REG - WPP PLC - 2021 Interim Results
05/08/2021 07:00
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RNS Number : 6276H WPP PLC 05 August 2021
WPP PLC ("WPP")
2021 Interim Results
Strong first half across the business: returned to 2019 levels a year ahead of
plan; full-year guidance raised; good progress on transformation; £350
million buyback planned for H2
Key figures - continuing operations
£ million H1 2021 +/(-) % reported 1 +/(-) % LFL 2 H1 2020 3
Revenue 6,133 9.8 16.1 5,583
Revenue less pass-through costs 4,899 5.0 11.0 4,668
Reported:
Operating profit/(loss) 484 n/m 4 - (2,751)
Profit/(loss) before tax 394 n/m - (3,177)
Diluted EPS (p) 20.6 n/m - (262.0)
Dividends per share (p) 12.5 25.0 - 10.0
Headline 5 :
Operating profit 590 54.4 - 382
Operating profit margin 12.1% 3.9pt* - 8.2%
Profit before tax 502 81.9 - 276
Diluted EPS (p) 28.7 86.4 - 15.4
* Margin points
H1 and Q2 financial highlights
n H1 reported revenue 9.8%, LFL revenue 16.1% (Q2 26.4%)
n H1 revenue less pass-through costs 5.0%, LFL revenue less pass-through costs
11.0% (up 0.5% on H1 2019)
n Q2 LFL revenue less pass-through costs 19.3%: US 12.6%, UK 31.8%, Germany
20.3%, Greater China 1.4%, Australia 8.4%, India 30.0%
n Q2 LFL revenue less pass-through costs on 2019 1.3%: US 1.8%, UK 1.1%,
Germany 6.3%, Greater China -1.7%, Australia -13.6%, India -2.6%
n Strong new business performance: $2.9 billion net new billings in H1
n H1 headline operating margin 12.1%, up 3.9 pt on prior year with strong
top-line growth supporting significant reinvestment in incentives
n H1 headline operating margin pre incentives up 7.8 pt to 17.0%
n Net debt at 30 June 2021 £1.5 billion, down £1.2 billion year-on-year
reflecting good working capital management
Strategic progress, shareholder returns and outlook
n Shifting business mix: growth areas of experience, commerce and technology
represented 26% of revenue less pass-through costs in H1
n Launch of Choreograph, future-ready data and analytics company
n M&A to simplify and grow: buy-in of WPP AUNZ minorities; technology
acquisitions in Brazil and UK; Kantar agreed to acquire Numerator
n Continued recognition of creativity and effectiveness: most creative company
at Cannes, collecting 190 Lions including 12 Grand Prix, 1 Titanium, 28 Gold,
57 Silver and 92 Bronze
n Industry-leading commitment to net zero carbon emissions across entire
supply chain by 2030
n £248m share buyback in H1, £350m planned for H2; 12.5p 2021 interim
dividend declared, +25%
n Full year 2021 LFL revenue less pass-through costs growth now expected to be
9-10%; headline operating margin towards the upper end of the 13.5-14.0% range
Mark Read, Chief Executive Officer, WPP:
"I'm delighted with our performance in the first six months of the year, at a
time when COVID continues to take a toll on many countries. The like-for-like
revenue less pass-through costs growth rate of 19.3% in the second quarter is
our highest on record, as clients reinvest in marketing, particularly in
digital media, ecommerce and marketing technology. We have returned to 2019
levels in 2021, a year ahead of our plan, with good momentum into 2022.
"We've also made very good strategic progress. Our recognition as the most
awarded company at the 2021 Cannes Lions Festival reflects our investment in
creative talent and the strength of our creative work over the past two years.
Our focus on data, commerce and technology, through strategic acquisitions,
organic investments and the launch of Choreograph, has supported a strong new
business performance. Key assignment wins include AstraZeneca, Bumble, JP
Morgan Chase and Pernod Ricard.
"In procurement, property and shared services, we are making strong progress
as part of our overall transformation programme. We have significantly
increased our incentive pools in the first half, to reflect the tremendous
contribution of our people in these challenging times, and in line with our
intention to reinvest in talent announced at our Capital Markets Day in
December 2020.
"We expect our strategy to translate into benefits for all of our
stakeholders: a powerful, modern offer to support our clients' growth; a great
place for our people to work; a positive contribution to communities and the
environment; and good financial returns for shareholders, with the interim
dividend raised 25% and £600 million of share buybacks planned in 2021."
For further information:
Investors and analysts
Peregrine Riviere } +44 7909 907193
Caitlin Holt } +44 7392 280178
Fran Butera (US) } +1 914 484 1198
Media
Chris Wade } +44 20 7282 4600
Richard Oldworth, +44 7710 130 634
Buchanan Communications +44 20 7466 5000
wpp.com/investors (http://www.wpp.com/investors)
First half overview
Market environment
The market recovery in the first half of the year has been much faster than
expected. Successful vaccination programmes in our major markets have
accelerated the easing of restrictions, stimulating economic activity. As the
global recovery gathered pace, GroupM made a significant upward revision of
its advertising forecasts, predicting that the global advertising economy will
grow by 19% in 2021 (excluding US political advertising).
Much of this growth is expected to be captured by digital media, as the
underlying trends accelerated by the pandemic, such as the shift to ecommerce
and digitisation of media, have continued in the first half of 2021. GroupM
forecasts show digital media spend increasing by 26% in 2021, a major uplift
from the 15% estimated in December 2020. Spend on television advertising is
expected to grow by 9%, as marketers continue to rely on the medium's reach
advantage to reinforce the strength of their brands. Most other advertising
channels are expected to stabilise or grow during 2021, aside from magazines
and newspapers where spend is expected to decline.
The recovery has been broad-based across all major markets as economies have
begun to stabilise, supported by government stimulus and vaccination
roll-outs. Based on GroupM forecasts, advertising spend in the UK will grow by
24% in 2021 driven by the economic recovery. Better than 20% growth in
advertising spend is also forecast in Brazil and China. The US advertising
market is expected to grow by 17% in 2021, or 22% excluding political spend.
Performance and progress
Revenue in the first half was £6.1 billion, up 9.8% from £5.6 billion in the
first half of 2020, and up 16.1% like-for-like. Revenue less pass-through
costs was £4.9 billion, up 5.0% from £4.7 billion in the first half of 2020,
and up 11.0% like-for-like.
We have seen a strong recovery in the first half of the year, with LFL growth
in revenue less pass-through costs across all sectors and most major markets.
On a two-year basis we are 0.5% ahead of 2019 performance for the first half
in terms of LFL revenue less pass-through costs, having been slightly below
2019 levels in the first quarter of the year.
The nature of our work for clients has continued to evolve. We have seen very
strong demand from clients for commerce services. GroupM commerce billings
increased 61% year-on-year in the first half. Our expertise in commerce was
recognised in March, when Forrester named WPP a Leader among commerce services
providers in the Forrester Wave™: Commerce Services, Q1 2021 report. Further
highlighting our pivot to digital, GroupM's proportion of digital billings has
increased from 41% in 2020 to 43% in the first half of 2021.
Our PR business has performed strongly (LFL revenue less pass-through costs
+7.4%), as WPP agencies remain a critical partner and advisor to our clients.
We have seen high demand for purpose-related communications, as our clients
have sought advice on how to engage with their own stakeholders on
sustainability issues, and we see this as a significant opportunity for
growth.
In terms of client sector performance, we have seen a sustained strong
performance from our clients in the consumer packaged goods, technology and
healthcare & pharma sectors, which together represent around 54% of our
revenue less pass-through costs for designated clients. In the first half
these sectors saw LFL revenue less pass-through costs growth of 11.3%, 14.5%
and 13.4% respectively. Compared to 2019, their growth rates were 7.2%, 12.7%
and 10.8%.
We have had a good performance in terms of new business, with $2.9 billion of
net new business billings won in the first half. The performance of our
integrated agencies, the strength and scale of our global footprint and the
collaboration between agencies have continued to attract and retain clients.
Key assignment wins include AstraZeneca, Bumble, Hyatt, JP Morgan Chase,
L'Oréal, Pernod Ricard and Sam's Club, and key retentions include the US
Navy.
During the period, we continued to invest in strategically important areas. We
announced the acquisitions of DTI, a digital innovation and software
engineering business in Brazil, and NN4M, a leading mobile commerce partner
for global brands. In addition, our 40% associate Kantar agreed to acquire
Numerator, a technology-driven consumer and market intelligence company.
Our commitment to creativity is now being reflected more widely in our work
and awards. WPP was named the most creative company of the year at the Cannes
Lions International Festival of Creativity in June, reflecting the investments
we have made in creativity and the strength of our talent. Our agencies
collected a total of 190 Lions, including a Titanium Lion and 12 Grand Prix,
with winners representing 38 different countries. We announced the appointment
of Rob Reilly as Global Chief Creative Officer in January 2021, reinforcing
our commitment to drive creativity across WPP.
We are making good progress on our transformation programme, as we lay the
foundations for realising structural efficiencies in a number of areas. In
property, where our campus strategy is well-advanced, we are on track to
occupy 32 campuses by the end of 2021, with new cities this year including
Detroit, Jakarta and Milan. The adoption of more hybrid working practices will
further amplify the benefits of our campuses, and total establishment costs
are expected to be below 6% of revenue less pass-through costs this year. In
shared services, we are establishing global and regional hubs, and have
already deployed units from four markets into these locations. In Enterprise
IT, our benchmarking work has identified significant opportunities as we
develop plans to reduce the gap between our cost of IT and the industry
benchmark. In procurement, we are pursuing an extensive programme to
consolidate our supplier base and re-tender existing supply arrangements to
tackle the significant opportunities within our £2 billion of annual indirect
spend.
We have also made further structural and organisational changes which simplify
WPP and improve the way we go to market and serve clients. We have established
Choreograph, a new global data company, bringing together the specialist data
units of GroupM and Wunderman Thompson into a single company with global
reach, accessible to all WPP clients and companies, and recently announced the
appointment of Brendan Moorcroft as CEO. In addition, we have combined
separate operations into a single brand research and analytics platform under
BAV, creating the leading source of brand analytics on over 60,000 brands
worldwide. This will enable us to better integrate brand data into our data
analytics offer across WPP companies. Finally, we completed the transaction to
take 100% ownership of WPP AUNZ, further simplifying the group structure.
Purpose and ESG
Environmental, social and governance issues are an increasingly important
topic for all our stakeholders, particularly our clients and our people. WPP
is at the heart of many of the pressing issues that we face as a society and
the actions and judgements we make as a business are critically important.
WPP's purpose is to use the power of creativity to build better futures for
our people, our planet, our clients and our communities. In June, we hosted an
ESG event for stakeholders, to set out our commitments and highlight the
progress we have made across the four pillars of our purpose statement.
Putting purpose at the heart of our business makes WPP a more attractive
employer for our people. In order to attract, retain and grow top talent we
have continued to invest in our people strategy to ensure WPP is an employer
of choice for all. This year we launched our first quarterly Pulse survey, an
employee listening tool designed to better understand the sentiment of our
people and highlight the areas we need to focus on. WPP is committed to real
progress on diversity, equity and inclusion, and this year for the first time
we have incorporated diversity and sustainability metrics into the
compensation schemes for senior leaders. We have also increased our incentive
pools, as part of our plan to reinvest savings in attracting and retaining
talent.
Earlier this year, we announced our new commitments to reduce carbon emissions
from our own operations to net zero by 2025 and across our supply chain by
2030. Our net zero pledges are backed by equally ambitious science-based
reduction targets, which have been verified by the Science-Based Targets
initiative. We have committed to reducing our absolute Scope 1 and 2 emissions
by at least 84% by 2025 and reduce Scope 3 emissions by at least 50% by 2030,
both from a 2019 base year.
Many of our clients are making great progress on reducing their own emissions
and we will continue to support them to reach their targets. We have been
recognised for our creativity in ESG-related work at the Cannes Lions
International Festival of Creativity including a Titanium Grand Prix for
Telenor work by Ogilvy in the mobile category, using technology to alleviate
inequalities in Pakistan. In addition we won two design Grand Prix for AKQA's
work with H&M pioneering an in-store recycling system and Superunion's
work with Notpla, designing a sustainable alternative to plastic packaging.
WPP's global scale and reach puts us in a unique position to build global
partnerships and make a positive contribution to the communities in which we
operate. This year, through the WPP India Foundation we set up a COVID relief
fund, providing ambulances on call, organising oxygen concentrators, and
supporting a vaccination drive for all our people and their families across
India.
2021 guidance
Performance in the first half of 2021 has been strong, and we are confident of
further good growth in the second half. As a result, we are raising our
guidance for 2021 as follows:
n Organic growth (defined as like-for-like revenue less pass-through costs
growth) of 9-10% (previously mid-single-digits %), returning to 2019 levels a
year ahead of plan
n Headline operating margin towards the upper end of the range of 13.5-14.0%
n Capex £450-500 million
In addition, our current projections for foreign exchange movements imply 4-5
percentage point drag to reported revenue less pass-through costs from the
strength of sterling year-on-year. We also anticipate a net working capital
outflow for 2021 of £200-300 million, reflecting some normalisation from the
very strong position at the end of 2020.
Medium-term guidance
At our Capital Markets Day in December 2020, we set out our new medium-term
financial targets that will allow us to invest in talent, incentives and
technology, improve our competitive position and deliver sustainable long-term
growth. These were:
n Recovery to 2019 revenue less pass-through costs levels by 2022
n 3-4% annual growth in revenue less pass-through costs from 2023, including
M&A benefit of 0.5-1.0% annually
n 15.5-16.0% headline operating margin in 2023
n Dividend: intention to grow annually with a pay-out ratio around 40% of
headline diluted EPS
n Average net debt/EBITDA maintained in the range 1.5-1.75x
We now expect to recover to 2019 levels of revenue less pass-through costs on
a like-for-like basis in the current year. The rest of these targets remain
unchanged.
Financial results
Unaudited headline income statement:
Six months ended (£ million) +/(-) % reported +/(-) % LFL
30 June 2021 30 June 2020
Continuing operations
Revenue 6,133 5,583 9.8 16.1
Revenue less pass-through costs 4,899 4,668 5.0 11.0
Operating profit 590 382 54.4
Operating margin % 12.1% 8.2% 3.9pt
Income from associates 29 - -
PBIT 619 382 62.0
Net finance costs (117) (106) (10.4)
Profit before tax 502 276 81.9
Tax (115) (64) (78.9)
Profit after tax 387 212 82.8
Non-controlling interests (34) (21) (64.0)
Profit attributable to shareholders 353 191 85.0
Diluted EPS 28.7p 15.4p 86.4
Reconciliation of operating profit/(loss) to headline operating profit:
Six months ended (£ million) 30 June 2021 30 June 2020 6
Continuing operations
Operating profit/(loss) 484 (2,751)
Amortisation and impairment of acquired intangible assets 30 53
Goodwill impairment - 2,813
Losses/(gains) on disposal of investments and subsidiaries 1 (16)
Investment and other write-downs - 226
Litigation settlement 22 -
Restructuring and transformation costs 34 18
Restructuring costs in relation to COVID-19 19 39
Headline operating profit 590 382
Reported billings were £23.4 billion, up 12.2%, and up 19.3% like-for-like.
Reported revenue from continuing operations was up 9.8% at £6.1 billion.
Revenue on a constant currency basis was up 15.8% compared with last year. Net
changes from acquisitions and disposals had a negative impact of 0.3% on
growth, leading to a like-for-like performance, excluding the impact of
currency and acquisitions, of 16.1%.
Reported revenue less pass-through costs was up 5.0%, and up 10.8% on a
constant currency basis. Excluding the impact of acquisitions and disposals,
like-for-like growth was 11.0%. In the second quarter, like-for-like revenue
less pass-through costs was up 19.3%.
Regional review
Revenue analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
N. America 1,121 4.2 16.7 2,184 0.3 10.2
United Kingdom 493 42.2 40.5 927 22.4 21.7
W Cont. Europe 728 37.1 41.1 1,341 22.7 23.5
AP, LA, AME, CEE 7 893 14.2 22.7 1,681 8.1 16.0
Total Group 3,235 18.3 26.4 6,133 9.8 16.1
Revenue less pass-through costs analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
N. America 931 1.5 13.7 1,817 (2.1) 7.5
United Kingdom 359 31.7 31.8 680 16.1 16.9
W Cont. Europe 559 23.4 27.1 1,050 14.2 15.0
AP, LA, AME, CEE 716 8.8 16.1 1,352 3.5 10.5
Total Group 2,565 11.5 19.3 4,899 5.0 11.0
Headline operating profit analysis
£ million 2021 % margin* 2020 % margin*
N. America 271 14.9% 215 11.6%
United Kingdom 83 12.3% 35 6.0%
W Cont. Europe 104 9.9% 44 4.8%
AP, LA, AME, CEE 132 9.7% 88 6.7%
Total Group 590 12.1% 382 8.2%
* Headline operating profit as a percentage of revenue less pass-through costs
North America like-for-like revenue less pass-through costs was up 7.5% in the
first half and up 13.7% in the second quarter. On a two-year basis, North
America was up 0.9% like-for-like for the first half, with an improving trend
in the second quarter. VMLY&R was consistently strong throughout the first
half, and GroupM and Ogilvy led the recovery in the second quarter.
United Kingdom like-for-like revenue less pass-through costs was up 16.9% in
the first half and up 31.8% in the second quarter. On a two-year basis, the UK
was up 0.3% like-for-like for the first half, returning to growth in the
second quarter. Of our major agencies, GroupM and AKQA Group showed the
biggest improvements in the two-year trend in the second quarter.
Western Continental Europe like-for-like revenue less pass-through costs was
up 15.0% in the first half and up 27.1% in the second quarter. We saw a strong
performance in Germany, and Italy returned to two-year growth in the second
quarter, but France and Spain are yet to recover to 2019 levels.
In Asia Pacific, Latin America, Africa & the Middle East and Central &
Eastern Europe, like-for-like revenue less pass-through costs was up 10.5% in
the first half and up 16.1% in the second quarter. All regions grew strongly,
with Latin America the best-performing, followed by Central & Eastern
Europe.
Business sector review
Revenue analysis 8
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 2,734 17.6 26.4 5,170 9.4 16.0
Public Relations 236 5.4 14.1 450 0.7 7.5
Specialist Agencies 265 42.1 40.6 513 24.9 25.8
Total Group 3,235 18.3 26.4 6,133 9.8 16.1
Revenue less pass-through costs analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 2,135 10.8 19.2 4,069 4.4 10.9
Public Relations 224 4.3 12.9 429 0.7 7.4
Specialist Agencies 206 28.6 27.8 401 16.1 17.1
Total Group 2,565 11.5 19.3 4,899 5.0 11.0
Headline operating profit analysis
£ million 2021 % margin* 2020 % margin*
Global Int. Agencies 483 11.9% 282 7.2%
Public Relations 63 14.8% 72 16.9%
Specialist Agencies 44 11.0% 28 8.1%
Total Group 590 12.1% 382 8.2%
* Headline operating profit as a percentage of revenue less pass-through costs
Global Integrated Agencies like-for-like revenue less pass-through costs was
up 10.9% in the first half and up 19.2% in the second quarter. GroupM,
representing 36% of revenue less pass-through costs, was the strongest
performer, up 17.0% like-for-like in the half and up 28.6% in the second
quarter. VMLY&R also recorded double-digit growth for the first half, and
both businesses recorded encouraging two-year growth. Wunderman Thompson,
Ogilvy and AKQA Group all showed a strong recovery in the second quarter.
Public Relations like-for-like revenue less pass-through costs was up 7.4% in
the first half and up 12.9% in the second quarter. All parts of the business
grew double-digits like-for-like in the second quarter, with Finsbury Glover
Hering being the strongest performer.
Specialist Agencies like-for-like revenue less pass-through costs was up 17.1%
in the first half and up 27.8% in the second quarter. We saw a very strong
recovery in all our brand consulting businesses, with resurgent demand for our
services. CMI, our specialist healthcare media business, also continued to
perform well.
Operating profitability
Reported profit before tax was £394 million, compared to a loss of £3,177
million in the prior period, principally reflecting the £2.8 billion of
impairment charges and £57 million of restructuring and transformation costs
in the prior period (see table on page 8).
Reported profit after tax was £287 million compared to a loss last year of
£3,188 million.
Headline EBITDA (including IFRS 16 depreciation) for the first half was up
45.8% to £699 million, and up 57.6% in constant currency. Headline operating
profit was up 54.4% to £590 million. The strong improvement in profitability
year-on-year reflects the recovery in revenue less pass-through costs after
the significant impact of COVID-19 in the comparable period.
Headline operating margin was up 390 basis points to 12.1%. Total operating
costs were up 0.5% to £4.3 billion. Staff costs, excluding incentives, were
down 1.6% year-on-year to £3.2 billion, reflecting lower headcount.
Establishment costs were down 15.8% at £265 million as we continued to
benefit from our campus roll-out. IT costs were up 1.1% at £277 million and
other operating expenses were down 13.4% at £242 million. Personal costs fell
40.7% to £52 million, reflecting very low travel costs. Excluding incentive
payments as outlined below, operating costs were down 4.1% year-on-year.
The Group's headline operating margin is after charging £15 million of
severance costs, compared with £19 million in the first half of 2020 and
£244 million of incentive payments, compared to £48 million in the first
half of 2020. Excluding incentive payments, headline operating margin improved
by 780 basis points to 17.0%.
On a like-for-like basis, the average number of people in the Group in the
first half was 102,000 compared to 105,000 in the first half of 2020. The
total number of people as at 30 June 2021 was 104,000 compared to 102,000 as
at 30 June 2020.
Exceptional items
The Group incurred exceptional items of £107 million in the first half of
2021, mainly relating to restructuring and transformation costs and the
amortisation and impairment of acquired intangibles, partially offset by the
Group's share of gains in relation to a disposal made by Kantar. This compares
with a net exceptional loss in the first half of 2020 of £3.1 billion, which
included impairments of £2.8 billion.
Interest and taxes
Net finance costs (excluding the revaluation of financial instruments) were
£117 million, an increase of £11 million year-on-year, with the full impact
of the coupons on the bonds issued in May 2020 offset by lower average net
debt and foreign exchange movements.
The headline tax rate (excluding associate income) was 24.1% (2020: 23.1%) and
on reported profit before tax was 27.2% (2020: -0.3%), with the difference in
the reported tax rate in 2021 principally due to impairments in 2020. Given
the Group's geographic mix of profits and the changing international tax
environment, the tax rate is expected to increase slightly over the next few
years.
Earnings and dividend
Headline profit before tax was up 81.9% to £502 million.
Profits attributable to share owners were £253 million, compared to a loss of
£3.2 billion in the prior period.
Headline diluted earnings per share from continuing operations rose by 86.4%
to 28.7p. Reported diluted earnings per share, on the same basis, was 20.6p,
compared to a loss per share of 262.0p in the prior period.
For 2021, the Board is declaring an interim dividend of 12.5p, an increase of
25% year-on-year. The record date for the interim dividend is 15 October
2021, and the dividend will be payable on 1 November 2021.
Further details of WPP's financial performance are provided in Appendix 1.
Cash flow highlights
Six months ended (£ million) 30 June 2021 30 June 2020 9
Operating profit/(loss) of continuing and discontinued operations 484 (2,740)
Depreciation and amortisation 250 306
Impairments and investment write-downs 8 3,039
Lease payments (inc interest) (202) (203)
Non-cash compensation 44 31
Net interest paid (65) (32)
Tax paid (163) (201)
Capex (138) (141)
Earnout payments (14) (88)
Other (44) (45)
Trade working capital (464) (456)
Other receivables, payables and provisions (41) (295)
Free cash flow (345) (825)
Disposal proceeds 43 207
Net initial acquisition payments (252) (46)
Share purchases (298) (286)
Net cash flow (852) (950)
Net cash outflow for the first half was £852 million, compared to £950
million in the first half of 2020. The main drivers of the cash flow
performance year-on-year were the higher operating profit and the improved
working capital performance year-on-year, offset by higher consideration for
acquisitions (relating mainly to the buy-in of the WPP AUNZ minorities and the
equity contribution to Kantar's acquisition of Numerator), lower net disposal
proceeds and the £298 million of share purchases in the first half. A summary
of the Group's unaudited cash flow statement and notes for the six months to
30 June 2021 is provided in Appendix 1.
Balance sheet highlights
As at 30 June 2021 we had cash of £3.3 billion and total liquidity, including
undrawn credit facilities, of £5.2 billion. Average net debt in the first
half was £1.5 billion, compared to £2.5 billion in the prior period, at 2021
exchange rates. On 30 June 2021 net debt was £1.5 billion, against £2.7
billion on 30 June 2020, a reduction of £1.2 billion, or a reduction of £1.1
billion at 2021 exchange rates.
During the period, we converted the majority of our cash pool arrangements to
zero-balancing cash pools, whereby the cash and overdrafts within these cash
pools are physically swept to the header accounts on a daily basis, resulting
in a reduction of the large gross cash and overdraft positions at 31 December
2020.
We spent £298 million on share purchases in the first half of the year, of
which £248 million related to share buybacks.
Our bond portfolio at 30 June 2021 had an average maturity of 6.9 years. In
June 2021 we served notice to repay the $500 million 3.625% September 2022
bond in July 2021. There are no further maturities until 2022.
The average net debt to EBITDA ratio in the 12 months to 30 June 2021 is
1.07x, which excludes the impact of IFRS 16. We also expect to end the year
below our target leverage range of average net debt/EBITDA of 1.5-1.75x.
A summary of the Group's unaudited balance sheet and notes as at 30 June 2021
is provided in Appendix 1.
Appendix 1: Interim results for the six months ended 30 June 2021
Unaudited condensed consolidated interim income statement for the six months
ended 30 June 2021
£ million Notes Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Revenue 7 6,132.5 5,582.7
Costs of services 4 (5,196.1) (4,804.7)
Gross profit 936.4 778.0
General and administrative costs 4 (452.8) (3,528.6)
Operating profit/(loss) 483.6 (2,750.6)
Share of results of associates 5 40.0 (51.9)
Profit/(loss) before interest and taxation 523.6 (2,802.5)
Finance and investment income 6 30.1 51.2
Finance costs 6 (147.2) (157.3)
Revaluation and retranslation of financial instruments 6 (12.1) (268.6)
Profit/(loss) before taxation 394.4 (3,177.2)
Taxation 8 (107.1) (10.9)
Profit/(loss) for the period from continuing operations 287.3 (3,188.1)
Discontinued operations
Profit for the period from discontinued operations - 3.1
Profit/(loss) for the period 287.3 (3,185.0)
Attributable to:
Equity holders of the parent
Continuing operations 252.7 (3,209.2)
Discontinued operations - (6.8)
252.7 (3,216.0)
Non-controlling interests
Continuing operations 34.6 21.1
Discontinued operations - 9.9
34.6 31.0
287.3 (3,185.0)
Earnings per share from continuing and discontinued operations
Basic earnings per ordinary share 10 20.9p (262.5p)
Diluted earnings per ordinary share 10 20.6p (262.5p)
Earnings per share from continuing operations
Basic earnings per ordinary share 10 20.9p (262.0p)
Diluted earnings per ordinary share 10 20.6p (262.0p)
The accompanying notes form an integral part of this unaudited condensed
consolidated interim income statement.
(1)( )Figures have been restated as described in note 2.
Unaudited condensed consolidated interim statement of comprehensive income for
the six months ended 30 June 2021
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Profit/(loss) for the period 287.3 (3,185.0)
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments on foreign currency net investments (101.5) 412.3
Exchange adjustments recycled to the income statement on disposal of - (15.4)
discontinued operations
(101.5) 396.9
Items that will not be reclassified subsequently to profit or loss:
Movements on equity investments held at fair value through other comprehensive 27.2 (102.4)
income
27.2 (102.4)
Other comprehensive (loss)/income for the period (74.3) 294.5
Total comprehensive income/(loss) for the period 213.0 (2,890.5)
Attributable to:
Equity holders of the parent
Continuing operations 183.9 (2,918.5)
Discontinued operations - (21.1)
183.9 (2,939.6)
Non-controlling interests
Continuing operations 29.1 39.0
Discontinued operations - 10.1
29.1 49.1
213.0 (2,890.5)
The accompanying notes form an integral part of this unaudited condensed
consolidated statement of comprehensive income.
(1 )Figures have been restated as described in note 2.
Unaudited condensed consolidated interim cash flow statement for the six
months ended 30 June 2021
£ million Notes Six months ended Six months ended
30 June 30 June
2021 2020
Net cash inflow/(outflow) from operating activities 11 39.2 (401.9)
Investing activities
Acquisitions 11 (148.5) (96.8)
Disposal of investments and subsidiaries 11 1.3 203.9
Purchase of property, plant and equipment (111.6) (121.3)
Purchase of other intangible assets (including capitalised computer software) (26.7) (19.2)
Proceeds on disposal of property, plant and equipment 3.4 3.1
Net cash outflow from investing activities (282.1) (30.3)
Financing activities
Repayment of lease liabilities (157.4) (154.5)
Cash consideration received from non-controlling interests 11 38.7 -
Cash consideration for purchase of non-controlling interests 11 (117.7) (37.8)
Share repurchases and buybacks 11 (297.6) (285.5)
Proceeds from borrowings 11 - 922.9
Repayment of borrowings 11 (35.9) (223.1)
Financing and share issue costs (0.3) (6.8)
Dividends paid to non-controlling interests in subsidiary undertakings (74.5) (40.1)
Net cash (outflow)/inflow from financing activities (644.7) 175.1
Net decrease in cash and cash equivalents (887.6) (257.1)
Translation of cash and cash equivalents (102.6) 7.1
Cash and cash equivalents at beginning of period 4,337.1 2,799.6
Cash and cash equivalents including cash held in disposal group at end of 3,346.9 2,549.6
period
Cash and cash equivalents held in disposal group presented as held for sale - (13.5)
Cash and cash equivalents at end of period 12 3,346.9 2,536.1
Reconciliation of net cash flow to movement in net debt:
Net decrease in cash and cash equivalents (887.6) (257.1)
Cash outflow/(inflow) from decrease/(increase) in debt financing 36.2 (693.0)
Other movements (45.7) (1.9)
Translation differences 49.0 (286.7)
Movement of net debt in the period (848.1) (1,238.7)
Net debt at beginning of period (695.6) (1,473.3)
Net debt including net cash in disposal group at end of period (1,543.7) (2,712.0)
Net cash in disposal group - (13.5)
Net debt at end of period 12 (1,543.7) (2,725.5)
The accompanying notes form an integral part of this unaudited condensed
consolidated interim cash flow statement.
Unaudited condensed consolidated interim balance sheet as at 30 June 2021
£ million Notes 30 June 31 December 2020
2021
Non-current assets
Intangible assets:
Goodwill 13 7,325.1 7,388.8
Other 1,364.5 1,389.3
Property, plant and equipment 820.8 790.9
Right-of-use assets 1,445.0 1,504.5
Interests in associates and joint ventures 424.4 330.7
Other investments 448.7 387.3
Deferred tax assets 264.8 212.9
Corporate income tax recoverable 44.0 24.8
Trade and other receivables 14 177.5 156.2
12,314.8 12,185.4
Current assets
Corporate income tax recoverable 141.3 133.1
Trade and other receivables 14 10,224.5 10,972.3
Cash and short-term deposits 3,546.1 12,899.1
13,911.9 24,004.5
Current liabilities
Trade and other payables 15 (12,714.8) (13,859.7)
Corporate income tax payable (312.2) (330.9)
Short-term lease liabilities (267.5) (323.8)
Bank overdrafts, bonds and bank loans (803.3) (8,619.2)
(14,097.8) (23,133.6)
Net current (liabilities)/assets (185.9) 870.9
Total assets less current liabilities 12,128.9 13,056.3
Non-current liabilities
Bonds and bank loans (4,286.5) (4,975.5)
Trade and other payables 16 (431.9) (313.5)
Corporate income tax payable - (1.3)
Deferred tax liabilities (329.9) (304.1)
Provisions for post-employment benefits (151.6) (156.7)
Provisions for liabilities and charges (316.6) (306.3)
Long-term lease liabilities (1,809.8) (1,832.5)
(7,326.3) (7,889.9)
Net assets 4,802.6 5,166.4
Equity
Called-up share capital 127.0 129.6
Share premium account 570.3 570.3
Other reserves (43.4) 196.0
Own shares (1,114.8) (1,118.3)
Retained earnings 4,952.1 5,070.7
Equity shareholders' funds 4,491.2 4,848.3
Non-controlling interests 311.4 318.1
Total equity 4,802.6 5,166.4
The accompanying notes form an integral part of this unaudited condensed
consolidated interim balance sheet.
Unaudited condensed consolidated interim statement of changes in equity for
the six months ended 30 June 2021
£ million Called-up share capital Share premium account Other reserves Own shares Retained earnings Total equity shareholders' funds Non-controlling interests Total
Balance at 1 January 2021 129.6 570.3 196.0 (1,118.3) 5,070.7 4,848.3 318.1 5,166.4
Share cancellations (2.6) - 2.6 - (248.1) (248.1) - (248.1)
Treasury share allocations - - - 3.7 (3.7) - - -
Profit for the period - - - - 252.7 252.7 34.6 287.3
Exchange adjustments on foreign currency net investments - - (96.0) - - (96.0) (5.5) (101.5)
Movements on equity investments held at fair value through other comprehensive - - - - 27.2 27.2 - 27.2
income
Other comprehensive (loss)/income - - (96.0) - 27.2 (68.8) (5.5) (74.3)
Total comprehensive (loss)/income - - (96.0) - 279.9 183.9 29.1 213.0
Dividends paid - - - - - - (74.5) (74.5)
Non-cash share-based incentive plans (including share options) - - - - 43.9 43.9 - 43.9
Tax adjustments on share-based payments - - - - (4.6) (4.6) - (4.6)
Net movement in own shares held - - - (0.2) (49.3) (49.5) - (49.5)
by ESOP Trusts
Recognition/remeasurement of financial instruments - - (146.0) - (0.2) (146.2) - (146.2)
Acquisition and disposal of subsidiaries(1) - - - - (136.5) (136.5) 38.7 (97.8)
Balance at 30 June 2021 127.0 570.3 (43.4) (1,114.8) 4,952.1 4,491.2 311.4 4,802.6
The accompanying notes form an integral part of this unaudited condensed
consolidated interim statement of changes in equity.
(1 )Acquisitions and disposals of subsidiaries represents movements in
retained earnings and non-controlling interests arising from changes in
ownership of existing subsidiaries and recognition of non-controlling
interests on new acquisitions.
Unaudited condensed consolidated interim statement of changes in equity for
the six months ended 30 June 2021 (continued)
£ million Called-up Share Other Own shares Retained Total equity shareholders' funds Non-controlling interests Total
share
premium
reserves
earnings
capital
account
Balance at 1 January 2020 132.8 570.3 (169.9) (1,178.7) 8,689.9 8,044.4 371.4 8,415.8
Share cancellations (3.2) - 3.2 - (281.2) (281.2) - (281.2)
Treasury share allocations - - - 0.5 (0.5) - - -
(Loss)/profit for the period(1) - - - - (3,216.0) (3,216.0) 31.0 (3,185.0)
Exchange adjustments on foreign currency net investments(1) - - 394.2 - - 394.2 18.1 412.3
Exchange adjustments recycled to the income statement on disposal of - - (15.4) - - (15.4) - (15.4)
discontinued operations
Movements on equity investments held at fair value through other comprehensive - - - - (102.4) (102.4) - (102.4)
income
Other comprehensive income/(loss)(1) - - 378.8 - (102.4) 276.4 18.1 294.5
Total comprehensive income/(loss)(1) - - 378.8 - (3,318.4) (2,939.6) 49.1 (2,890.5)
Dividends paid - - - - - - (40.1) (40.1)
Non-cash share-based incentive plans (including share options) - - - - 30.6 30.6 - 30.6
Tax adjustments on share-based payments - - - - 2.6 2.6 - 2.6
Net movement in own shares held - - - 53.9 (54.3) (0.4) - (0.4)
by ESOP Trusts
Recognition/remeasurement of financial instruments(1) - - 67.9 - (32.8) 35.1 - 35.1
Share purchases - close period commitments(2) - - 252.3 - - 252.3 - 252.3
Acquisition of subsidiaries(3) - - - - (52.7) (52.7) (12.0) (64.7)
Restated balance at 30 June 2020 129.6 570.3 532.3 (1,124.3) 4,983.2 5,091.1 368.4 5,459.5
(1 )Figures have been restated as described in note 2.
(2) During 2019, the Company entered into an arrangement with a third party to
conduct share buybacks on its behalf in the close period commencing on 2
January 2020 and ending on 27 February 2020, in accordance with UK listing
rules. The commitment resulting from this agreement constituted a liability at
31 December 2019 and was recognised as a movement in other reserves in the
year ended 31 December 2019. As the close period ended on 27 February 2020 the
movement in other reserves has been reversed in the year ended 31 December
2020.
(3)( )Acquisition of subsidiaries represents movements in retained earnings
and non-controlling interests arising from changes in ownership of existing
subsidiaries and recognition of non-controlling interests on new acquisitions.
Notes to the unaudited condensed consolidated interim financial statements
1. Basis of accounting
The unaudited condensed consolidated interim financial statements are prepared
under the historical cost convention, except for the revaluation of certain
financial instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited condensed consolidated interim financial statements comply with
IAS 34: Interim Financial Reporting and with the accounting policies of the
Group which were set out on pages 158 - 164 of the 2020 Annual Report and
Accounts. No changes have been made to the Group's accounting policies in the
period ended 30 June 2021.
In April 2021, an IFRIC agenda decision was issued in relation to the
accounting treatment for configuration and customisation costs in a cloud
computing arrangement. This guidance clarified that in order for an intangible
asset to be capitalised in relation to customisation and configuration costs
in a software-as-a-service (SaaS) arrangement, it is necessary for there to be
control of the underlying software asset or for there to be a separate
intangible asset which meets the definition in IAS 38 Intangible Assets. The
Group's existing policy is to capitalise such customisation and configuration
costs.
In 2020, as part of our Group transformation plan, the Group commenced a
multiyear implementation of a cloud-based ERP and human capital management
tool. We are currently in the process of assessing the financial reporting
impact of this agenda decision on this implementation and we expect to change
our accounting policy in the financial statements for the year ending 31
December 2021 when the impact is determined. The Group has deemed this to be a
reasonable timeframe to implement this clarified guidance given the
complexities involved in this implementation as permitted by the Due Process
Handbook of the IFRS Foundation. As at 30 June 2021, the Group has capitalised
£29.8 million of costs associated with this implementation (year ended 31
December 2020: £14.0 million). This agenda decision will result in some, or
all, of these costs and any further implementation costs being expensed. We
are assessing whether any other previously capitalised software costs will
require to be expensed as a result of the agenda decision but currently do not
expect the amounts to be significant.
Restatement
After the unaudited condensed consolidated interim financial statements for
the period ended 30 June 2020 were issued, it was determined that they did not
comply with certain aspects of the application of IAS 32 Financial
Instruments: Presentation and IAS 39 Financial Instruments: Recognition and
Measurement, resulting in the inappropriate deferral of foreign exchange
movements in the Company's translation reserve due to the inappropriate
application of hedge accounting in respect of non-derivative financial
instruments and the inappropriate discount rate being applied in the
calculation of the fair value of liabilities in respect of put option
agreements and payments due to vendors (earnout agreements).
Net investment hedging was inappropriately applied against certain foreign
exchange exposures, where the relationship was either an ineligible hedging
relationship under IFRS or insufficiently documented, such that the criteria
to apply hedge accounting under IAS 39 Financial Instruments: Recognition and
Measurement were not met. Therefore, there has been a restatement of the
period ended 30 June 2020, resulting in the reclassification of exchange
adjustments on foreign currency net investments within the consolidated
statement of comprehensive income to be reported in the consolidated income
statement as revaluation and retranslation of financial instruments (note 6).
The impact of this change is a £301.1 million loss for the period ended 30
June 2020 being recognised in revaluation and retranslation of financial
instruments. This change also reduced the opening retained earnings balance as
at 1 January 2020 by £271.7 million with a corresponding increase in other
reserves.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
2. Accounting policies (continued)
The fair value of liabilities in respect of put option agreements and payments
due to vendors (earnout agreements) are recorded at the present value of the
expected cash outflows of the obligation. The discount rate historically used
in this calculation represented the Company's cost of debt. To fully reflect
the risk in the cash flows, the Company has changed the discount rate used in
this calculation, and restated the period ended 30 June 2020 to reflect the
change, which resulted in the following adjustments:
· A credit of £2.5 million in the period ended 30 June 2020
recognised in the consolidated income statement within the revaluation and
retranslation of financial instruments (note 6);
· The goodwill impairment charge decreased by £36.1 million in the
period ended 30 June 2020, as a result of the above adjustments that decreased
goodwill and payments due to vendors (earnout agreements) on the consolidated
balance sheet;
· These changes also reduced the opening retained earnings balance
as at 1 January 2020 by £87.3 million and increased opening other reserves by
£59.6 million.
In addition there has been an adjustment to appropriately reflect the working
capital cash flow assumptions in the impairment model, which resulted in the
following adjustments:
· The goodwill impairment charge increased by £328.2 million for
the period ended 30 June 2020;
· Impairment of right-of-use and other assets increased by £5.1
million for the period ended 30 June 2020;
· This resulted in a related increase in the deferred tax credit of
£13.1 million and a corresponding decrease in deferred tax liabilities.
The table below reflects the impact of these adjustments on key income
statement line items.
As previously reported
Six months ended 30 June 2020 Adjusted
£ million
Continuing operations
General and administrative costs 3,231.4 3,528.6
Operating loss (2,453.4) (2,750.6)
Loss before interest and taxation (2,505.3) (2,802.5)
Loss before taxation (2,581.4) (3,177.2)
Loss for the period from continuing operations (2,605.4) (3,188.1)
Loss for the period (2,602.3) (3,185.0)
Headline operating profit 382.3 382.3
Loss for the period attributable to equity holders of the parent (2,626.5) (3,209.2)
Weighted average shares used in basic EPS calculation (million) 1,224.7 1,224.7
Reported basic earnings per share (214.5p) (262.0p)
There was no impact on basic or diluted headline earnings per share.
Statutory Information and Independent Review
The unaudited condensed consolidated interim financial statements for the six
months to 30 June 2021 and 30 June 2020 do not constitute statutory accounts.
The financial information for the year ended 31 December 2020 does not
constitute statutory accounts. The statutory accounts for the year ended 31
December 2020 have been delivered to the Jersey Registrar and received an
unqualified auditors' report. The interim financial statements are unaudited
but have been reviewed by the auditors and their report is set out on page 42.
The announcement of the interim results was approved by the Board of Directors
on 5 August 2021.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
3. Currency conversion
The presentation currency of the Group is pounds sterling and the unaudited
condensed consolidated interim financial statements have been prepared on this
basis. The period ended 30 June 2021 unaudited condensed consolidated interim
income statement is prepared using, among other currencies, average exchange
rates of US$1.39 to the pound (period ended 30 June 2020: US$1.26) and €1.15
to the pound (period ended 30 June 2020: €1.14). The unaudited condensed
consolidated interim balance sheet as at 30 June 2021 has been prepared using
the exchange rates on that day of US$1.38 to the pound (31 December 2020:
US$1.37) and €1.16 to the pound (31 December 2020: €1.12).
4. Costs of services and general and administrative costs
£ million Six months ended Six months ended
30 June 30 June
2021 2020(1)
Continuing operations
Costs of services 5,196.1 4,804.7
General and administrative costs 452.8 3,528.6
5,648.9 8,333.3
Costs of services and general and administrative costs include:
£ million Six months ended Six months ended
30 June 30 June
2021 2020(1)
Continuing operations
Staff costs 3,473.3 3,330.0
Establishment costs 264.8 314.4
Media pass-through costs 857.0 613.7
Other costs of services and general and administrative costs(2) 1,053.8 4,075.2
5,648.9 8,333.3
Staff costs include:
Six months ended Six months ended
£ million 30 June 30 June 2020
2021
Continuing operations
Wages and salaries 2,329.8 2,417.5
Cash-based incentive plans 200.2 17.2
Share-based incentive plans 43.9 30.6
Severance 14.5 18.8
Other staff costs 884.9 845.9
3,473.3 3,330.0
( )
(1 )Figures have been restated as described in note 2.
(2)( )Other costs of services and general and administrative costs include
£376.3 million (period ended 30 June 2020: £301.3 million) of other
pass-through costs.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
4. Costs of services and general and administrative costs
(continued)
Other costs of services and general and administrative costs include:
£ million Six months ended Six months ended
30 June 30 June
2021 2020(1)
Continuing operations
Amortisation and impairment of acquired intangible assets 30.1 53.1
Goodwill impairment - 2,812.9
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
Investment and other write-downs - 225.7
Restructuring and transformation costs 34.3 17.9
Restructuring costs in relation to COVID-19 19.7 39.3
Litigation settlement 21.7 -
Amortisation and impairment of acquired intangibles in the period ended 30
June 2021 includes an impairment charge of £3.9 million (2020: £17.1
million) in regard to certain brand names and customer relationships for
entities which have closed.
The goodwill impairment charge of £2,812.9 million in 2020 largely reflects
the adverse impacts of COVID-19 on a number of businesses in the Group at that
time. This has been restated as described in note 2. Details of the Group's
goodwill impairment review are included in the 2020 annual report and
accounts.
( )
Restructuring costs in relation to COVID-19 of £19.7 million (2020:
£39.3 million) primarily relates to property costs which the Group undertook
in response to the COVID-19 pandemic. As management continues to assess the
impact of COVID-19 on long-term working practices and the Group's real estate
portfolio, further impairments may occur in the future.
Restructuring and transformation costs of £34.3 million (2020: £17.9
million) include £26.2 million of restructuring costs in relation to the
continuing restructuring plan, first outlined on the Investor Day in December
2018. As part of that plan, restructuring actions have been taken to
right-size under-performing businesses, address high cost severance markets
and simplify operational structures. The remaining £8.1 million relates to
the Group's IT transformation programme. Further restructuring and
transformation costs will be incurred in the second half of 2021.
In the period ended 30 June 2021, a provision of £21.7 million (2020: £nil)
was made for potential litigation settlements.
( )
5. Share of results of associates
Share of results of associates include:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Continuing operations
Share of profit before interest and taxation 85.9 46.2
Share of exceptional gains/(losses) 11.7 (51.4)
Share of interest and non-controlling interests (39.1) (40.4)
Share of taxation (18.5) (6.3)
40.0 (51.9)
Share of exceptional gains in the period ended 30 June 2021 of £11.7 million
primarily comprise the gain on disposal of certain Kantar businesses partially
offset by amortisation of acquired intangible assets with Kantar. In 2020,
share of exceptional losses of £51.4 million primarily comprised amortisation
and impairment of acquired intangible assets as well as restructuring and
transaction costs within Kantar.
(1 )Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
6. Finance and investment income, finance costs and revaluation
and retranslation of financial instruments
Finance and investment income includes:
£ million Six months ended Six months ended
30 June 2021 30 June 2020
Continuing operations
Income from equity investments 5.0 6.8
Interest income 25.1 44.4
30.1 51.2
Finance costs include:
£ million Six months ended Six months ended
30 June 2021 30 June 2020
Continuing operations
Interest expense and similar charges 101.5 107.1
Interest expense related to lease liabilities 45.7 50.2
147.2 157.3
Revaluation and retranslation of financial instruments include:
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Movements in fair value of treasury instruments 4.7 (2.0)
Premium on the early repayment of bonds (13.1) -
Revaluation of investments held at fair value through profit or loss 30.5 1.7
Revaluation of put options over non-controlling interests (44.4) 25.4
Revaluation of payments due to vendors (earnout agreements) (9.4) 7.4
Retranslation of financial instruments 19.6 (301.1)
(12.1) (268.6)
( )
( )
(1 )Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
7. Segmental analysis
Reported contributions by operating sector were as follows:
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Revenue
Global Integrated Agencies 5,169.7 4,725.1
Public Relations 449.9 446.8
Specialist Agencies 512.9 410.8
6,132.5 5,582.7
Revenue less pass-through costs(2)
Global Integrated Agencies 4,068.9 3,896.2
Public Relations 429.4 426.3
Specialist Agencies 400.9 345.2
4,899.2 4,667.7
Headline operating profit(3)
Global Integrated Agencies 482.9 282.3
Public Relations 63.5 71.9
Specialist Agencies 44.0 28.1
590.4 382.3
Reported contributions by geographical area were as follows:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Continuing operations
Revenue
North America(4) 2,183.7 2,177.1
United Kingdom 927.0 757.6
Western Continental Europe 1,340.6 1,092.9
Asia Pacific, Latin America, Africa & Middle East and Central & 1,681.2 1,555.1
Eastern Europe
6,132.5 5,582.7
Revenue less pass-through costs(2)
North America(4) 1,817.6 1,856.1
United Kingdom 679.7 585.6
Western Continental Europe 1,050.0 919.5
Asia Pacific, Latin America, Africa & Middle East and Central & 1,351.9 1,306.5
Eastern Europe
4,899.2 4,667.7
Headline operating profit(3)
North America(4) 271.4 215.4
United Kingdom 83.5 35.4
Western Continental Europe 103.7 43.8
Asia Pacific, Latin America, Africa & Middle East and Central & 131.8 87.7
Eastern Europe
590.4 382.3
( )
( )
(1 )During 2020, the Group announced the intention to combine Grey and AKQA
into AKQA Group, and to bring Geometry and GTB into VMLY&R, and
International Healthcare into VMLY&R and Ogilvy. As a result AKQA,
Geometry, GTB and International Healthcare are now reported within Global
Integrated Agencies, having previously been reported within Specialist
Agencies. Prior year figures have been re-presented to reflect these changes
with figures for the year ended 31 December 2020 also included in Appendix 3.
(2) Revenue less pass-through costs is defined in Appendix 2.
(3) Headline operating profit is defined in Appendix 2.
(4 )North America includes the US with revenue of £2,046.9 million (2020:
£2,065.2 million), revenue less pass-through costs of £1,695.9 million
(2020: £1,757.5 million) and headline operating profit of £254.1 million
(2020: £207.1 million).
Notes to the unaudited condensed consolidated interim financial statements
(continued)
8. Taxation
The tax charge for the Group is calculated in accordance with IAS 34, by
applying management's best estimate of the effective tax rate (excluding
discrete items) expected to apply to total annual earnings to the profit for
the six month period ended 30 June 2021. This is then adjusted for certain
discrete items which occurred in the interim period.
The headline tax rate (excluding associate income) was 24.1% (2020: 23.1%) and
on reported profit before tax was 27.2% (2020: -0.3%(1)), with the difference
in the reported tax rate principally due to impairments in 2020. Given the
Group's geographic mix of profits and the changing international tax
environment, the tax rate is expected to increase slightly over the next few
years.
In the UK Budget on 3 March 2021, the Chancellor of the Exchequer announced an
increase in the UK corporation tax rate from 19% to 25%, which is due to be
effective from 1 April 2023. The change was enacted at the balance sheet date,
and the Group has remeasured UK deferred tax balances accordingly and
recognised a tax credit of £27.0 million in current period tax expense.
The tax charge may be affected by the impact of acquisitions, disposals and
other corporate restructurings, the resolution of open tax issues, and the
ability to use brought forward tax losses. Changes in local or international
tax rules, for example, as a consequence of the financial support programmes
implemented by governments during the COVID-19 pandemic, changes arising from
the application of existing rules or challenges by tax or competition
authorities, may expose the Group to additional tax liabilities or impact the
carrying value of deferred tax assets, which could affect the future tax
charge.
Liabilities relating to open and judgemental matters are based upon an
assessment of whether the tax authorities will accept the position taken,
after taking into account external advice where appropriate. Where the final
tax outcome of these matters is different from the amounts which were
initially recorded, such differences will impact the current and deferred
income tax assets and liabilities in the period in which such determination is
made. The Group does not currently consider that judgements made in assessing
tax liabilities have a significant risk of resulting in any material
additional charges or credits in respect of these matters, within the next
financial year, beyond the amounts already provided.
9. Ordinary dividends
The Board has recommended an interim dividend of 12.5p (2020: 10.0p) per
ordinary share. This is expected to be paid on 1 November 2021 to shareholders
on the register at 15 October 2021. The Board recommended a final dividend of
14.0p per ordinary share in respect of 2020. This was paid on 9 July 2021.
( )
( )
(1 )Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
10. Earnings per share
Basic EPS
The calculation of basic EPS is as follows:
Continuing operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
Reported earnings(2) (£ million) 252.7 (3,209.2)
Headline earnings(3) (£ million) 352.7 190.7
Weighted average shares used in basic EPS calculation (million) 1,211.9 1,224.7
Reported EPS 20.9p (262.0p)
Headline EPS 29.1p 15.6p
Discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020
Reported earnings(2) (£ million) - (6.8)
Weighted average shares used in basic EPS calculation (million) - 1,224.7
Reported EPS - (0.5p)
Continuing and discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
Reported earnings(2) (£ million) 252.7 (3,216.0)
Weighted average shares used in basic EPS calculation (million) 1,211.9 1,224.7
Reported EPS 20.9p (262.5p)
( )
(1) Figures have been restated as described in note 2.
(2) Reported earnings is equivalent to profit/(loss) for the period
attributable to equity holders of the parent.
(3) Headline earnings is defined in Appendix 2.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
10. Earnings per share (continued)
Diluted EPS
The calculation of diluted EPS is as follows:
Continuing operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
Diluted reported earnings (£ million) 252.7 (3,209.2)
Diluted headline earnings (£ million) 352.7 190.7
Weighted average shares used in reported diluted EPS calculation (million)(2) 1,229.0 1,224.7
Weighted average shares used in headline diluted EPS calculation (million) 1,229.0 1,237.0
Diluted reported EPS 20.6p (262.0p)
Diluted headline EPS 28.7p 15.4p
Discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020
Diluted reported earnings (£ million) - (6.8)
Weighted average shares used in diluted EPS calculation (million)(2) - 1,224.7
Diluted reported EPS - (0.5p)
Continuing and discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
Diluted reported earnings (£ million) 252.7 (3,216.0)
Weighted average shares used in diluted EPS calculation (million)(2) 1,229.0 1,224.7
Diluted reported EPS 20.6p (262.5p)
A reconciliation between the shares used in calculating basic and diluted EPS
is as follows:
million Six months ended Six months ended
30 June 30 June
2021 2020
Weighted average shares used in basic EPS calculation 1,211.9 1,224.7
Dilutive share options outstanding 0.8 -
Other potentially issuable shares 16.3 12.3
Weighted average shares used in diluted EPS calculation 1,229.0 1,237.0
At 30 June 2021 there were 1,270,102,274 (30 June 2020: 1,296,079,242)
ordinary shares in issue, including treasury shares of 70,489,953 (30 June
2020: 70,750,170).
( )
( )
(1)( )Figures have been restated as described in note 2.( )
(2) In 2020, the weighted average shares used in the basic EPS calculation has
also been used for reported diluted EPS due to the anti-dilutive effect of the
weighted average shares calculated for the reported diluted EPS calculation.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
11. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 16:
( )
Net cash flow from operating activities:
£ million Six months ended Six months ended
30 June 30 June
2021 2020(1)
Profit/(loss) for the period 287.3 (3,185.0)
Taxation 107.1 13.0
Revaluation and retranslation of financial instruments 12.1 268.6
Finance costs 147.2 157.6
Finance and investment income (30.1) (51.4)
Share of results of associates (40.0) 51.9
Loss on sale of discontinued operations - 3.3
Attributable tax expense on sale of discontinued operations - 1.9
Operating profit/(loss) of continuing and discontinued operations 483.6 (2,740.1)
Adjustments for:
Non-cash share-based incentive plans (including share options) 43.9 30.6
Depreciation of property, plant and equipment 71.2 88.2
Depreciation of right-of-use assets 139.3 155.4
Impairment charges included within restructuring costs 7.9 -
Impairment of goodwill - 2,812.9
Amortisation and impairment of acquired intangible assets 30.1 53.1
Amortisation of other intangible assets 9.4 9.6
Investment and other write-downs - 225.7
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
Gain on sale of property, plant and equipment (1.2) (0.1)
Operating cash flow before movements in working capital and provisions 785.2 619.3
Movements in trade working capital(2,3) (464.1) (456.0)
Movements in other working capital and provisions (41.2) (294.7)
Cash generated by/(used in) operations 279.9 (131.4)
Corporation and overseas tax paid (162.7) (201.2)
Interest and similar charges paid (90.1) (77.4)
Interest paid on lease liabilities (44.7) (48.6)
Interest received 25.1 45.2
Investment income 5.0 6.8
Dividends received from associates 26.7 4.7
Net cash inflow/(outflow) from operating activities 39.2 (401.9)
(1 )Figures have been restated as described in note 2.( )
(2) The Group typically experiences an outflow of working capital in the first
half of the financial year and an inflow in the second half. This is primarily
due to the seasonal nature of working capital flows associated with its media
buying activities on behalf of clients.
(3) Trade working capital represents trade receivables, work in progress,
accrued income, trade payables, and deferred income.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
11. Analysis of cash flows (continued)
Acquisitions and disposals:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Initial cash consideration (41.2) (5.9)
Cash and cash equivalents acquired 4.0 -
Earnout payments (14.1) (88.5)
Purchase of other investments (including associates)(1) (97.2) (2.4)
Acquisitions (148.5) (96.8)
Proceeds on disposal of investments and subsidiaries 3.1 228.4
Cash and cash equivalents disposed (1.8) (24.5)
Disposals of investments and subsidiaries 1.3 203.9
Cash consideration received from non-controlling interests 38.7 -
Cash consideration for purchase of non-controlling interests (117.7) (37.8)
Cash consideration for non-controlling interests (79.0) (37.8)
Net acquisition payments and disposal proceeds (226.2) 69.3
Share repurchases and buybacks:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Purchase of own shares by ESOP Trusts (49.5) (0.4)
Shares purchased into treasury (248.1) (285.1)
(297.6) (285.5)
Proceeds from borrowings:
Six months ended Six months ended
30 June 30 June
£ million 2021 2020
Net increase in drawings on bank loans - 7.4
Proceeds from issue of €750 million bonds - 665.5
Proceeds from issue of £250 million bonds - 250.0
- 922.9
Repayment of borrowings:
Six months ended Six months ended
30 June 30 June
£ million 2021 2020
Net decrease in drawings on bank loans (35.9) -
Repayment of €250 million bonds - (223.1)
(35.9) (223.1)
(1 )In June 2021, the Group invested a further £92.9 million in Kantar to
fund its share of Kantar's acquisition of Numerator, which completed in July
2021.( )
Notes to the unaudited condensed consolidated interim financial statements
(continued)
12. Cash and cash equivalents and net debt
£ million 30 June 31 December
2021 2020
Cash at bank and in hand 1,704.1 10,075.0
Short-term bank deposits 1,842.0 2,824.1
Overdrafts(1) (199.2) (8,562.0)
Cash and cash equivalents 3,346.9 4,337.1
Bonds due within one year (589.0) -
Loans due within one year (15.1) (57.2)
Bonds due after one year (4,258.5) (4,975.5)
Loans due after one year (28.0) -
Net debt (1,543.7) (695.6)
During the period, the Group converted the majority of its notional cash pool
arrangements to zero-balance accounts, whereby the cash and overdrafts within
these cash pools are physically swept to the header accounts on a daily basis,
resulting in a reduction of the large gross cash and overdraft positions at 31
December 2020.
The Group estimates that the fair value of corporate bonds is £5,282.5
million at 30 June 2021 (31 December 2020: £5,509.1 million). The Group
considers that the carrying amount of bank loans approximates their fair
value.
The following table is an analysis of future anticipated cash flows in
relation to the Group's debt, on an undiscounted basis which, therefore,
differs from the carrying value:
£ million 30 June 31 December 2020
2021
Within one year (711.5) (182.2)
Between one and two years (117.0) (725.6)
Between two and three years (749.6) (795.7)
Between three and four years (1,052.4) (649.1)
Between four and five years (71.4) (528.2)
Over five years (3,227.9) (3,387.1)
Debt financing (including interest) under the Revolving Credit Facility and in (5,929.8) (6,267.9)
relation to unsecured loan notes
Short-term overdrafts - within one year (199.2) (8,562.0)
Future anticipated cash flows (6,129.0) (14,829.9)
Effect of discounting/financing rates 1,039.2 1,235.2
Debt financing (5,089.8) (13,594.7)
Cash and short-term deposits 3,546.1 12,899.1
Net debt (1,543.7) (695.6)
( )
(1) Bank overdrafts are included in cash and cash equivalents because they
form an integral part of the Group's cash management.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
13. Goodwill and acquisitions
The contribution to revenue and operating profit of acquisitions completed in
the period was not material. There were no material acquisitions completed
during the period or between 30 June 2021 and the date the interim financial
statements were approved.
There were no indicators of impairment identified in the six months ended 30
June 2021.
Impairments in the six months ended 30 June 2020
During the period ended 30 June 2020, the Group recorded a £2,812.9 million
impairment charge. Figures have been restated as described in note 2. The
impairments related to historical acquisitions whose carrying values were
reassessed in light of the impact of COVID-19. The impairments were driven by
a combination of higher discount rates used to value future cash flows, a
lower profit base in 2020 and lower industry growth rates, as further
described below.
Due to a significant number of CGUs, the impairment test was performed in two
steps. In the first step, the recoverable amount was calculated for each CGU
using the latest available forecasts for 2020, nil growth rate thereafter and
a conservative pre-tax discount rate of 13.5%. The pre-tax discount rate of
13.5% was above the rate calculated for the global networks of 12.5%. For
smaller CGUs that operate primarily in a particular region subject to higher
risk, the higher of 13.5% or 100 basis points above the regional discount rate
was used in the first step.
The recoverable amount was then compared to the carrying amount. CGUs where
the recoverable amount exceeded the carrying amount were not considered to be
impaired. Those CGUs where the recoverable amount did not exceed the carrying
amount were then further reviewed in the second step.
In the second step, the CGUs were retested for impairment using more refined
assumptions. If the recoverable amount using the more specific assumptions did
not exceed the carrying value of a CGU, an impairment charge was recorded.
Assumptions used in the impairment test were as follows:
· Pre-tax discount rate used for CGUs with global operations of
12.5%
· Pre-tax discount rate for CGUs with more regional specific
operations of 10.8% to 19.3%
· Long-term growth rate of 2.0%
In developing the expected cash flows as at 30 June 2020, we considered the
impact of the COVID-19 pandemic to our businesses and adjusted projected
revenue less pass-through costs and operating margins in 2020 accordingly. For
the remaining years in the projection period, we assessed when the cash flows
would recover to 2019 levels as representative of pre-COVID-19 revenue less
pass-through costs and operating margins.
Our approach in determining the recoverable amount utilised a discounted cash
flow methodology, which necessarily involves making numerous estimates and
assumptions regarding revenue less pass-through costs growth, operating
margins, appropriate discount rates and working capital requirements. The key
assumptions used for estimating cash flow projections in the Group's
impairment testing are those relating to revenue less pass-through costs
growth and operating margins. The key assumptions take account of the
businesses' expectations for the projection period. These expectations
consider the macroeconomic environment, industry and market conditions, the
CGU's historical performance and any other circumstances particular to the
unit, such as business strategy and client mix.
These estimates will likely differ from future actual results of operations
and cash flows, and it is possible that these differences could be material.
In addition, judgements are applied in determining the level of CGU identified
for impairment testing and the criteria used to determine which assets should
be aggregated. A difference in testing levels could affect whether an
impairment is recorded and the extent of impairment loss.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
13. Goodwill and acquisitions (continued)
The goodwill impairment charge of £2,812.9 million largely reflected the
adverse impacts of COVID-19 to a number of businesses in the Group at 30 June
2020. The impact of these global economic conditions and trading circumstances
was sufficiently severe to indicate impairment to the carrying value of
goodwill. By operating sector, £1,820.1 million of the impairment charge
related to Global Integrated Agencies, £157.1 million related to Public
Relations and £835.7 million related to Specialist Agencies.
The CGUs with significant impairments of goodwill as at 30 June 2020 are set
out in the below table.
As reported As adjusted
Recoverable amount Goodwill impairment charge Recoverable amount Goodwill impairment charge
as at 30 June 2020 for the period ended 30 June 2020 as at 30 June 2020 for the period ended 30 June 2020
CGU
£ million Operating Sector
Wunderman Thompson Global Integrated Agencies 1,932.2 1,071.4 1,759.5 1,207.5
VMLY&R Global Integrated Agencies 918.3 472.0 871.0 516.9
Burson Cohn & Wolfe Public Relations 859.8 129.1 845.9 140.3
Geometry Global Specialist Agencies 205.9 232.9 128.4 305.8
Landor & FITCH Specialist Agencies 197.5 158.3 169.5 185.4
Other 1,349.3 457.1 1,325.7 457.0
5,463.0 2,520.8 5,100.0 2,812.9
14. Trade and other receivables
Amounts falling due within one year:
£ million 30 June 31 December
2021 2020
Trade receivables 5,877.1 6,572.2
Work in progress 279.1 264.1
VAT and sales taxes recoverable 284.4 236.6
Prepayments 265.6 248.1
Accrued income 3,023.4 3,150.1
Fair value of derivatives 1.8 0.2
Other debtors 493.1 501.0
10,224.5 10,972.3
Amounts falling due after more than one year:
£ million 30 June 31 December
2021 2020
Fair value of derivatives 14.4 9.6
Prepayments and other debtors 163.1 146.6
177.5 156.2
The Group considers that the carrying amount of trade and other receivables
approximates their fair value.
A credit to bad debt expense of £10.6 million (period ended 30 June 2020:
expense of £29.2 million; year ended 31 December 2020: expense of £40.8
million) on the Group's trade receivables was recognised in the period as a
result of the reduction in expected credit losses since 31 December 2020. The
allowance for bad and doubtful debts is equivalent to 1.4% (31 December 2020:
1.7%) of gross trade receivables.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
15. Trade and other payables: amounts falling due within
one year
£ million 30 June 31 December
2021 2020
Trade payables 8,902.2 10,206.5
Deferred income 1,164.3 1,153.7
Payments due to vendors (earnout agreements) 83.7 57.8
Liabilities in respect of put option agreements with vendors 35.4 9.3
Fair value of derivatives 3.7 1.8
Other creditors and accruals 2,525.5 2,430.6
12,714.8 13,859.7
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
16. Trade and other payables: amounts falling due after more than
one year
£ million 30 June 31 December
2021 2020
Payments due to vendors (earnout agreements) 69.5 56.5
Liabilities in respect of put option agreements with vendors 245.9 101.4
Fair value of derivatives 38.2 11.2
Other creditors and accruals 78.3 144.4
431.9 313.5
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
The following table sets out payments due to vendors, comprising contingent
consideration and the Directors' best estimates of future earnout-related
obligations:
£ million 30 June 31 December
2021 2020
Within one year 83.7 57.8
Between 1 and 2 years 20.5 17.2
Between 2 and 3 years 18.4 6.0
Between 3 and 4 years 19.4 30.5
Between 4 and 5 years 11.2 2.8
153.2 114.3
The Group's approach to payments due to vendors is outlined in note 19.
The Group does not consider there to be any material contingent liabilities at
30 June 2021.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
17. Related party transactions
The Group enters into transactions with its associate undertakings.
The Group has continuing transactions with Kantar, including sales, purchases,
the provision of IT services, subleases and property related items.
In the period ended 30 June 2021, revenue of £93.5 million (period ended 30
June 2020: £49.7 million) was reported in relation to Compas, an associate in
the USA. All other transactions in the periods presented were immaterial.
The Group invested a further £92.9 million in Kantar on 29 June 2021 to fund
its 40% share of the Numerator acquisition. This investment would have been
returned to the Group in the event the Numerator acquisition did not complete.
Kantar completed its acquisition of Numerator on 2 July 2021.
The following amounts were outstanding at 30 June 2021:
£ million 30 June 31 December
2021 2020
Amounts owed by related parties
Kantar 135.5 39.0
Other 46.3 27.9
181.8 66.9
Amounts owed to related parties
Kantar (6.3) (5.6)
Other (62.3) (36.0)
(68.6) (41.6)
18. Going concern and liquidity risk
In considering going concern and liquidity risk, the Directors have reviewed
the Group's future cash requirements and earnings projections. The Directors
believe these forecasts have been prepared on a prudent basis and have also
considered the impact of a range of potential changes to trading performance.
The Company modelled a range of revenue less pass-through costs compared with
the year ended 31 December 2020 and a number of mitigating cost actions that
are available to the Company. Considering the Group's bank covenant and
liquidity headroom and cost mitigation actions which could be implemented, the
Company and the Group would be able to operate with appropriate liquidity and
within its banking covenants and be able to meet its liabilities as they fall
due with a decline in revenue less pass-through costs up to 29% in the second
half of 2021 and first half of 2022 compared to the corresponding prior
periods. The likelihood of such a decline is considered remote. The Directors
have concluded that the Group will be able to operate within its current
facilities and comply with its banking covenants for the foreseeable future
and therefore believe it is appropriate to prepare the financial statements of
the Group on a going concern basis and that there are no material
uncertainties which gives rise to a significant going concern risk.
Given its debt maturity profile and available facilities, the Directors
believe the Group has sufficient liquidity to match its requirements for the
foreseeable future.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
19. Financial instruments
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into levels
1 to 3 based on the degree to which the fair value is observable, or based on
observable inputs:
£ million Level 2 Level 3
Level 1
30 June 2021
Derivatives in designated hedge relationships
Derivative assets - 12.2 -
Derivative liabilities - (38.2) -
Held at fair value through profit or loss
Other investments 0.2 - 296.7
Derivative assets - 4.0 -
Derivative liabilities - (3.7) -
Payments due to vendors (earnout agreements) - - (153.2)
Liabilities in respect of put options - - (281.3)
Held at fair value through other comprehensive income
Other investments 40.9 - 110.9
Reconciliation of level 3 fair value measurements:
£ million Payments due to vendors (earnout agreements) Liabilities in respect of put options Other investments
1 January 2021 (114.3) (110.7) 366.6
(Losses)/gains recognised in the income statement (9.4) (44.4) 30.4
Gains recognised in other comprehensive income - - 6.9
Exchange adjustments 1.6 1.9 -
Additions (45.2) (129.5)(1) 4.3
Disposals - - (0.6)
Settlements 14.1 1.4 -
30 June 2021 (153.2) (281.3) 407.6
Payments due to vendors and liabilities in respect of put options
Future anticipated payments due to vendors in respect of contingent
consideration (earnout agreements) are recorded at fair value, which is the
present value of the expected cash outflows of the obligations. Liabilities in
respect of put option agreements are initially recorded at the present value
of the redemption amount in accordance with IAS 32 and subsequently measured
at fair value in accordance with IFRS 9. Both types of obligations are
dependent on the future financial performance of the entity and it is assumed
that future profits are in line with Directors' estimates. The Directors
derive their estimates from internal business plans together with financial
due diligence performed in connection with the acquisition. At 30 June 2021,
the weighted average growth rate in estimating future financial performance
was 14.6%, which reflects the prevalence of recent acquisitions in the faster
growing markets and new media sectors. The weighted average risk adjusted
discount rate applied to these obligations at 30 June 2021 was approximately
5.3%.
A one percentage point increase or decrease in the growth rate in estimated
future financial performance would increase or decrease the combined
liabilities due to earnout agreements and put options by approximately £8.3
million and £13.1 million, respectively. A 0.5 percentage point increase or
decrease in the risk adjusted discount rate would decrease or increase the
combined liabilities by approximately £6.1 million and £6.2 million,
respectively. An increase in the liability would result in a loss in the
revaluation and retranslation of financial instruments (note 6), while a
decrease would result in a gain.
( )
(1) During the period, the Group merged its subsidiaries Finsbury, The Glover
Park Group and Hering Schuppener to form a leading global strategic
communications advisory firm. As part of this transaction, certain management
acquired shares in the company and a put option was granted which allows the
equity partners to require the Group to purchase these shares. This resulted
in additions to liabilities in respect of put options in the period of £100.0
million.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
19. Financial instruments (continued)
Other investments
The fair value of other investments included in level 1 are based on quoted
market prices. Other investments included in level 3 are unlisted securities,
where market value is not readily available. The Group has estimated relevant
fair values on the basis of publicly available information from outside
sources. Certain investments are valued using revenue multiples. An increase
or decrease in this multiple of 0.5 times revenue would result in an increase
or decrease in the value of investments of £24.5 million, which would result
in a credit or charge to the income statement of £1.6 million and equity of
£22.9 million. The sensitivity to changes in unobservable inputs for certain
other investments is specific to each individual investment.
Principal risks and uncertainties
The Board regularly reviews the principal and emerging risks and uncertainties
affecting the Group and these are summarised below:
COVID-19 Pandemic
· The extent of the continued impact of the COVID-19 pandemic on our
business will depend on numerous factors that we are not able to accurately
predict, including the duration and scope of the pandemic, government actions
to mitigate the effects of the pandemic and the intermediate and long-term
impact of the pandemic on our clients' spending plans.
Strategic Risks
· The Group updated its strategic plan in December 2020, to return the
business to growth and simplify the Group structure. A failure or delay in
implementing and fully realising the benefits from the strategic plan, may
have a material adverse effect on the Group's market share and its business,
revenues, results of operations, financial condition, or prospects.
Operational Risks
Clients
· The Group competes for clients in a highly competitive and evolving
industry which is undergoing structural change which has been accelerated by
the COVID-19 pandemic. Client loss or consolidation or a reduction in
marketing budgets due to recessionary economic conditions, may have a material
adverse effect on the Group's market share and its business, revenues, results
of operations, financial condition or prospects.
· The Group receives a significant portion of its revenues from a
limited number of large clients and the net loss of one or more of these
clients could have a material adverse effect on the Group's prospects,
business, financial condition and results of operations.
People, Culture and Succession
· The Group's performance could be adversely affected if we do not
react quickly enough to changes in our market and fail to attract, develop and
retain key and diverse creative, commercial technology and management talent
or are unable to retain and incentivise key and diverse talent.
Cyber and Information Security
· The Group is undertaking a series of IT transformation programmes to
support the Group's strategic plan and a failure or delay in implanting the IT
programmes may have a material adverse effect on its business, revenues,
results of operations, financial conditions or prospects. The Group is reliant
on third parties for the performance of a significant part of its information
technology and operational functions. A failure to provide these functions
including as a result of a cyber event, could have an adverse effect on the
Group's business. A significant percentage of the Group's people continue to
work remotely as a consequence of the COVID-19 pandemic which has the
potential to increase the risk of compromised data security and cyber-attacks.
Financial Risks
· The Group is subject to credit risk through the default of a
client or other counterparty.
Principal risks and uncertainties (continued)
Compliance Risks
· The Group is subject to strict data protection and privacy
legislation in the jurisdictions in which we operate and rely extensively on
information technology systems. The Group stores, transmits and relies on
critical and sensitive data. Security of this type of data is exposed to
escalating external cyber threats that are increasing in sophistication as
well as internal breaches.
· The Group's performance could be adversely impacted if it failed
to ensure adequate internal control procedures are in place generally and
through the period of remote working as a consequence of the COVID-19
pandemic.
Regulatory, Sanctions, Anti-Trust and Taxation
· The Group may be subject to regulations restricting its
activities or effecting changes in taxation for example as a consequence of
the financial support programmes implemented by governments during the
COVID-19 pandemic.
· The Group is subject to anti-corruption, anti-bribery and
anti-trust legislation and enforcement in the countries in which it operates.
· Civil liabilities or judgements against the Company or its
Directors or officers based on United States federal or state securities laws
may not be enforceable in the United States or in England and Wales or in
Jersey.
· The Group is subject to the laws of the United States, EU and
other jurisdictions regulating and imposing sanctions on the supply of
services to certain countries. Failure to comply with these laws could expose
the Group to civil and criminal penalties.
Emerging Risks
· The Group's operations could be disrupted by an increased
frequency of extreme weather and climate-related natural disasters as a
consequence of the physical impacts of climate change in the next 30 years.
· The Group is subject to increased reputational risk associated
with working on environmentally detrimental client briefs and/or
misrepresenting environmental claims.
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to be,
"forward-looking statements". Forward-looking statements give the Group's
current expectations or forecasts of future events. An investor can identify
these statements by the fact that they do not relate strictly to historical or
current facts. They use words such as 'anticipate', 'estimate', 'expect',
'intend', 'will', 'project', 'plan', 'believe', 'target' and other words and
terms of similar meaning in connection with any discussion of future operating
or financial performance.
These forward-looking statements may include, among other things, plans,
objectives, projections and anticipated future economic performance based on
assumptions and the like that are subject to risks and uncertainties. As such,
actual results or outcomes may differ materially from those discussed in the
forward-looking statements. Important factors which may cause actual results
to differ include but are not limited to: the unanticipated loss of a material
client or key personnel, delays or reductions in client advertising budgets,
shifts in industry rates of compensation, regulatory compliance costs or
litigation, natural disasters or acts of terrorism, the Company's exposure to
changes in the values of other major currencies (because a substantial portion
of its revenues are derived and costs incurred outside of the UK) and the
overall level of economic activity in the Company's major markets (which
varies depending on, among other things, regional, national and international
political and economic conditions and government regulations in the world's
advertising markets). In addition, you should consider the risks described
under Item 3D 'Risk Factors' in the Group's Annual Report on Form 20-F for
2020 and any impacts of the COVID-19 pandemic which could also cause actual
results to differ from forward-looking information. In light of these and
other uncertainties, the forward-looking statements included in this document
should not be regarded as a representation by the Company that the Company's
plans and objectives will be achieved. Other than in accordance with its legal
or regulatory obligations (including under the Market Abuse Regulation, the UK
Listing Rules and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority), the Group undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise. The reader should, however, consult any additional
disclosures that the Group may make in any documents which it publishes and/or
files with the SEC. All readers, wherever located, should take note of these
disclosures. Accordingly, no assurance can be given that any particular
expectation will be met and investors are cautioned not to place undue
reliance on the forward-looking statements.
Any forward looking statements made by or on behalf of the Group speak only as
of the date they are made and are based upon the knowledge and information
available to the Directors on the date of this document.
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R;
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R; and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R.
The names and functions of the WPP plc Board can be found at:
wpp.com/about/our-leadership/the-wpp-board
This responsibility statement is approved by the Board of Directors and is
signed on its behalf by:
J Rogers
Chief Financial Officer
5 August 2021
Independent review report to WPP plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2021 which comprises the condensed consolidated interim income statement,
statement of comprehensive income, the cash flow statement, the balance sheet,
the statement of changes in equity and related notes 1 to 19. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in the accounting policies section, the annual financial
statements of the group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting" as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2021 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. Our work has been undertaken so
that we might state to the company those matters we are required to state to
it in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 August 2021
Appendix 2: Alternate performance measures for the six months ended 30 June
2021
Management includes non-GAAP measures as they consider these measures to be
both useful and necessary. They are used by management for internal
performance analyses; the presentation of these measures facilitates
comparability with other companies, although management's measures may not be
calculated in the same way as similarly titled measures reported by other
companies; and these measures are useful in connection with discussions with
the investment community.
Reconciliation of revenue to revenue less pass-through costs:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Continuing operations
Revenue 6,132.5 5,582.7
Media pass-through costs (857.0) (613.7)
Other pass-through costs (376.3) (301.3)
Revenue less pass-through costs 4,899.2 4,667.7
Pass-through costs comprise fees paid to external suppliers when they are
engaged to perform part or all of a specific project and are charged directly
to clients. This includes the cost of media where the Group is buying digital
media for its own account on a transparent opt-in basis and, as a result, the
subsequent media pass-through costs have to be accounted for as revenue, as
well as billings. Therefore, management considers that revenue less
pass-through costs gives a helpful reflection of top-line growth.
Reconciliation of operating profit/(loss) to headline operating profit:
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Operating profit/(loss) 483.6 (2,750.6)
Amortisation and impairment of acquired intangible assets 30.1 53.1
Goodwill impairment - 2,812.9
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
Investment and other write-downs - 225.7
Litigation settlement 21.7 -
Restructuring and transformation costs 34.3 17.9
Restructuring costs in relation to COVID-19 19.7 39.3
Headline operating profit 590.4 382.3
Finance and investment income 30.1 51.2
Finance costs (excluding interest expense related to lease liabilities) (101.5) (107.1)
(71.4) (55.9)
Interest cover(2) on headline operating profit 8.3 times 6.8 times
Headline operating profit is one of the metrics that management uses to assess
the performance of the business.( )
( )
( )
(1)( )Figures have been restated as described in note 2.
(2 )Interest expense related to lease liabilities is excluded from interest
cover as lease liabilities are excluded from the Group's key leverage metrics.
Headline operating profit margin before and after share of results of
associates:
£ million Margin Six months Six months ended
ended 30 June 2020
30 June 2021
Margin
Continuing operations
Revenue less pass-through costs 4,899.2 4,667.7
Headline operating profit 12.1% 590.4 8.2% 382.3
Share of results of associates (excluding exceptional gains/losses) 28.3 (0.5)
Headline PBIT 12.6% 618.7 8.2% 381.8
( )
Calculation of headline EBITDA:
£ million Six months ended Six months ended
30 June 30 June
2021 2020
Continuing operations
Headline PBIT (as above) 618.7 381.8
Depreciation of property, plant and equipment 71.2 88.2
Amortisation of other intangible assets 9.4 9.6
Headline EBITDA (including depreciation of right-of-use assets) 699.3 479.6
Depreciation of right-of-use assets 139.3 155.4
Headline EBITDA 838.6 635.0
Headline EBITDA is a key metric that private equity firms, for example, use
for valuing companies, and is one of the metrics that management uses to
assess the performance of the business. Headline EBITDA (including
depreciation of right-of-use assets) is used in the Group's key leverage
metric.
Reconciliation of profit/(loss) before taxation to headline PBT and headline
earnings:
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Profit/(loss) before taxation 394.4 (3,177.2)
Amortisation and impairment of acquired intangible assets 30.1 53.1
Goodwill impairment - 2,812.9
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
Investment and other write-downs - 225.7
Restructuring and transformation costs 34.3 17.9
Restructuring costs in relation to COVID-19 19.7 39.3
Share of exceptional (gains)/losses of associates (11.7) 51.4
Litigation settlement 21.7 -
Revaluation and retranslation of financial instruments 12.1 268.6
Headline PBT 501.6 275.7
Headline tax charge (114.3) (63.9)
Headline non-controlling interests (34.6) (21.1)
Headline earnings 352.7 190.7
Headline PBT and headline earnings are metrics that management use to assess
the performance of the business.
(1)( )Figures have been restated as described in note 2.
( )
Calculation of headline taxation:
£ million Six months ended Six months ended
30 June 30 June 2020(1)
2021
Continuing operations
Headline PBT 501.6 275.7
Share of results of associates (excluding exceptional gains/losses) (28.3) 0.5
Headline PBT excluding headline share of results of associates 473.3 276.2
Tax charge 107.1 10.9
Tax charge relating to gains on disposal of investments and subsidiaries (3.8) (1.9)
Tax credit relating to litigation settlement 1.5 -
Deferred tax impact of the amortisation of acquired intangible assets and (2.0) 37.5
other goodwill items
Tax credit relating to restructuring and transformation costs and COVID-19 18.5 17.9
Deferred tax relating to gains on disposal of investments and subsidiaries (7.0) (0.5)
Headline tax charge 114.3 63.9
Headline tax rate 24.1% 23.1%
( )
The headline tax rate on headline PBT excluding the share of headline results
of associates was 24.1% (2020: 23.1%).
Given the Group's geographic mix of profits and the changing international tax
environment, the headline tax rate is expected to increase slightly over the
next few years.
Reconciliation of free cash flow:
£ million Six months ended Six months ended
30 June 2021 30 June
2020
Cash generated by/(used in) operations 279.9 (131.4)
Plus:
Interest received 25.1 45.2
Investment income 5.0 6.8
Dividends received from associates 26.7 4.7
Less:
Earnout payments (14.1) (88.5)
Interest and similar charges paid (90.1) (77.4)
Purchase of property, plant and equipment (111.6) (121.3)
Purchase of other intangible assets (including capitalised computer software) (26.7) (19.2)
Repayment of lease liabilities (157.4) (154.5)
Interest paid on lease liabilities (44.7) (48.6)
Corporation and overseas tax paid (162.7) (201.2)
Dividends paid to non-controlling interests in subsidiary undertakings (74.5) (40.1)
Free cash flow (345.1) (825.5)
( )
The Group bases its internal cash flow objectives on free cash flow.
Management believes free cash flow is meaningful to investors because it is
the measure of the Group's funds available for acquisition related payments,
dividends to shareholders, share repurchases and debt repayment. The purpose
of presenting free cash flow is to indicate the ongoing cash generation within
the control of the Group after taking account of the necessary cash
expenditures of maintaining the capital and operating structure of the Group
(in the form of payments of interest, corporate taxation and capital
expenditure).
( )
(1)( )Figures have been restated as described in note 2.
( )
Constant currency and pro forma ('like-for-like')
These consolidated financial statements are presented in pounds sterling.
However, the Group's significant international operations give rise to
fluctuations in foreign exchange rates. To neutralise foreign exchange impact
and illustrate the underlying change in revenue and profit from one year to
the next, the Group has adopted the practice of discussing results in both
reportable currency (local currency results translated into pounds sterling at
the prevailing foreign exchange rate) and constant currency.
Management also believes that discussing pro forma or like-for-like
contributes to the understanding of the Group's performance and trends because
it allows for meaningful comparisons of the current period to that of prior
periods.
Further details of the constant currency and pro forma methods are given in
the glossary on page 48.
Appendix 3: Re-presented segmental analysis for the year ended 31 December
2020
During 2020, the Group announced the intention to combine Grey and AKQA into
AKQA Group, and to bring Geometry and GTB into VMLY&R, and International
Healthcare into VMLY&R and Ogilvy. As a result AKQA, Geometry, GTB and
International Healthcare are now reported within Global Integrated Agencies,
having previously been reported within Specialist Agencies. For information
purposes, the restated reported contributions by operating sector for the year
ended 31 December 2020 are presented below:
£ million Year ended
31 December 2020
Continuing operations
Revenue
Global Integrated Agencies 10,265.5
Public Relations 892.9
Specialist Agencies 844.4
12,002.8
Revenue less pass-through costs(1)
Global Integrated Agencies 8,194.2
Public Relations 854.4
Specialist Agencies 713.4
9,762.0
Headline operating profit(2)
Global Integrated Agencies 1,059.9
Public Relations 141.3
Specialist Agencies 59.3
1,260.5
(1) Revenue less pass-through costs is defined in Appendix 2.
(2) Headline operating profit is defined in Appendix 2.
Glossary and basis of preparation
Average net debt and net debt
Average net debt is calculated as the average daily net borrowings of the
Group. Net debt at a period end is calculated as the sum of the net borrowings
of the Group, derived from the cash ledgers and accounts in the balance sheet.
Net debt excludes lease liabilities.
Billings and estimated net new billings
Billings comprise the gross amounts billed to clients in respect of
commission-based/fee-based income together with the total of other fees
earned. Net new billings represent the estimated annualised impact on billings
of new business gained from both existing and new clients, net of existing
client business lost. The estimated impact is based upon initial assessments
of the clients' marketing budgets, which may not necessarily result in actual
billings of the same amount.
Constant currency
The Group uses US dollar-based, constant currency models to measure
performance. These are calculated by applying budgeted 2021 exchange rates to
local currency reported results for the current and prior year, which excludes
any variances attributable to foreign exchange rate movements.
Exceptional gains/losses
Exceptional gains/losses include gains/losses on disposal of investments and
subsidiaries, investment and other write-downs, litigation settlement,
restructuring and transformation costs, restructuring costs in relation to
COVID-19 and share of exceptional gains/losses of associates.
Free cash flow
Free cash flow is calculated as cash generated by operations plus dividends
received from associates, interest received, investment income received, and
proceeds from the issue of shares, less corporation and overseas tax paid,
interest and similar charges paid, dividends paid to non-controlling interests
in subsidiary undertakings, repayment of lease liabilities (including
interest), earnout payments and purchases of property, plant and equipment and
purchases of other intangible assets.
General and administrative costs
General and administrative costs include marketing costs, certain professional
fees and an allocation of other costs, including staff and establishment
costs, based on the function of employees within the Group.
Headline earnings
Headline PBT less headline tax charge and non-controlling interests.
Headline EBITDA
Profit before finance income/costs and revaluation and retranslation of
financial instruments, taxation, gains/losses on disposal of investments and
subsidiaries, investment and other write-downs, goodwill impairment and other
goodwill write-downs, amortisation and impairment of acquired intangible
assets, amortisation of other intangibles, depreciation of property, plant and
equipment, depreciation of right-of-use assets, restructuring and
transformation costs, restructuring costs in relation to COVID-19, litigation
settlement and share of exceptional gains/losses of associates.
Headline operating profit
Operating profit before gains/losses on disposal of investments and
subsidiaries, investment and other write-downs, goodwill impairment and other
goodwill write-downs, amortisation and impairment of acquired intangible
assets, restructuring and transformation costs, restructuring costs in
relation to COVID-19 and litigation settlement.
Headline PBIT
Profit before finance income/costs and revaluation and retranslation of
financial instruments, taxation, gains/losses on disposal of investments and
subsidiaries, investment and other write-downs, goodwill impairment and other
goodwill write-downs, amortisation and impairment of acquired intangible
assets, restructuring and transformation costs, restructuring costs in
relation to COVID-19, litigation settlement and share of exceptional
gains/losses of associates.
Headline operating profit margin
Headline operating profit margin is calculated as headline operating profit as
a percentage of revenue less pass-through costs.
Headline PBT
Profit before taxation, gains/losses on disposal of investments and
subsidiaries, investment and other write-downs, goodwill impairment and other
goodwill write-downs, amortisation and impairment of acquired intangible
assets, restructuring and transformation costs, restructuring costs in
relation to COVID-19, litigation settlement, share of exceptional gains/losses
of associates and gains/losses arising from the revaluation and retranslation
of financial instruments.
Headline tax charge
Taxation excluding tax/deferred tax relating to gains on disposal of
investments and subsidiaries, tax credit relating to litigation settlement,
deferred tax impact of the amortisation of acquired intangible assets and
other goodwill items and tax credit relating to restructuring and
transformation costs and COVID-19.
Net working capital
The movement in net working capital consists of movements in trade working
capital and movements in other working capital and provisions per the analysis
of cash flows note.
Pass-through costs
Pass-through costs comprise fees paid to external suppliers where they are
engaged to perform part or all of a specific project and are charged directly
to clients, predominantly media costs.
Pro forma ('like-for-like')
Pro forma comparisons are calculated as follows: current year, constant
currency actual results (which include acquisitions from the relevant date of
completion) are compared with prior year, constant currency actual results,
adjusted to include the results of acquisitions and disposals for the
commensurate period in the prior year. The Group uses the terms 'pro forma'
and 'like-for-like' interchangeably.
Revenue less pass-through costs
Revenue less pass-through costs is revenue less media and other pass-through
costs.
1 Percentage change in reported sterling.
2 Like-for-like growth at constant currency exchange rates and excluding
the effects of acquisitions and disposals.
3 Prior year figures have been restated as described in note 2 of Appendix
1.
4 Not meaningful.
5 In this press release not all of the figures and ratios used are readily
available from the unaudited interim results included in Appendix 1.
Management believes these non-GAAP measures, including constant currency and
like-for-like growth, revenue less pass-through costs and headline profit
measures, 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 Appendix 2.
6 Prior year figures have been restated as described in note 2 of Appendix
1.
7 Asia Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe.
8 AKQA, Geometry, GTB and International Healthcare have been reassigned from
Specialist Agencies to Global Integrated Agencies from Q1 2021. 2020 figures
have been restated to reflect this change.
9 Prior year figures have been restated as described in note 2 of Appendix
1.
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