several examples
recently of major groups being prepared to offer clients up-front
discounts as an inducement to renew contracts, heavily reduced
creative and media fees, extended payment terms (which are starting
to show up on agency balance sheets), unlimited indirect liability
for intellectual property liability and cash or pricing guarantees
for media purchasing commitments, even though the latter are
difficult for procurement departments to measure and monitor. As
some say, you are only as strong as your weakest competitor. These
practices cannot last and will only result eventually in poor
financial performance and further consolidation, the premium being
on long-term profitable growth. Our industry may be in danger of
losing the plot. Once you accept benchmarking as a means of
evaluation you become a cost and are viewed as a source of funding
or insurance, rather than an investment or value added and recent
industry results have reflected this increased pressure and
inconsistencies. Some are storing up problems for the next
generation of management.
Much has been made about the potential negative impact of the
growth of digital marketing on our business model and the move by
consultants, principally Accenture and Deloitte (our current
auditors), into our industrial spaces. On the first, digital is now
41% of our revenues, representing the biggest industrial
concentration of digital marketing firepower and Google and
Facebook are our first and third largest media customers, with
Facebook probably becoming our second largest this year. The
consultants have certainly been mopping up some small, fragmented
digital agencies, but there is little evidence so far of
significant competitive penetration. The most significant pressures
on client spending seems to be the impact of low growth and cheap
money driving asset purchases, consolidation and zero-based
budgeting. For the short-term, therefore, we have to weather the
storm, focusing even more on our four core strategic objectives of
horizontality, or providing clients with a seamlessly integrated
effective and efficient marketing offer provided by our best
people; on fast growth markets, where the new middle-class
consumers will flourish; on digital as it becomes even more
pervasive; and on technology, data and content, as they become even
more integral to our clients’ marketing success. Considerable
structural change has already taken place in 2017 beyond the
creation of Teams and appointment of Country and Sub-Regional
managers - including One Ogilvy; merger of MEC/Maxus to NewCo;
Essence expansion; Kantar First; WPP Health & Wellness; B to D
Group; Wunderman and POSSIBLE; Wunderman and Salmon.
Not surprising then that your Company's top line revenue and net
sales organic growth continues to be under pressure. For this year,
growth is now forecast to be zero to 1.0% with weaker comparatives
in the second half of 2016 aiding growth this year. Later this year
and next year should also be aided by the impact of recent net new
business wins and increased client spending to stimulate volume
growth, along with easier comparatives.
2018 is unlikely to be much different. There seems little reason
for an upside breakout in growth in terms of worldwide GDP growth,
or indeed a downside breakout, despite the possibility of an
increase in interest rates in the short-term. Indeed, interest
rates, although they are likely to rise, are likely to continue to
remain at relatively low relative levels historically, longer than
some think. Whilst Trumponomics may well have resulted in an
increase in the United States GDP growth rate with the United
States the biggest ($18 trillion) GDP engine out of a total of $74
trillion worldwide, the limitations of the new administration seem
to be jeopardising the anti-regulatory, infrastructure and tax
reduction programme that was promised. In addition, continued
political uncertainties in Europe, West and East, the Middle East,
the PyeongChang Peninsula, Chinese focus on qualitative growth and
the longer-term recovery of Latin America, probably mean that
stronger growth will be harder to find outside the United States.
America First, if the new Administration’s plans are finally
implemented, will almost definitely mean a stronger American
economy, at least in the short- to medium-term.
2018 is also a mini-quadrennial year and will be stimulated by
the Russian World Cup and the mid-term Congressional elections and,
perhaps, the PyeongChang Winter Olympics. Nominal GDP growth should
continue to grow in the 3.0-4.0% range, with advertising as a
proportion remaining constant overall, with mature markets
continuing at lower than pre-Lehman levels, counter-balanced by
under-branded faster growth markets growing at faster rates.
Financial guidance
For 2017, reflecting the first half net sales growth and quarter
2 revised forecast:
- Like-for-like revenue and net sales
growth of between zero and 1.0%
- Target operating margin to net sales
improvement of 0.3 margin points on a constant currency basis in
line with full year margin target
In 2017, our prime focus will remain on improving revenue and
net sales, driven by our leading position in horizontality, faster
growing geographic markets and digital, premier parent company
creative and effectiveness position, new business and strategically
targeted acquisitions. At the same time, we will concentrate on
meeting our operating margin objectives by managing absolute levels
of costs and increasing our flexibility in order to adapt our cost
structure to significant market changes and by ensuring that the
benefits of the restructuring investments taken in 2015 and 2016
continue to be realised. The initiatives taken by the parent
company in the areas of human resources, property, procurement,
information technology and practice development continue to improve
the flexibility of the Group’s cost base. Flexible staff costs
(including incentives, freelance and consultants) remain close to
historical highs of around 8% of net sales and should position the
Group well if current market conditions deteriorate.
The Group continues to improve co-operation and coordination
among its operating companies in order to add value to our clients’
businesses and our people’s careers, an objective which has been
specifically built into short-term incentive plans. We have decided
that up to half of operating company incentive pools are funded and
allocated on the basis of Group-wide performance in 2017 and
beyond. Horizontality has been accelerated through the appointment
of 50 global client leaders for our major clients, accounting for
over one third of total revenue of almost $20 billion and 19
regional and country managers in a growing number of test markets
and sub-regions, covering about half of the 113 countries in which
we operate.
Focus has been laid on the areas of media investment management,
healthcare, sustainability, government, new technologies, new
markets, retailing, shopper marketing, internal communications,
financial services and media and entertainment. The Group continues
to lead the industry, in coordinating communications services
geographically and functionally through parent company initiatives
and winning Group pitches. Whilst talent and creativity (in the
broadest sense) remain key potential differentiators between us and
our competitors, increasingly differentiation can also be achieved
in three additional ways – through application of technology, for
example, Xaxis, AppNexus and Triad; through integration of data
investment management, for example, Kantar and comScore (now merged
with Rentrak); and through investment in content companies, for
example, Imagine, Vice, Media Rights Capital, Fullscreen,
Indigenous Media, China Media Capital, and Refinery29.
In addition, strong and considered points of view on the
adequacy of online and, indeed, offline measurement, on
viewability, on internet fraud and transparency, on online media
placement and brand safety and, finally, on fake news are all
examples where further differentiation is important and can be
secured through considered initiatives. With its leadership
position, as the world's largest media investment management
operation, GroupM has developed a strong united point of view with
its leading clients and associates, like AppNexus, in all these
areas and has aligned with Kantar's data investment management
capabilities, for example, through comScore, to provide better
capabilities. These philosophical differences and operational
capabilities are extremely effective in responding to the trade
association and regulatory issues that have been raised
recently.
Our business remains geographically and functionally well
positioned to compete successfully and to deliver on our long-term
targets:
- Revenue and net sales growth greater
than the industry average
- Improvement in net sales margin of 0.3
margin points or more, excluding the impact of currency, depending
on net sales growth and staff costs to net sales ratio improvement
of 0.2 margin points or more
- Annual headline diluted EPS growth of
10% to 15% p.a. delivered through revenue growth, margin expansion,
acquisitions and share buy-backs
To access WPP's 2017 interim results financial tables, please
visit: www.wpp.com/investor
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
Headline earnings before interest, tax, depreciation and
amortisation 4 Headline profit before interest and tax 5 Headline
profit before interest and tax, as a percentage of net sales 6
Margin points 7 Diluted earnings per share based on headline
earnings 8 Diluted earnings per share based on reported earnings 9
Return on equity is headline diluted EPS divided by equity share
owners funds per share 10 Percentage change at constant currency
exchange rates 11 Like-for-like growth at constant currency
exchange rates and excluding the effects of acquisitions and
disposals 12 Short and long-term incentives and the cost of
share-based incentives 13 Excludes direct costs, goodwill
impairment, amortisation and impairment of acquired intangibles,
investment gains and write-downs, gains/losses on remeasurement of
equity interests arising from a change in scope of ownership and
restructuring costs 14 Percentage change at constant currency rates
15 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals 16 Asia
Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe 17 Brazil, Russia, India and China (accounting for
over $1.2 billion revenue, including associates, in the first half)
18 Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria,
Pakistan, Philippines, Vietnam and Turkey - the Group has no
operations in Iran (accounting for over $500 million revenue,
including associates, in the first half) 19 Percentage change at
constant currency rates 20 Like-for-like growth at constant
currency exchange rates and excluding the effects of acquisitions
and disposals 21 Advertising, Media Investment Management 22 Data
Investment Management 23 Public Relations & Public Affairs 24
Branding & Identity, Healthcare and Specialist Communications
25 Re-classification of associate business now split between
advertising and branding & identity, healthcare and specialist
communications
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170823005407/en/
For WPPSir Martin Sorrell, Paul Richardson, Lisa Hau, Feona
McEwan, Chris Wade+44 20 7408 2204orFran Butera, Kevin
McCormack+1-212-632-2235orJuliana Yeh+852 2280
3790www.wpp.com/investor
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