WPP Interim Results 2017

• 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

Key figures

^{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}

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 Text
• 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 affairsText
• 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