REG - WPP PLC - 2022 Interim Results
05/08/2022 07:00
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RNS Number : 0153V WPP PLC 05 August 2022
5 August 2022
2022 Interim Results
Strong first half: broad-based growth, sustained demand from clients,
transformation programme on track. 2022 growth guidance upgraded again
Key figures
£ million H1 2022 +/(-) % reported 1 (#_ftn1) +/(-) % LFL 2 (#_ftn2) H1 2021
Revenue 6,755 10.2 8.7 6,133
Revenue less pass-through costs 5,509 12.5 8.9 4,899
Reported:
Operating profit 539 11.4 484
Profit before tax 419 6.1 - 394
Diluted EPS (p) 22.7 10.2 - 20.6
Dividends per share (p) 15.0 20.0 - 12.5
Headline 3 (#_ftn3) :
Operating profit 639 8.2 - 590
Operating profit margin 11.6% (0.5pt*) - 12.1%
Profit before tax 562 12.0 - 502
Diluted EPS (p) 33.0 15.0 - 28.7
* Margin points
H1 and Q2 financial highlights
n Client demand strong across most segments and regions
n H1 reported revenue up 10.2%, LFL revenue 8.7% (Q2 9.3%)
n H1 revenue less pass-through costs up 12.5%, LFL revenue less pass-through
costs up 8.9% (up 9.4% on H1 2019)
n Q2 LFL revenue less pass-through costs up 8.3%: US 10.4%, UK 6.2%, Germany
11.5%, China (6.1)% (affected by lockdowns), Australia 3.2%
n Strong new business performance: $3.4 billion net new billings in H1
n H1 headline operating profit margin 11.6%, down 0.5pt on prior year as
expected, as a result of higher personnel costs and a return to business
travel
n Trade working capital cash outflow £232 million year-on-year; still
expected to be around flat year-on-year at year-end
n Adjusted net debt at 30 June 2022 £3.1 billion, up £1.6 billion
year-on-year after £1.1 billion of share buybacks since June 2021
Strategic progress, shareholder returns and outlook
n Continued recognition of extraordinary creativity: WPP awarded most creative
company at Cannes Lions for second year running
n Faster growth areas of experience, commerce and technology around 39% of
revenue less pass-through costs in Global Integrated Agencies ex-GroupM in H1
n Strong performance by industry sector: H1 LFL revenue less pass-through
costs growth 12% in Technology, 7% in CPG and 7% in Healthcare
n Investing for growth: enhancing our data capabilities through Choreograph
and launch of Everymile, direct-to-consumer ecommerce offer
n Focused M&A: acquisition of Village Marketing to accelerate creator
economy growth and Bower House Digital, a leading marketing technology agency
n Further simplification to enhance offer to clients: creation of
EssenceMediacom and Design Bridge and Partners
n Transformation programme on track to deliver expected £300 million of
annual savings this year over a 2019 base
n £637 million share buybacks in H1, total of £800 million to be completed
in 2022; 15.0p 2022 interim dividend declared, +20%
n Full year 2022 LFL revenue less pass-through costs growth now expected to be
6.0-7.0%; headline operating profit margin up around 50 bps
Mark Read, Chief Executive Officer of WPP, said:
"We have enjoyed a strong first half, with broad-based growth across our
creative, media and public relations businesses. This reflects the improved
competitive position of our creative businesses, with their growing
capabilities in commerce, experience and technology, our continued strength in
media and the resurgence in demand for strategic communications advice from
our public relations agencies.
"Our services are business-critical - driving growth, building brands,
innovating and helping clients navigate an increasingly complex marketing
environment. As major advertisers increasingly look to integrate their
marketing investments, we are well positioned to serve the world's largest
companies, demonstrated by our success with Coca-Cola, which we are now
onboarding at pace. The second quarter saw significant assignment wins from
Audi, Audible, Danone and Nationwide.
"Our commitment to creativity was recognised at Cannes Lions in June where WPP
was awarded the most creative company, recognising the quality of our work in
all areas, spanning film, digital, media, commerce and creative business
transformation. It's a testament to our investment in creativity and the
talent of our people, and I am committed to making WPP the most creative
company in the world.
"Our clients are continuing to invest in WPP's services, which reflects our
attractive industry exposure in technology and healthcare, our broad global
footprint, and the importance of what we do for their businesses. The
actions we have taken over the last four years leave WPP much better
positioned with a more uncertain economic environment ahead."
For further information:
Investors and analysts
Peregrine Riviere } +44
7909 907193
Anthony Hamilton } +44 7464
532903
Caitlin Holt
} +44 7392 280178
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 has continued to be strong in the first half of the year, with many
sectors seeing significant growth in advertising spend. GroupM now expects
global advertising to grow by 8.4% 4 (#_ftn4) in 2022, marginally lower than
the 9.7% estimate in December 2021, mainly due to a softer outlook for China
amid ongoing lockdowns.
GroupM expects 12% growth in digital advertising revenues in 2022, a
deceleration from the 32% growth in 2021. Overall, digital advertising on
pure-play platforms represents 67% of total advertising revenues. Retaining
its critical brand-building role, spend on television advertising is forecast
to grow at 4% in 2022.
By geography, the US advertising market is expected to remain robust, growing
by 10.0%(4) while the UK is expected to grow by 9.3%. Germany, Europe's
second-largest advertising market, is forecast to grow at a similarly high
pace in 2022 at 9.1%. China is expected to grow by 3.3% in 2022, a downgrade
from the 10.2% forecast in December 2021, reflecting the impact of the
lockdowns during much of the first half of 2022.
Performance and progress
Revenue in the first half was £6.8 billion, up 10.2% from £6.1 billion in
the first half of 2021, and up 8.7% like-for-like. Revenue less pass-through
costs was £5.5 billion, up 12.5% from £4.9 billion in the first half of
2021, and up 8.9% like-for-like.
We have seen good momentum in the first half of the year, with LFL growth in
revenue less pass-through costs across most sectors and most major markets. On
a three-year basis LFL revenue less pass-through costs is up 9.4% in the first
half.
Client demand remains healthy across all services. Revenue less pass-through
costs from higher-growth areas of our offer in experience, commerce and
technology was 39% of our Global Integrated Agencies, excluding GroupM,
compared to 35% in 2019. Our digital billings mix within GroupM increased to
46%, compared to 43% in the first half of 2021. In addition, we have seen
strong demand for commerce services, with GroupM's commerce billings
increasing 26% year-on-year in the first half.
Clients and partners
In terms of client sector performance, we have seen good growth in the
technology, CPG and healthcare & pharma sectors, which together represent
around 54% of our revenue less pass-through costs 5 (#_ftn5) for designated
clients. In the first half these sectors saw LFL revenue less pass-through
costs growth of 12%, 7% and 7% respectively. Compared to 2019, their growth
rates were 27%, 17% and 20%. Travel and leisure has continued to rebound,
growing 23% in the first half, although the sector remains below 2019 levels.
We saw some softness in the automotive sector due to ongoing chip shortages.
We have won $3.4 billion of net new business billings in the first half,
compared to $2.9 billion in the first half of 2021. Key assignment wins
include Audi, Audible, Danone, Mars and Nationwide. Following the
unprecedented account win last year, Coca-Cola has been onboarded at pace.
During the first half we unveiled the first consistent, global ad platform for
Sprite, with the 'Heat Happens' campaign which will be rolled out across 200
markets.
In addition, we have developed new, and expanded existing, partnerships with
global technology companies. During the period we announced a partnership with
Epic Games, the company behind Fortnite and Unreal Engine, to help WPP
agencies develop digital experiences in the metaverse. We also unveiled a
first-of-its-kind partnership with Instacart, the leading online grocery
platform in North America, giving WPP early product insights, access to custom
features and a co-developed certification programme.
Creativity and awards
While data and technology play an increasingly important role in modern
marketing, creativity is still at the heart of our work, because clients
understand that the most effective campaigns start with an insight or idea. We
are committed to maintaining our differentiation through sustained investment
in creative talent, and integrating creativity with our experience, commerce
and technology expertise.
WPP won the prestigious title of most creative company of the year at the
Cannes Lions International Festival of Creativity for the second year in a
row. WPP agencies collected a total of 176 Lions, including a Titanium Lion, 4
Grand Prix and 36 Gold Lions. Ogilvy won global network of the year,
recognised for its investment in diverse talent, scaled technology and digital
capabilities, and thought leadership.
In the 2022 WARC rankings, Ogilvy also topped the creativity ranking and
placed second for effectiveness, becoming the only agency to secure top
rankings in both categories and reflecting the breadth of its offer. WARC also
named Mindshare the number one media agency network for the third consecutive
year. WPP agencies also made their mark at the 2022 Clio awards, where work
from AKQA Group, Wunderman Thompson and Ogilvy was recognised with the most
prestigious, Grand Clio award.
Our media business, GroupM, retained its ranking as the world's largest media
agency group, as calculated by COMvergence in their 2021 full year report.
Once again, GroupM ranked number one in APAC and EMEA and improved to joint
second place in North America.
Investment for growth
During the first half we have invested in strategically important
capabilities, continuing our focused approach to acquisitions. We announced
the acquisitions of Village Marketing, the industry leader in influencer
marketing in North America and Bower House Digital, a leading Australian
marketing technology services agency. In July we announced the acquisition of
Corebiz, a leading Latin American ecommerce agency specialising in
VTEX implementation, one of the largest enterprise digital commerce platforms
in the region.
We have invested organically in new platforms to provide a future-facing offer
to clients and innovate for the long term. The main areas of our investment
are Choreograph, to accelerate our data capabilities; the launch of Everymile,
our commerce-as-a-service platform; and our market-leading programmatic and
connected TV businesses within GroupM Nexus. In addition, we launched GroupM
Premium Marketplace, a unified programmatic marketplace supported by global
partnerships.
Transformation programme
We continue to make good progress on our transformation plan, designed to
achieve £600 million in annual cost efficiencies by 2025. We are on target to
achieve our annual runrate of £300 million in efficiencies this year, against
a 2019 baseline.
In property, we now have around 50,000 people occupying 34 campuses, having
opened new campuses in Santiago, Tokyo and Toronto in 2022. By the end of the
year, we aim to have 4 further campuses opened and around half of our people
working from a campus building.
We are continuing to consolidate and modernise the tools used by our people,
predominantly through the roll-out of ERP systems Workday and Maconomy. We are
live with Workday in Wunderman Thompson North America. On Maconomy, we now
have around 18,500 users on a common technology platform, which is an
important stepping-stone for further process optimisation and finance shared
services deployment.
In our broader IT transformation, we have moved nearly 1,000 people from
agency roles into WPP and established global hubs in Chennai and Mexico. We
have begun to realise opportunities identified from a zero-based budgeting
review across Corporate IT and Ogilvy, and are commencing work on rolling out
this approach across the remaining IT spend in WPP.
In procurement, we hosted a supplier day for 30 key suppliers to communicate
our procurement strategy and align incentives, driving incremental savings. We
are implementing a new procurement operating model leveraging our global
scale, aligned around categories and consolidating suppliers.
We have also merged more of our businesses to simplify our organisation and
respond to our clients' needs. Within GroupM we announced the merger of
Essence and MediaCom to form EssenceMediacom and the formation of Nexus which
brings together Finecast, Xaxis and GroupM Services to form one of the world's
leading media performance organisations. Last month we announced the merger of
our specialist design agencies, Design Bridge and Superunion to create a
single leading design company, Design Bridge and Partners.
Finally, we have made progress in streamlining our operating model, reducing
statutory entities by approximately a further 150 in the first half of the
year.
Purpose and ESG
People
We have continued to invest in our people strategy in order to attract, retain
and grow top talent and ensure that we are an employer of choice for all. We
recently launched the Making Space initiative, giving our people a
company-wide break along with a series of events across our campuses and
offices to inspire and reconnect. To support access to women's healthcare
across the United States, we have updated our benefits plan to providing
funding for travel that allows consistent access to healthcare and resources,
including abortion care, across all regions.
WPP is working to accelerate change in diversity, equity, and inclusion. We
continue to link our DE&I goals to leaders' compensation and performance
reviews. WPP was named among the best places to work for LGBTQ+ equality by
the Human Rights Campaign; and WPP Unite, our LGBTQ+ community, won
Outstanding Employee Network of the Year at the Burberry British Diversity
Awards.
We are committed to our $30 million pledge to fund inclusion programmes within
WPP and to support external organisations, as part of our Racial Equity
Programme. During the period we invited our global agencies to apply for the
second round of funding for resources to run impactful programmes to advance
racial equity. Successful second-round grants include GroupM GradX Africa
Academy, a 12-month media programme for people of colour in South Africa;
RGBlack project, an educational platform that helps to mitigate the impacts of
coded bias in AI-powered tools, originating from Brazil; and GIZMOLOGY, a
hands-on creative technology apprenticeship programme for Black and
historically marginalised communities operating out of WPP's Deeplocal's
studio in Pittsburgh.
Planet
Last 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.
During the half, WPP was awarded a 'Prime' ESG rating by ISS, one of the
world's leading rating agencies for sustainable investment. We are also proud
to be rated A- by the Carbon Disclosure Project (CDP) in 2021 and look forward
to continuing to take action in 2022.
Media accounts for more than half of WPP's supply chain emissions. In July
GroupM launched a framework to measure and reduce ad-based carbon emissions,
an important first step to standardise and accelerate carbon reduction across
different media channels.
Clients
Our clients are bringing purpose and sustainability to the forefront of their
brand strategies. Many of our successes at the Cannes Lions International
Festival of Creativity were in recognition of purpose-driven work, including a
Titanium Grand Prix for Cadbury work by Ogilvy and Wavemaker, which uses
personalised adverts for local businesses hit by COVID-19; and a Grand Prix
for the I Will Always Be Me campaign on behalf of Dell and Intel by VMLY&R
to make life easier for people with motor neurone disease. VMLY&R also won
a Grand Prix for Maxx Flash's The Killer Pack, which helps combat, through
biodegradable packaging, deadly diseases like malaria and dengue caught
outdoors in India.
Communities
Our colleagues in Ukraine continue to show extraordinary resilience and
bravery and we remain in regular contact with our leaders to support our
employees. In early March, the Board of WPP concluded that WPP's ongoing
presence in Russia would be inconsistent with our values as a company and we
have subsequently divested our businesses there. This led to a loss on
disposal of £65 million. Russia represented approximately 0.6% of WPP's
revenue less pass-through costs in 2021.
WPP partnered with the UNHCR, the UN refugee agency, to support an emergency
fundraising appeal to help people forced to flee their homes in Ukraine,
raising over $150 million, including more than $1.3 million from WPP's
employee match-funding programme. We are also working in partnership with the
Ukrainian Government on a new campaign to support the country's economic
recovery. WPP agencies from Ukraine, Poland and Czech Republic will work pro
bono on 'Advantage Ukraine' to demonstrate that Ukraine is open for business.
The initiative will target business leaders within the region and across the
world to encourage inward investment to support the economic recovery of the
country.
2022 guidance
Performance in the first half of 2022 has been strong, and we expect continued
growth in the second half. As a result, we are updating our guidance for 2022
as follows:
n Organic growth (defined as like-for-like revenue less pass-through costs
growth) of 6.0-7.0% (previously 5.5-6.5%)
n Headline operating profit margin up around 50 bps, reflecting greater
top-line momentum offset by inflationary cost pressures, the impact of Chinese
lockdowns and investment in growth areas including Choreograph and Everymile
n Effective tax rate (measured as headline tax as a % of headline profit
before tax) of around 25.5%
n Capex £350-400 million with around £100 million relating to ERP system
deployment previously included in capex guidance now included in restructuring
costs
n Trade working capital expected to be flat year-on-year
n Current foreign exchange rates imply around a 4.5% tailwind to reported
revenue less pass-through costs from the movement in sterling year-on-year
n We also anticipate mergers and acquisitions will add around 0.3% to revenue
less pass-through costs growth, net of the divestment of our Russian
operations
n We expect to execute around £800 million of share buybacks in 2022, of
which £637 million has already been completed
Medium-term guidance
We remain confident in our ability to deliver annual revenue less pass-through
costs growth of 3-4% and headline operating profit margin of 15.5-16%, as a
result of the actions we have taken to broaden and strengthen our services, to
increase our exposure to attractive industry segments and to leverage our
global scale.
We will provide guidance for the 2023 year at our 2022 preliminary results
announcement in February 2023.
Financial results
Unaudited headline income statement:
Six months ended (£ million) +/(-) % reported +/(-) % LFL
30 June 2022 30 June 2021
Revenue 6,755 6,133 10.2 8.7
Revenue less pass-through costs 5,509 4,899 12.5 8.9
Operating profit 639 590 8.2
Operating profit margin % 11.6% 12.1% (0.5)pt
Income from associates 12 29 (56.5)
PBIT 651 619 5.3
Net finance costs (89) (117) 23.7
Profit before tax 562 502 12.0
Tax (143) (115) (25.2)
Profit after tax 419 387 8.2
Non-controlling interests (43) (34) (24.9)
Profit attributable to shareholders 376 353 6.5
Diluted EPS 33.0p 28.7p 15.0
Reconciliation of operating profit to headline operating profit:
Six months ended (£ million) 30 June 2022 30 June 2021
Operating profit 539 484
Amortisation and impairment of acquired intangible assets 31 30
Losses on disposal of investments and subsidiaries 48 1
Gains on remeasurement of equity interests arising from a change in scope of (60) -
ownership
Litigation settlement - 22
Restructuring and transformation costs 75 34
Restructuring costs in relation to COVID-19 6 19
Headline operating profit 639 590
Reported billings were £24.6 billion, up 5.1%, and up 3.9% like-for-like.
Reported revenue from continuing operations was up 10.2% at £6.8 billion.
Revenue on a constant currency basis was up 7.2% compared with last year. Net
changes from acquisitions and disposals had a negative impact of 1.5% on
growth, leading to a like-for-like performance, excluding the impact of
currency and acquisitions, of 8.7%.
Reported revenue less pass-through costs was up 12.5%, and up 9.2% on a
constant currency basis. Excluding the impact of acquisitions and disposals,
like-for-like growth was 8.9%. In the second quarter, like-for-like revenue
less pass-through costs was up 8.3%.
Business sector review
Revenue analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 3,111 13.0 10.2 5,701 9.6 9.3
Public Relations 302 28.0 9.0 572 27.2 11.2
Specialist Agencies 251 1.5 (0.3) 482 0.5 0.2
Total Group 3,664 13.3 9.3 6,755 10.2 8.7
Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies. This increases Global Integrated Agencies' Q2 and H1 2021 revenue by
£18 million and £33 million respectively and reduces Specialist Agencies' by
the same amount.
Revenue less pass-through costs analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 2,432 13.1 8.2 4,538 10.8 8.4
Public Relations 283 26.7 7.3 545 27.0 10.5
Specialist Agencies 220 14.6 10.9 426 14.3 11.9
Total Group 2,935 14.4 8.3 5,509 12.5 8.9
Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies. This increases Global Integrated Agencies' Q2 and H1 2021 revenue
less pass-through costs by £15 million and £28 million respectively and
reduces Specialist Agencies' by the same amount.
Headline operating profit analysis
£ million 2022 % margin* 2021 % margin*
Global Int. Agencies 507 11.2 489 11.9
Public Relations 83 15.2 63 14.8
Specialist Agencies 49 11.4 38 10.3
Total Group 639 11.6 590 12.1
* Headline operating profit as a percentage of revenue less pass-through costs
Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies. This increases Global Integrated Agencies' H1 2021 headline
operating profit by £6 million and reduces Specialist Agencies' by the same
amount.
Global Integrated Agencies like-for-like revenue less pass-through costs was
up 8.4% in the first half and up 8.2% in the second quarter. All of our
integrated agencies were in growth in the first half. GroupM, representing 37%
of WPP revenue less pass-through costs saw 11.8% like-for-like growth in the
half and 10.9% growth in the second quarter. VMLY&R and AKQA Group are
showing an improving growth trend year-on-year in the second quarter.
Wunderman Thompson and Ogilvy recorded encouraging growth.
Public Relations like-for-like revenue less pass-through costs was up 10.5% in
the first half and up 7.3% in the second quarter. All parts of the business
grew in the second quarter, with H+K being a particularly strong performer.
Purpose-related communications and ESG advisory remain a key growth driver.
During the period we launched FGS Global, the new name and branding for the
merger of Finsbury Glover Hering and Sard Verbinnen.
Specialist Agencies like-for-like revenue less pass-through costs was up 11.9%
in the first half and up 10.9% in the second quarter. CMI and Landor &
Fitch, the two largest businesses within Specialist Agencies, continued to be
stand-out performers.
Regional review
Revenue analysis
Q2 H1
£m % reported % £m % reported %
LFL LFL
N. America 1,399 24.9 12.4 2,586 18.4 10.9
United Kingdom 495 0.3 1.0 956 3.1 3.2
W Cont. Europe 731 0.4 3.7 1,352 0.9 5.3
AP, LA, AME, CEE 6 (#_ftn6) 1,039 16.3 14.8 1,861 10.7 11.8
Total Group 3,664 13.3 9.3 6,755 10.2 8.7
Revenue less pass-through costs analysis
Q2 H1
£m % reported % £m % reported %
LFL LFL
N. America 1,173 26.0 10.2 2,189 20.4 9.5
United Kingdom 385 7.2 6.2 737 8.4 7.1
W Cont. Europe 579 3.6 6.6 1,086 3.4 7.7
AP, LA, AME, CEE 798 11.4 8.0 1,497 10.8 9.8
Total Group 2,935 14.4 8.3 5,509 12.5 8.9
Headline operating profit analysis
£ million 2022 % margin* 2021 % margin*
N. America 300 13.7 271 14.9
United Kingdom 67 9.1 83 12.3
W Cont. Europe 99 9.1 104 9.9
AP, LA, AME, CEE 173 11.6 132 9.7
Total Group 639 11.6 590 12.1
* Headline operating profit as a percentage of revenue less pass-through costs
North America like-for-like revenue less pass-through costs was up 9.5% in the
first half and up 10.2% in the second quarter. On a three-year basis, North
America was up 10.5% like-for-like for the first half, with an improving trend
in the second quarter. Growth was driven predominantly by GroupM, along with
strong growth in Hogarth, Superunion and H+K.
United Kingdom like-for-like revenue less pass-through costs was up 7.1% in
the first half and up 6.2% in the second quarter. On a three-year basis, the
UK was up 7.4% like-for-like for the first half. Of our major agencies, AKQA
Group, H+K and Landor & Fitch all grew double digits in the first half.
VMLY&R and GroupM saw slower growth as a result of very strong
performances in the prior period.
Western Continental Europe like-for-like revenue less pass-through costs was
up 7.7% in the first half and up 6.6% in the second quarter. We saw a strong
performance in Germany, mainly driven by GroupM, and Spain, while France
continued to be impacted by assignment losses from 2021.
In Asia Pacific, Latin America, Africa & the Middle East and Central &
Eastern Europe, like-for-like revenue less pass-through costs was up 9.8% in
the first half and up 8.0% in the second quarter. Latin America was the
strongest region, with continued double-digit growth led by Brazil. Asia
Pacific also grew, with sustained momentum in India offsetting a weak China
performance, which has been impacted by ongoing lockdowns.
Operating profitability
Reported profit before tax was £419 million, compared to £394 million in the
prior period, principally reflecting stronger business performance
year-on-year gains on the remeasurement of equity interests arising from
changes in ownership, partly offset by the loss on the divestment of our
Russian operations and higher restructuring and transformation costs (see
table on page 9).
Reported profit after tax was £301 million compared to £287 million in the
prior period.
Headline EBITDA (including IFRS 16 depreciation) for the first half was up
6.5% to £745 million. Headline operating profit was up 8.2% to £639 million.
Headline operating profit margin was down 50 basis points to 11.6%. Total
operating costs were up 13.0% to £4.9 billion. Staff costs, excluding
incentives, were up 16.7% year-on-year to £3.8 billion, reflecting higher
headcount and the full year impact of the salary reviews that took place in
June 2021. Establishment costs were down 0.8% at £263 million as we continued
to benefit from our campus roll-out. IT costs were up 11.3% at £308 million,
reflecting investment in products and services, and other operating expenses
were up 12.7% at £272 million. Personal costs rose 84.6% to £96 million,
reflecting the return of business travel, as expected. Excluding incentive
payments as outlined below, operating costs were up 15.8% year-on-year.
The Group's headline operating profit is net of £17 million of severance
costs, compared with £15 million in the first half of 2021 and £164 million
of incentive payments, compared to £244 million in the first half of 2021.
On a like-for-like basis, the average number of people in the Group in the
first half was 113,000 compared to 102,000 in the first half of 2021. The
total number of people as at 30 June 2022 was 115,000 compared to 104,000 as
at 30 June 2021.
Exceptional items
The Group incurred a net exceptional loss of £100 million in the first half
of 2022, mainly relating to restructuring and transformation costs, the loss
on disposal from the divestment of our Russian interests, and the amortisation
and impairment of acquired intangibles, partially offset by gains on
remeasurement of equity interests arising from a change in scope of ownership.
This compares with a net exceptional loss in the first half of 2021 of £106
million.
Interest and taxes
Net finance costs (excluding the revaluation of financial instruments) were
£89 million, a decrease of £28 million year-on-year, due to higher
investment income, lower bond debt and higher interest earned on cash.
The headline tax rate (based on headline profit before tax) was 25.5% (2021:
22.8%) and on reported profit before tax was 28.1% (2021: 27.2%). Given the
Group's geographic mix of profits and the changing international tax
environment, the tax rate is expected to increase over the next few years.
Earnings and dividend
Headline profit before tax was up 12.0% to £562 million.
Profits attributable to share owners were £258 million, compared to a profit
of £253 million in the prior period.
Headline diluted earnings per share from continuing operations rose by 15.0%
to 33.0p. Reported diluted earnings per share, on the same basis, was 22.7p,
compared to 20.6p in the prior period.
For 2022, the Board is declaring an interim dividend of 15.0p, an increase of
20% year-on-year. The record date for the interim dividend is 14 October 2022,
and the dividend will be payable on 1 November 2022.
Further details of WPP's financial performance are provided in Appendix 1.
Cash flow highlights
Six months ended (£ million) 30 June 2022 30 June 2021
Operating profit 539 484
Depreciation and amortisation 255 250
Impairments and investment write-downs 8 8
Lease payments (inc interest) (190) (202)
Non-cash compensation 67 44
Net interest paid (60) (65)
Tax paid (163) (163)
Capex (117) (138)
Earnout payments (63) (14)
Other (9) (44)
Trade working capital (1,015) (464)
Other receivables, payables and provisions (726) (41)
Free cash flow (1,474) (345)
Disposal proceeds 34 43
Net initial acquisition payments (46) (252)
Share purchases (681) (298)
Net cash flow (2,167) (852)
Net cash outflow for the first half was £2.2 billion, compared to £852
million in the first half of 2021. The main drivers of the cash flow
performance year-on-year were a partial reversal of the strong working capital
position at December 2021, the significant increase in share purchases, the
payment of bonuses in April 2022 that were accrued in the 2021 financial year,
and specific temporary collection issues caused by the lockdowns in China. A
summary of the Group's unaudited cash flow statement and notes for the six
months to 30 June 2022 is provided in Appendix 1.
Balance sheet highlights
As at 30 June 2022 we had cash and cash equivalents of £1.5 billion and total
liquidity, including undrawn credit facilities, of £3.4 billion. Average
adjusted net debt in the first half was £2.4 billion, compared to £1.4
billion in the prior period, at 2022 exchange rates. On 30 June 2022 adjusted
net debt was £3.1 billion, against £1.5 billion on 30 June 2021, an increase
of £1.6 billion at reported and at 2022 exchange rates.
We spent £681 million on share purchases in the first half of the year, of
which £637 million related to share buybacks. Since June 2021 we have
completed £1.1 billion of share buybacks.
Our bond portfolio at 30 June 2022 had an average maturity of 6.8 years.
The average adjusted net debt to EBITDA ratio in the 12 months to 30 June 2022
is 1.2x, which excludes the impact of IFRS 16. We also expect to end the year
slightly below our target leverage range of average adjusted net debt/EBITDA
of 1.5-1.75x.
A summary of the Group's unaudited balance sheet and notes as at 30 June 2022
is provided in Appendix 1.
Appendix 1: Interim results for the six months ended 30 June 2022
Unaudited condensed consolidated interim income statement for the six months
ended 30 June 2022
£ million Notes Six months ended Six months ended
30 June 30 June
2022 2021
Revenue 7 6,755.3 6,132.5
Costs of services 4 (5,708.1) (5,196.1)
Gross profit 1,047.2 936.4
General and administrative costs 4 (508.5) (452.8)
Operating profit 538.7 483.6
Share of results of associates 5 (63.8) 40.0
Profit before interest and taxation 474.9 523.6
Finance and investment income 6 55.5 30.1
Finance costs 6 (144.9) (147.2)
Revaluation and retranslation of financial instruments 6 33.1 (12.1)
Profit before taxation 418.6 394.4
Taxation 8 (117.5) (107.1)
Profit for the period 301.1 287.3
Attributable to:
Equity holders of the parent 257.9 252.7
Non-controlling interests 43.2 34.6
301.1 287.3
Earnings per share
Basic earnings per ordinary share 10 23.1p 20.9p
Diluted earnings per ordinary share 10 22.7p 20.6p
The accompanying notes form an integral part of this unaudited condensed
consolidated interim income statement.
Unaudited condensed consolidated interim statement of comprehensive income for
the six months ended 30 June 2022
£ million Six months ended Six months ended
30 June 30 June
2022 2021
Profit for the period 301.1 287.3
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments on foreign currency net investments 459.7 (174.9)
(Loss)/gain on net investment hedges (129.9) 73.4
Cash flow hedges:
Fair value gain/(loss) arising on hedging instruments 18.7 (31.4)
Less: (loss)/gain reclassified to profit or loss (18.7) 31.4
Share of other comprehensive income of associates undertakings 30.7 -
360.5 (101.5)
Items that will not be reclassified subsequently to profit or loss:
Movements on equity investments held at fair value through other comprehensive (5.2) 27.2
income
(5.2) 27.2
Other comprehensive income/(loss) relating to the period 355.3 (74.3)
Total comprehensive income relating to the period 656.4 213.0
Attributable to:
Equity holders of the parent 593.3 183.9
Non-controlling interests 63.1 29.1
656.4 213.0
The accompanying notes form an integral part of this unaudited condensed
consolidated interim statement of comprehensive income.
Unaudited condensed consolidated interim cash flow statement for the six
months ended 30 June 2022
£ million Notes Six months ended Six months ended
30 June 30 June
2022 2021
Net cash (outflow)/inflow from operating activities 11 (1,110.8) 39.2
Investing activities
Acquisitions 11 (102.7) (148.5)
Disposals of investments and subsidiaries 11 29.2 1.3
Purchase of property, plant and equipment (102.4) (111.6)
Purchase of other intangible assets (including capitalised computer software) (14.6) (26.7)
Proceeds on disposal of property, plant and equipment 4.5 3.4
Net cash outflow from investing activities (186.0) (282.1)
Financing activities
Repayment of lease liabilities (146.3) (157.4)
Share option proceeds 1.1 -
Cash consideration received from non-controlling interests 11 - 38.7
Cash consideration for purchase of non-controlling interests 11 (6.2) (117.7)
Share repurchases and buy-backs 11 (680.5) (297.6)
Proceeds from borrowings 11 247.2 -
Repayment of borrowings 11 (220.6) (35.9)
Financing and share issue costs - (0.3)
Dividends paid to non-controlling interests in subsidiary undertakings (37.2) (74.5)
Net cash outflow from financing activities (842.5) (644.7)
Net decrease in cash and cash equivalents (2,139.3) (887.6)
Translation of cash and cash equivalents 88.0 (102.6)
Cash and cash equivalents at beginning of period 3,540.6 4,337.1
Cash and cash equivalents at end of period 12 1,489.3 3,346.9
The accompanying notes form an integral part of this unaudited condensed
consolidated interim cash flow statement.
Unaudited condensed consolidated interim balance sheet as of 30 June 2022
£ million Notes 30 June 31 December 2021
2022
Non-current assets
Intangible assets:
Goodwill 13 8,237.5 7,612.3
Other 1,469.2 1,359.5
Property, plant and equipment 969.1 896.4
Right-of-use assets 1,455.7 1,395.1
Interests in associates and joint ventures 346.6 412.9
Other investments 372.9 318.3
Deferred tax assets 310.4 341.5
Corporate income tax recoverable 55.5 46.6
Trade and other receivables 14 198.2 152.6
13,415.1 12,535.2
Current assets
Corporate income tax recoverable 109.5 90.4
Trade and other receivables 14 11,716.1 11,362.3
Cash and short-term deposits 1,775.0 3,882.9
13,600.6 15,335.6
Current liabilities
Trade and other payables 15 (13,934.9) (15,252.3)
Corporate income tax payable (365.2) (386.2)
Short-term lease liabilities (293.6) (279.7)
Bank overdrafts, bonds and bank loans (289.1) (567.2)
(14,882.8) (16,485.4)
Net current liabilities (1,282.2) (1,149.8)
Total assets less current liabilities 12,132.9 11,385.4
Non-current liabilities
Bonds and bank loans (4,620.7) (4,216.8)
Trade and other payables 16 (640.7) (619.9)
Deferred tax liabilities (341.6) (312.5)
Provisions for post-employment benefits (177.0) (136.6)
Provisions for liabilities and charges (245.7) (268.5)
Long-term lease liabilities (1,836.8) (1,762.1)
(7,862.5) (7,316.4)
Net assets 4,270.4 4,069.0
Equity
Called-up share capital 116.2 122.4
Share premium account 575.8 574.7
Other reserves 274.0 (335.9)
Own shares (1,083.3) (1,112.1)
Retained earnings 3,909.2 4,367.3
Equity shareholders' funds 3,791.9 3,616.4
Non-controlling interests 478.5 452.6
Total equity 4,270.4 4,069.0
The accompanying notes form an integral part of this unaudited condensed
consolidated interim balance sheet.
Total equity
Called-up Share Other reserves Retained earnings share Non-
£ million share capital premium account Own shares holders' funds controlling interests Total
Balance at 1 January 2022 122.4 574.7 (335.9) (1,112.1) 4,367.3 3,616.4 452.6 4,069.0
Ordinary shares issued - 1.1 - - - 1.1 - 1.1
Share cancellations (6.2) - 6.2 - (637.3) (637.3) - (637.3)
Profit for the period - - - - 257.9 257.9 43.2 301.1
Exchange adjustments on foreign currency net investments - - 439.8 - - 439.8 19.9 459.7
Loss on net investment hedges - - (129.9) - - (129.9) - (129.9)
Cash flow hedges:
Fair value gain arising on hedging instruments - - 18.7 - - 18.7 - 18.7
Less: loss reclassified to profit or loss - - (18.7) - - (18.7) - (18.7)
Share of other comprehensive income of associates undertakings - - 24.0 - 6.7 30.7 - 30.7
Movements on equity investments held at fair value through other comprehensive - - - - (5.2) (5.2) - (5.2)
income
Other comprehensive income - - 333.9 - 1.5 335.4 19.9 355.3
Total comprehensive income - - 333.9 - 259.4 593.3 63.1 656.4
Dividends paid - - - - - - (37.2) (37.2)
Non-cash share-based incentive plans (including share options) - - - - 67.3 67.3 - 67.3
Tax adjustment on share-based payments - - - - (15.2) (15.2) - (15.2)
Net movement in own shares held by ESOP Trusts - - - 28.8 (72.0) (43.2) - (43.2)
Recognition/derecognition of liabilities in respect of put options - - 58.1 - (47.3) 10.8 - 10.8
Share purchases - close period commitments(1) - - 211.7 - - 211.7 - 211.7
Acquisition and disposal of subsidiaries(2) - - - - (13.0) (13.0) - (13.0)
Balance at 30 June 2022 116.2 575.8 274.0 (1,083.3) 3,909.2 3,791.9 478.5 4,270.4
Unaudited condensed consolidated interim statement of changes in equity for
the for the six months ended 30 June 2022
The accompanying notes form an integral part of this unaudited condensed
consolidated interim statement of changes in equity.
(1) During 2021, the Company entered into an arrangement with a third party to
conduct share buy-backs on its behalf in the close period commencing on 16
December 2021 and ending on 18 February 2022, in accordance with UK listing
rules. The commitment resulting from this agreement constituted a liability at
31 December 2021 and was recognised as a movement in other reserves in the
year ended 31 December 2021. As the close period ended on 18 February 2022 the
movement in other reserves has been reversed in the period ended 30 June 2022.
(2) Acquisition and disposal 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 for the six months ended 30 June 2022 (continued)
Total equity
Called-up Share Other reserves(1) Retained earnings(1) share Non-
share capital premium account Own shares holders' funds(1) controlling interests Total(1)
£ million
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
Restatement(1) - - (4.8) - (111.5) (116.3) - (116.3)
Restated balance at 1 January 2021 129.6 570.3 191.2 (1,118.3) 4,959.2 4,732.0 318.1 5,050.1
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 - - (169.4) - - (169.4) (5.5) (174.9)
Gain on net investment hedges - - 73.4 - - 73.4 - 73.4
Cash flow hedges:
Fair value loss arising on hedging instruments - - (31.4) - - (31.4) - (31.4)
Less: gain reclassified to profit or loss - - 31.4 - - 31.4 - 31.4
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 by ESOP Trusts - - - (0.2) (49.3) (49.5) - (49.5)
Recognition/derecognition of liabilities in respect of put options - - (146.0) - (0.2) (146.2) - (146.2)
Acquisition and disposal of subsidiaries(2) - - - - (136.5) (136.5) 38.7 (97.8)
Restated balance at 30 June 2021 127.0 570.3 (48.2) (1,114.8) 4,840.6 4,374.9 311.4 4,686.3
The accompanying notes form an integral part of this unaudited condensed
consolidated interim statement of changes in equity.
(1) Figures have been restated as described in note 2.
(2) Acquisition and disposal 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 as issued by the International Accounting
Standards Board (IASB) and with the accounting policies of WPP plc and its
subsidiaries (the Group), which were set out on pages 158 - 163 of the 2021
Annual Report and Accounts. With the exception of the adoption of hedge
accounting requirements under IFRS 9 Financial Instruments, which is discussed
below, no changes have been made to the Group's accounting policies in the
period ended 30 June 2022.
The Group does not consider that the amendments to standards adopted during
the period have a significant impact on the financial statements.
Impact of the adoption of hedge accounting under IFRS 9 Financial Instruments
The Group has adopted the hedge accounting requirements of IFRS 9 Financial
Instruments from 1 January 2022. The IFRS 9 hedge accounting requirements are
applied prospectively, and all hedge arrangements in place at the point of
transition are regarded as continuing hedging relationships under IFRS 9.
Accordingly, prior year financial information has not been restated and will
continue to be reported under IAS 39. There has been no significant impact on
the financial statements as a result of the adoption of IFRS 9 hedge
accounting requirements, both at the point of transition and in the period
ended 30 June 2022.
Restatement
After the unaudited condensed consolidated interim financial statements for
the period ended 30 June 2021 were issued, the Group determined that the
financial statements for the prior periods contained errors relating to
historic tax asset and liability adjustments that had accumulated over a
number of years in the Group consolidation. As a result, previously reported
corporate income tax recoverable, corporate income tax payable and tax charge
were incorrect. The cumulative impact resulted in an overstatement of equity
as at 1 January 2021 of £116.3 million, which has been corrected by reducing
opening retained earnings by £111.5 million and other reserves by £4.8
million. There was no impact on the tax charge in the period ended 30 June
2021.
Statutory information and Independent Review
The unaudited condensed consolidated interim financial statements for the six
months to 30 June 2022 and 30 June 2021 do not constitute statutory accounts.
The financial information for the year ended 31 December 2021 does not
constitute statutory accounts. The statutory accounts for the year ended
31 December 2021 have been delivered to the Jersey Registrar and received an
unqualified auditors' report. The interim condensed consolidated financial
statements are unaudited but have been reviewed by the auditors and their
report is set out on page 40.
The announcement of the interim results was approved by the Board of Directors
on 5 August 2022.
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 2022 unaudited condensed consolidated interim income
statement is prepared using, among other currencies, average exchange rates of
US$1.30 to the pound (period ended 30 June 2021: US$1.39) and €1.19 to the
pound (period ended 30 June 2021: €1.15). The unaudited condensed
consolidated interim balance sheet as at 30 June 2022 has been prepared using
the exchange rates on that day of US$1.22 to the pound (31 December 2021:
US$1.35) and €1.16 to the pound (31 December 2021: €1.19).
4. Costs of services and general and administrative costs
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Costs of services 5,708.1 5,196.1
General and administrative costs 508.5 452.8
6,216.6 5,648.9
Costs of services and general and administrative costs include:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Staff costs 3,930.7 3,473.3
Establishment costs 262.8 264.8
Media pass-through costs 1,016.7 857.0
Other costs of services and general and administrative costs(1) 1,006.4 1,053.8
6,216.6 5,648.9
Staff costs include:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Wages and salaries 2,718.5 2,329.8
Cash-based incentive plans 93.5 200.2
Share-based incentive plans 67.3 43.9
Severance 17.4 14.5
Other staff costs 1,034.0 884.9
3,930.7 3,473.3
(1) Other costs of services and general and administrative costs include
£229.1 million (period ended 30 June 2021: £376.3 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 30 June 2022 Six months ended 30 June 2021
Amortisation and impairment of acquired intangible assets 31.5 30.1
Losses on disposals of investments and subsidiaries 48.1 1.0
Gains on remeasurement of equity interests arising from a change in scope of (60.4) -
ownership
Restructuring and transformation costs 75.3 34.3
Restructuring costs in relation to COVID-19 5.9 19.7
Litigation settlement - 21.7
Restructuring and transformation costs of £75.3 million (2021: £34.3
million) include £59.5 million in relation to the Group's IT transformation
programme. This programme will allow technology to become a competitive
advantage in the market as our clients, and their clients, move to an ever
increasing digital world. It includes costs of £46.3 million in relation to
the rollout of a new ERP system in order to drive efficiency and collaboration
throughout the Group. The remaining £15.8 million relates to restructuring
actions to simplify operational structures and co-locate our businesses.
Restructuring costs in relation to COVID-19 of £5.9 million (2021: £19.7
million) primarily relate 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.
Losses on disposal of investments and subsidiaries of £48.1 million in 2022
primarily includes a loss of £65.1 million on the divestment of our Russian
interests which completed in May 2022.
Gains on remeasurement of equity interests arising from a change in scope of
ownership of £60.4 million comprises a gain in relation to the
reclassification of the Group's interest in Imagina in Spain from interests in
associates to other investments.
In the period ended 30 June 2021, a provision of £21.7 million was made for
potential litigation settlements.
5. Share of results of associates
Share of results of associates include:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Share of profit before interest and taxation 93.3 85.9
Share of exceptional (losses)/gains (76.1) 11.7
Share of interest and non-controlling interests (58.9) (39.1)
Share of taxation (22.1) (18.5)
(63.8) 40.0
Share of exceptional losses in the period ended 30 June 2022 of £76.2 million
primarily comprise amortisation of acquired intangible assets and
restructuring costs. In 2021, share of exceptional gains of £11.7 million
primarily comprised the gain on disposal of certain Kantar businesses
partially offset by amortisation of acquired intangible assets.
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 30 June 2022 Six months ended 30 June 2021
Income from equity investments 20.1 5.0
Interest income 35.4 25.1
55.5 30.1
Finance costs include:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Interest payable and similar charges 98.9 101.5
Interest expense related to lease liabilities 46.0 45.7
144.9 147.2
Revaluation and retranslation of financial instruments include:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Movements in fair value of treasury instruments 1.9 4.7
Premium on the early repayment of bonds - (13.1)
Revaluation of investments held at fair value through profit or loss 9.0 30.5
Revaluation of put options over non-controlling interests 19.6 (44.4)
Revaluation of payments due to vendors (earnout agreements) (1.1) (9.4)
Retranslation of financial instruments 3.7 19.6
33.1 (12.1)
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 30 June 2022 Six months ended 30 June 2021
Revenue(1)
Global Integrated Agencies 5,701.0 5,202.9
Public Relations 572.4 449.9
Specialist Agencies 481.9 479.7
6,755.3 6,132.5
Revenue less pass-through costs(1,2)
Global Integrated Agencies 4,538.2 4,097.3
Public Relations 545.4 429.4
Specialist Agencies 425.9 372.5
5,509.5 4,899.2
Headline operating profit(1,3)
Global Integrated Agencies 507.5 488.6
Public Relations 83.0 63.5
Specialist Agencies 48.6 38.3
639.1 590.4
Reported contributions by geographical area were as follows:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Revenue
North America(4) 2,586.5 2,183.7
United Kingdom 956.1 927.0
Western Continental Europe 1,352.0 1,340.6
Asia Pacific, Latin America, Africa & Middle East and Central & 1,860.7 1,681.2
Eastern Europe
6,755.3 6,132.5
Revenue less pass-through costs(2)
North America(4) 2,188.9 1,817.6
United Kingdom 737.0 679.7
Western Continental Europe 1,086.1 1,050.0
Asia Pacific, Latin America, Africa & Middle East and Central & 1,497.5 1,351.9
Eastern Europe
5,509.5 4,899.2
Headline operating profit(3)
North America(4) 299.7 271.4
United Kingdom 67.3 83.5
Western Continental Europe 98.7 103.7
Asia Pacific, Latin America, Africa & Middle East and Central & 173.4 131.8
Eastern Europe
639.1 590.4
(1) Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies.
(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 £2,440.9 million (2021:
£2,046.9 million), revenue less pass-through costs of
£2,052.1 million (2021: £1,695.9 million) and headline operating profit
of £280.9 million (2021: £254.1 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 2022. This is then adjusted for certain
discrete items which occurred in the interim period.
The tax rate on reported profit before tax was 28.1% (2021: 27.2%). 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.
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, increasing tax rates as a consequence of the financial
support programmes implemented by governments during the COVID-19 pandemic,
the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, and
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 15.0p (2021: 12.5p) per
ordinary share. This is expected to be paid on 1 November 2022 to shareholders
on the register at 14 October 2022. The Board recommended a final dividend of
18.7p per ordinary share in respect of 2021. This was paid on 8 July 2022.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
10. Earnings per share
Basic EPS
The calculation of basic reported and headline EPS is as follows:
Six months ended 30 June 2022 Six months ended 30 June 2021
Reported earnings(1) (£ million) 257.9 252.7
Headline earnings(2) (£ million) 375.7 352.7
Weighted average shares used in basic EPS calculation (million) 1,115.2 1,211.9
Reported EPS 23.1p 20.9p
Headline EPS 33.7p 29.1p
Diluted EPS
The calculation of diluted reported and headline EPS is as follows:
Six months ended 30 June 2022 Six months ended 30 June 2021
Reported earnings (£ million) 257.9 252.7
Headline earnings (£ million) 375.7 352.7
Weighted average shares used in diluted EPS calculation (million) 1,137.8 1,229.0
Diluted reported EPS 22.7p 20.6p
Diluted headline EPS 33.0p 28.7p
A reconciliation between the shares used in calculating basic and diluted EPS
is as follows:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Weighted average shares used in basic EPS calculation 1,115.2 1,211.9
Dilutive share options outstanding 1.4 0.8
Other potentially issuable shares 21.2 16.3
Weighted average shares used in diluted EPS calculation 1,137.8 1,229.0
At 30 June 2022 there were 1,162,563,018 (30 June 2021: 1,270,102,274)
ordinary shares in issue, including treasury shares of 70,489,953 (30 June
2021: 70,489,953).
(1) Reported earnings is equivalent to profit for the period attributable to
equity holders of the parent.
(2) Headline earnings is defined in Appendix 2.
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 17:
Net cash (outflow)/inflow from operating activities:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Profit for the period 301.1 287.3
Taxation 117.5 107.1
Revaluation and retranslation of financial instruments (33.1) 12.1
Finance costs 144.9 147.2
Finance and investment income (55.5) (30.1)
Share of results of associates 63.8 (40.0)
Operating profit for the period 538.7 483.6
Adjustments for:
Non-cash share-based incentive plans (including share options) 67.3 43.9
Depreciation of property, plant and equipment 79.9 71.2
Depreciation of right-of-use assets 129.9 139.3
Impairment charges included within restructuring costs 8.1 7.9
Amortisation and impairment of acquired intangible assets 31.5 30.1
Amortisation of other intangible assets 13.6 9.4
Loss on disposal of investments and subsidiaries 48.1 1.0
Gains on remeasurement of equity interests arising from a change in scope of (60.4) -
ownership
Gains on sale of property, plant and equipment (1.1) (1.2)
Operating cash flow before movements in working capital and provisions 855.6 785.2
Movements in trade working capital(1,2) (1,015.3) (464.1)
Movements in other working capital and provisions (725.9) (41.2)
Cash (used in)/generated by operations (885.6) 279.9
Corporation and overseas tax paid (162.7) (162.7)
Interest and similar charges paid (86.8) (90.1)
Interest paid on lease liabilities (44.1) (44.7)
Interest received 26.9 25.1
Investment income 20.1 5.0
Dividends from associates 21.4 26.7
Net cash (outflow)/inflow from operating activities (1,110.8) 39.2
(1) Trade working capital represents trade receivables, work in progress,
accrued income, trade payables and deferred income.
(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.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
11. Analysis of cash flows (continued)
Acquisitions and disposals:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Initial cash consideration (35.0) (41.2)
Cash and cash equivalents acquired 0.7 4.0
Earnout payments (63.3) (14.1)
Purchase of other investments (including associates) (5.1) (97.2)
Acquisitions (102.7) (148.5)
Proceeds on disposal of investments and subsidiaries(1) 41.7 3.1
Cash and cash equivalents disposed (12.5) (1.8)
Disposals of investments and subsidiaries 29.2 1.3
Cash consideration received from non-controlling interests - 38.7
Cash consideration for purchase of non-controlling interests (6.2) (117.7)
Cash consideration for non-controlling interests (6.2) (79.0)
Net acquisition payments and disposal proceeds (79.7) (226.2)
Share repurchases and buy-backs:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Purchase of own shares by ESOP Trusts (43.2) (49.5)
Shares purchased into treasury (637.3) (248.1)
(680.5) (297.6)
Proceeds from borrowings:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Increase in drawings on bank loans 247.2 -
Repayments of borrowings:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Repayment of bank loans (11.3) (35.9)
Repayment of €250 million bonds (209.3) -
(220.6) (35.9)
(1) Proceeds on disposal of investments and subsidiaries includes return of
capital from investments in associates.
Notes to the unaudited condensed consolidated interim financial statements
(continued)
12. Cash and cash equivalents and adjusted net debt
£ million 30 June 31 December 2021
2022
Cash at bank and in hand 1,679.6 2,776.6
Short-term bank deposits 95.4 1,106.3
Overdrafts(1) (285.7) (342.3)
Cash and cash equivalents 1,489.3 3,540.6
Bonds due within one year - (210.2)
Loans due within one year (3.4) (14.7)
Bonds due after one year (4,373.0) (4,216.8)
Loans due after one year (247.7) -
Adjusted net debt (3,134.8) (901.1)
The Group estimates that the fair value of corporate bonds is £4,119.2
million at 30 June 2022 (31 December 2021: £4,790.3 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 2021
2022
Within one year (121.6) (326.8)
Between one and two years (755.9) (745.4)
Between two and three years (1,129.7) (646.5)
Between three and four years (73.2) (492.8)
Between four and five years (1,352.2) (698.0)
Over five years (1,940.0) (2,546.3)
Debt financing (including interest) under the Revolving Credit Facility and in (5,372.6) (5,455.8)
relation to unsecured loan notes
Short-term overdrafts - within one year (285.7) (342.3)
Future anticipated cash flows (5,658.3) (5,798.1)
Effect of discounting/financing rates 748.5 1,014.1
Debt financing (4,909.8) (4,784.0)
Cash and short-term deposits 1,775.0 3,882.9
Adjusted net debt (3,134.8) (901.1)
(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
Goodwill in relation to subsidiary undertakings increased by £625.2 million
primarily due to the effect of currency translation.
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 ended 30 June 2022 or between 30 June 2022 and the date the
interim financial statements were approved. There were no indicators of
impairment of goodwill identified in the six months ended 30 June 2022.
14. Trade and other receivables
Amounts falling due within one year:
£ million 30 June 31 December 2021
2022
Trade receivables (net of loss allowance) 6,491.7 6,600.5
Work in progress 343.8 254.0
VAT and sales taxes recoverable 398.8 350.3
Prepayments 295.0 215.3
Accrued income 3,516.4 3,435.7
Fair value of derivatives 2.2 2.5
Other debtors 668.2 504.0
11,716.1 11,362.3
Amounts falling due after more than one year:
£ million 30 June 31 December 2021
2022
Fair value of derivatives - 0.5
Prepayments and other debtors 198.2 152.1
198.2 152.6
The Group considers that the carrying amount of trade and other receivables
approximates their fair value.
A bad debt expense of £11.5 million (period ended 30 June 2021: credit of
£10.6 million) on the Group's trade receivables in the period is a result of
the increase in expected credit losses since 31 December 2021. The loss
allowance is equivalent to 1.1% (31 December 2021: 1.1%) of gross trade
receivables.
Prepayments and other debtors falling due after more than one year for 30 June
2022 includes £33.0 million in relation to pension plans in surplus. The
corresponding figure for 31 December 2021 is included in provision for
post-employment benefits.
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
2022
Trade payables 9,674.4 10,596.9
Deferred income 1,457.2 1,334.0
Payments due to vendors (earnout agreements) 40.0 85.6
Liabilities in respect of put option agreements with vendors 68.3 58.4
Fair value of derivatives 3.9 6.4
Share repurchases - close period commitments(1) - 211.7
Other creditors and accruals 2,691.1 2,959.3
13,934.9 15,252.3
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
2022
Payments due to vendors (earnout agreements) 133.1 111.1
Liabilities in respect of put option agreements with vendors 329.5 333.1
Fair value of derivatives 64.2 47.2
Other creditors and accruals 113.9 128.5
640.7 619.9
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
2022
Within one year 40.0 85.6
Between 1 and 2 years 46.2 24.0
Between 2 and 3 years 48.2 35.7
Between 3 and 4 years 17.5 51.4
Between 4 and 5 years 10.8 -
Over 5 years 10.4 -
173.1 196.7
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 as
at 30 June 2022.
(1) During 2021, the Company entered into an arrangement with a third party to
conduct share buy-backs on its behalf in the close period commencing on 16
December 2021 and ending on 18 February 2022, in accordance with UK listing
rules. The commitment resulting from this agreement constituted a liability at
31 December 2021 and was recognised as a movement in other reserves in the
year ended 31 December 2021. As the close period ended on 18 February 2022 the
movement in other reserves has been reversed in the period ended 30 June 2022.
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 2022, revenue of £39.9 million (period ended 30
June 2021: £93.5 million) was reported in relation to Compas, an associate in
the USA. All other transactions in the periods presented were immaterial.
The following amounts were outstanding at 30 June 2022:
£ million 30 June 31 December 2021
2022
Amounts owed by related parties
Kantar 27.9 30.3
Other 42.8 45.7
70.7 76.0
Amounts owed to related parties
Kantar (6.3) (6.2)
Other (66.5) (51.4)
(72.8) (57.6)
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 2021 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 12% in 2022 and up
to 11% in 2023 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 1 Level 2 Level 3
30 June 2022
Derivatives in designated hedge relationships
Derivative liabilities - (64.2) -
Held at fair value through profit or loss
Other investments 0.4 - 241.1
Derivative assets - 2.2 -
Derivative liabilities - (3.9) -
Payments due to vendors (earnout agreements) - - (173.1)
Liabilities in respect of put options - - (397.8)
Held at fair value through other comprehensive income
Other investments 19.2 - 112.2
Reconciliation of level 3 fair value measurements:
£ million Payments due to vendors (earnout agreements) Liabilities in respect of put options Other investments
1 January 2022 (196.7) (391.5) 290.0
(Losses)/gains recognised in the income statement (1.1) 19.6 9.0
Gains recognised in other comprehensive income - - 3.6
Additions (22.6) - 66.7
Disposals - - (16.0)
Cancellations - 5.0 -
Settlements 63.3 5.8 -
Exchange adjustments (16.0) (36.7) -
30 June 2022 (173.1) (397.8) 353.3
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 2022,
the weighted average growth rate in estimating future financial performance
was 14.7%, 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 2022 was approximately
7.7%.
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 £8.7
million and £9.0 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 £8.2 million and £8.4 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.
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. 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, any existing or new
variants, 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 triggered by the
pandemic, the invasion of Ukraine by Russia, or a geopolitical change or shift
in client spending, 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 implementing 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.
The Group has in the past and may in the future experience a cyber-attack
which results in disruption to one or more of our businesses or the security
of data being compromised.
Financial Risks
• Economic conditions have a direct impact on our business, results of
operations and financial position. Adverse economic conditions, including
those caused by the pandemic, invasion of Ukraine by Russia, severe and
sustained inflation in key markets where we operate, supply chain issues
affecting the distribution of our clients' products and/or disruption to
credit markets, pose a risk our clients may reduce, suspend or cancel spend
with us or be unable to satisfy obligations. The Group is subject to credit
risk through the default of a client or other counterparty.
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. We have
previously identified material weaknesses in our internal control over
financial reporting. If we failed to properly remediate these material
weaknesses or new material weaknesses are identified, they could adversely
affect our results of operations, investor confidence in the Group and the
market price of our ADSs and ordinary shares.
• Principal risks and uncertainties (continued)
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 and
violations could have an adverse effect on our business and reputation.
• 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, the UK
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. The Russian invasion of Ukraine has
caused the adoption of comprehensive sanctions by among others, the EU, the
United States and the UK, which restrict a wide range of trade and financial
dealings with Russia and Russian persons.
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.
• The Group is subject to increased reputational risk associated with
working on environmentally detrimental client briefs and/or misrepresenting
environmental claims.
• The Group could be subject to increased costs to comply with
potential future changes in environmental laws and regulations and to meet its
net zero commitments
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
2021 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 2022
Independent review report to WPP plc
Conclusion
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 2022 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.
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 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 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.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with International Financing Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB). The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of 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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 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 2022
Appendix 2: Alternative performance measures for the six months ended 30 June
2022
The Group presents alternative performance measures, including headline
operating profit, headline profit before interest and tax, headline EBITDA,
headline profit before tax, headline earnings, headline EPS, revenue less
pass-through costs and adjusted net debt. 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.
In the calculation of headline profit, judgement is required by management in
determining which revenues and costs are considered to be significant,
non-recurring or volatile items that are to be excluded.
The exclusion of certain adjusting items may result in headline earnings being
materially higher or lower than reported earnings, for example when
significant impairments or restructuring charges are excluded but the related
benefits are included headline earnings will be higher. Headline measures
should not be considered in isolation as they provide additional information
to aid the understanding of the Group's financial performance.
Reconciliation of revenue to revenue less pass-through costs:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Revenue 6,755.3 6,132.5
Media pass-through costs (1,016.7) (857.0)
Other pass-through costs (229.1) (376.3)
Revenue less pass-through costs 5,509.5 4,899.2
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, predominantly media and data collection costs. 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 to headline operating profit:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Operating profit 538.7 483.6
Amortisation and impairment of acquired intangible assets 31.5 30.1
Losses on disposal of investments and subsidiaries 48.1 1.0
Gains on remeasurement of equity interests arising from a change in scope of (60.4) -
ownership
Litigation settlement - 21.7
Restructuring and transformation costs 75.3 34.3
Restructuring costs in relation to COVID-19 5.9 19.7
Headline operating profit 639.1 590.4
Finance and investment income 55.5 30.1
Finance costs (excluding interest expense related to lease liabilities) (98.9) (101.5)
(43.4) (71.4)
Interest cover(1) on headline operating profit 14.7 times 8.3 times
Headline operating profit is one of the metrics that management uses to assess
the performance of the business.
(1) 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 ended Margin Six months ended
30 June 2022 30 June 2021
Revenue less pass-through costs 5,509.5 4,899.2
Headline operating profit 11.6% 639.1 12.1% 590.4
Share of results of associates (excluding exceptional gains/losses) 12.3 28.3
Headline PBIT 11.8% 651.4 12.6% 618.7
Headline PBIT is one of the metrics that management uses to assess the
performance of the business.
Calculation of headline EBITDA:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Headline PBIT 651.4 618.7
Depreciation of property, plant and equipment 79.9 71.2
Amortisation of other intangible assets 13.6 9.4
Headline EBITDA (including depreciation of right-of-use assets) 744.9 699.3
Depreciation of right-of-use assets 129.9 139.3
Headline EBITDA 874.8 838.6
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 before taxation to headline PBT and headline
earnings:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Profit before taxation 418.6 394.4
Amortisation and impairment of acquired intangible assets 31.5 30.1
Losses on disposal of investments and subsidiaries 48.1 1.0
Gains on remeasurement of equity interests arising from a change in scope of (60.4) -
ownership
Restructuring and transformation costs 75.3 34.3
Restructuring costs in relation to COVID-19 5.9 19.7
Share of exceptional losses/(gains) of associates 76.1 (11.7)
Litigation settlement - 21.7
Revaluation and retranslation of financial instruments (33.1) 12.1
Headline PBT 562.0 501.6
Headline tax charge (143.1) (114.3)
Headline non-controlling interests (43.2) (34.6)
Headline earnings 375.7 352.7
Headline PBT and headline earnings are metrics that management use to assess
the performance of the business.
Calculation of headline taxation:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Headline PBT 562.0 501.6
Tax charge 117.5 107.1
Tax charge relating to gains on disposal of investments and subsidiaries (3.2) (3.8)
Tax credit relating to restructuring and transformation costs and COVID-19 26.6 18.5
Tax credit relating to litigation settlement - 1.5
Deferred tax impact of the amortisation of acquired intangible assets and 2.2 (2.0)
other goodwill items
Deferred tax relating to gains on disposal of investments and subsidiaries - (7.0)
Headline tax charge 143.1 114.3
Headline tax rate 25.5% 22.8%
The Group re-assessed the measure of headline tax rate, as disclosed in
Group's 2021 annual report, and considers the most appropriate metric was to
use the headline tax charge as a percentage of headline PBT (that includes the
share of headline results of associates). The headline tax rate on headline
PBT including the share of headline results of associates was 25.5% (2021:
22.8%).
Reconciliation of free cash flow:
£ million Six months ended 30 June 2022 Six months ended 30 June 2021
Cash (used in)/generated by operations (885.6) 279.9
Plus:
Interest received 26.9 25.1
Investment income received 20.1 5.0
Dividends from associates 21.4 26.7
Share option proceeds 1.1 -
Less:
Earnout payments (63.3) (14.1)
Interest and similar charges paid (86.8) (90.1)
Purchase of property, plant and equipment (102.4) (111.6)
Purchase of other intangible assets (including capitalised computer software) (14.6) (26.7)
Repayment of lease liabilities (146.3) (157.4)
Interest paid on lease liabilities (44.1) (44.7)
Corporation and overseas tax paid (162.7) (162.7)
Dividends paid to non-controlling interests in subsidiary undertakings (37.2) (74.5)
Free cash flow (1,473.5) (345.1)
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).
Adjusted net debt and average adjusted net debt
Management believes that adjusted net debt and average adjusted net debt are
appropriate and meaningful measures of the debt levels within the Group. This
is because of the seasonal swings in our working capital generally, and those
resulting from our media buying activities on behalf of our clients in
particular.
Adjusted net debt at a period end consists of cash and short-term deposits,
bank overdraft, bonds and bank loans due within one year and bonds and bank
loans due after one year.
Reconciliation of adjusted net debt:
£ million 30 June 2022 31 December 2021
Cash and short-term deposits 1,775.0 3,882.9
Bank overdrafts, bonds and bank loans due within one year (289.1) (567.2)
Bonds and bank loans due after one year (4,620.7) (4,216.8)
Adjusted net debt (3,134.8) (901.1)
Average adjusted net debt is calculated as the average daily net borrowings of
the Group. Adjusted net debt excludes lease liabilities.
Future restructuring and transformation costs
Further restructuring and transformation costs are expected in the second half
of 2022 to 2025, with approximately £350 million in relation to the continued
rollout of the Group's new ERP system in order to drive efficiency and
collaboration throughout the Group. Costs of between £200 and £250 million
are also expected in relation to other IT transformation projects, shared
service centres and co-locations.
Constant currency and pro forma ('like-for-like')
The condensed consolidated interim 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 year to that of prior
years.
Further details of the constant currency and pro forma methods are given in
the glossary on page 46.
Reconciliation of reported revenue less pass-through costs to like-for-like
revenue less pass-through costs:
£ million Six months ended
30 June 2022
Revenue less pass-through costs
2021 Reported 4,899.2
Impact of exchange rate changes 161.1 3.3%
Impact of acquisitions and disposals 14.7 0.3%
Like-for-like growth 434.5 8.9%
2022 Reported 5,509.5 12.5%
Appendix 3: Re-presented segmental analysis for the year ended 31 December
2021
During 2022, the Group re-presented prior year figures to reflect the
reallocation of a number of businesses between Global Integrated Agencies and
Specialist Agencies. For information purposes, the re-presented reported
contributions by operating sector for the year ended 31 December 2021 are
presented below:
£ million Year ended 31 December 2021
Revenue
Global Integrated Agencies 10,890.5
Public Relations 959.0
Specialist Agencies 951.6
12,801.1
Revenue less pass-through costs(1)
Global Integrated Agencies 8,683.1
Public Relations 909.7
Specialist Agencies 804.4
10,397.2
Headline operating profit(2)
Global Integrated Agencies 1,221.8
Public Relations 143.1
Specialist Agencies 128.6
1,493.5
(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 adjusted net debt and adjusted net debt
Average adjusted net debt is calculated as the average daily net borrowings of
the Group. Adjusted net debt at a period end consists of cash and short-term
deposits, bank overdraft, bonds and bank loans due within one year and bonds
and bank loans due after one year. Adjusted 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 2022 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, gains/losses on remeasurement of equity interests arising from a
change in scope of ownership, investment and other impairment
(reversals)/charges, 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 headline 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 impairment (reversals)/charges, 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, share of exceptional gains/losses of
associates and gains/losses on remeasurement of equity interests arising from
a change in scope of ownership.
Headline operating profit
Operating profit before gains/losses on disposal of investments and
subsidiaries, investment and other impairment (reversals)/charges, 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
gains/losses on remeasurement of equity interests arising from a change in
scope of ownership.
Headline PBIT
Profit before finance and investment income/costs and revaluation and
retranslation of financial instruments, taxation, gains/losses on disposal of
investments and subsidiaries, investment and other impairment
(reversals)/charges, 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
on remeasurement of equity interests arising from a change in scope of
ownership.
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 impairment (reversals)/charges, 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, gains/losses arising from the
revaluation and retranslation of financial instruments and gains/losses on
remeasurement of equity interests arising from a change in scope of ownership.
Headline tax charge
Taxation excluding tax/deferred tax relating to gains/losses on disposal of
investments and subsidiaries, goodwill impairment and other goodwill
write-downs, restructuring and transformation costs, restructuring costs in
relation to COVID-19, litigation settlement, and the deferred tax impact of
the amortisation of acquired intangible assets and other goodwill items.
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, the
reclassification of certain businesses to associates in 2021 and the
restatement of agency arrangements under IFRS 15 for the commensurate period
in the prior year. Both periods exclude results from Russia. 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 (#_ftnref1) Percentage change in reported sterling.
2 (#_ftnref2) Like-for-like. LFL 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 from continuing operations, adjusted to include the
results of acquisitions and disposals for the commensurate period in the prior
year. Both periods exclude results from Russia.
3 (#_ftnref3) 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.
4 (#_ftnref4) Excluding the impact of US political advertising
5 (#_ftnref5) For designated clients, representing approximately 76% of
total revenue less pass-through costs
6 (#_ftnref6) Asia Pacific, Latin America, Africa & Middle East and
Central & Eastern Europe.
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