REG - WPP PLC - 2023 Interim Results
04/08/2023 07:00
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RNS Number : 3046I WPP PLC 04 August 2023
4 August 2023
2023 Interim Results
Resilient performance with second quarter impacted by lower revenues in the US
from technology clients and delays in spend on technology projects. Now expect
2023 LFL growth of 1.5-3.0%. Margin guidance remains at around 15% at 2022
rates
Key figures
£m H1 2023 +/(-) % reported(1) +/(-) % H1 2022
LFL(2)
Revenue 7,221 6.9 3.5 6,755
Revenue less pass-through costs 5,811 5.5 2.0 5,509
Reported:
Operating profit 306 (43.2) - 539
Profit before tax 204 (51.2) - 419
Diluted EPS (p) 10.3 (54.6) - 22.7
Dividends per share (p) 15.0 - - 15.0
Headline(3):
Operating profit 666 4.3 2.7 639
Operating profit margin 11.5% (0.1pt*) 0.1pt* 11.6%
Profit before tax 546 (2.9) - 562
Diluted EPS 33.1p 0.3 - 33.0p
* Margin points
H1 and Q2 financial highlights
• H1 reported revenue +6.9%, LFL revenue +3.5% (Q2 +2.3%)
• H1 revenue less pass-through costs +5.5%, LFL revenue less
pass-through costs +2.0% (Q2 +1.3%)
• In Q2, ex-US growth accelerated to mid-single digits, with China
growing albeit less strongly than expected. North America declined in Q2,
primarily due to lower revenues from technology clients
• H1 headline operating profit margin 11.5%, down 0.1pt, and on a
constant FX basis improved by 0.1pt. Efficiency benefits offset by investment
in IT and higher severance costs
• Trade working capital favourable movement of £165m year-on-year.
Non-trade working capital adverse movement of £316m
• Adjusted net debt at 30 June 2023 £3.5bn, up £0.3bn
year-on-year, £0.4bn lower than Q1 2023. Expect year end net debt to be flat
year-on-year
Performance, strategic progress and outlook
• Global Integrated Agencies H1 LFL revenue less pass-through costs
growth +2.2% (Q2 +1.5%): within which GroupM, our media planning and buying
business +6.1% (Q2 +6.1%), partially offset by a 0.8% LFL decline at other
Global Integrated Agencies (Q2 -2.3%)
• Solid new business performance: $2.0bn net new billings in H1 with
the pipeline of potential new business larger than at the same point in 2022
• Acquisitions of Goat and Obviously in the fast-growth area of
influencer marketing and an investment in Majority, a diversity-led creative
agency
• Transformation programme on track to deliver at least £450m of
annual savings this year over a 2019 base
• Planned review of our property portfolio resulting in a
consolidation of our office space with an impairment charge for the full year
of approximately £220m which is largely non-cash (H1 2023: £180m)
• 2023 interim dividend of 15.0p declared (2022: 15.0p)
• Full year 2023 LFL growth of 1.5-3.0% (previously 3-5%); FY 2023
headline operating profit margin around 15.0% (excluding the impact of FX)
Mark Read, Chief Executive Officer of WPP, said:
"Our performance in the first half has been resilient with Q2 growth
accelerating in all regions except the USA, which was impacted in the second
quarter by lower spending from technology clients and some delays in
technology-related projects. This was felt primarily in our integrated
creative agencies. China returned to growth in the second quarter albeit more
slowly than expected. In the near term, we expect the pattern of activity in
the first half to continue into the second half of the year.
"Our media business, GroupM, grew consistently across the first six months as
did our businesses in the UK, Europe, Latin America and Asia-Pacific. Client
spending in consumer packaged goods, financial services and healthcare
remained good and, despite short-term challenges, our technology clients
represent an important driver of long-term growth. Our agencies performed
extremely well at the Cannes Lions Festival winning five Grand Prix and 165
Lions with Mindshare recognised as the most-awarded media agency. We won major
new business assignments with clients including: Reckitt, Mondelēz, easyJet,
Lloyds Banking Group, Pernod Ricard and India's second largest advertiser,
Maruti Suzuki.
"We have exciting future plans in AI that build on our acquisition of Satalia
in 2021 and our use of AI across WPP. We are leveraging our efforts with
partnerships with the leading players including Adobe, Google, IBM, Microsoft,
Nvidia and OpenAI. We are delivering work powered by AI for many clients
including Nestlé, Nike and Mondelēz. AI will be fundamental to WPP's future
success and we are committed to embracing it to drive long-term growth and
value."
This announcement contains information that qualifies or may qualify as inside
information. The person responsible for arranging the release of this
announcement on behalf of WPP plc is Balbir Kelly-Bisla, Company Secretary.
For further information:
Investors and analysts
Tom Waldron +44 7788 695864
Anthony Hamilton +44 7464 532903
Caitlin Holt +44 7392 280178
irteam@wpp.com
Media
Chris Wade +44 20 7282 4600
Richard Oldworth +44 7710 130 634
Buchanan Communications +44 20 7466 5000
wpp.com/investors
(1) Percentage change in reported sterling.
(2) 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) 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.
First half overview
First half revenue was £7.2bn, up 6.9% from £6.8bn in H1 2022, and up 3.5%
like-for-like. Revenue less pass-through costs was £5.8bn, up 5.5% from
£5.5bn in H1 2022, and up 2.0% like-for-like.
Q2 2023 % % % %
£m reported M&A FX LFL
Revenue 3,761 2.7 1.1 (0.7) 2.3
Revenue less pass-through costs 2,982 1.6 0.9 (0.6) 1.3
H1 2023 % % % %
£m reported M&A FX LFL
Revenue 7,221 6.9 0.9 2.5 3.5
Revenue less pass-through costs 5,811 5.5 0.9 2.6 2.0
Business segment review (4)
Business segments - revenue less pass-through costs
% LFL +/(-) Global Public Relations Specialist Agencies
Integrated Agencies
Q2 2023 1.5 2.0 (1.6)
H1 2023 2.2 2.1 0.2
Global Integrated Agencies: GroupM, our media planning and buying business,
grew consistently during the half and across all regions, benefiting from
continued client investment in media, with like-for-like growth in revenue
less pass-through costs of +6.1% (Q2 +6.1%), partially offset by a 0.8% LFL
decline at other Global Integrated Agencies (Q2 -2.3%).
Ogilvy grew well, supported by recent new business wins including Verizon and
SC Johnson. Hogarth, our creative production agency, continued to deliver good
growth as it expands its collaboration with other WPP agencies.
Other Global Integrated Agencies, Wunderman Thompson, VMLY&R and AKQA
Group, felt the greatest impact from reduced spend across the technology
sector and delays in technology-related projects. As anticipated, revenue less
pass-through costs in the retail sector was impacted by known 2022 client
losses.
Revenue less pass-through costs from our offer in experience, commerce and
technology was around 39% of our Global Integrated Agencies, excluding GroupM,
compared to around 35% in 2019 and unchanged from H1 2022, impacted by the
previously referenced delays in technology-related projects. Our digital
billings mix within GroupM increased to 49%, compared to 48% in FY 2022.
Public Relations: FGS Global continued to grow strongly in the first half. H+K
Strategies delivered solid growth, lapping double-digit growth in the first
half 2022. BCW saw a small decline in revenue less pass-through costs in the
first half.
Specialist Agencies: good growth in design agency Landor & Fitch, and our
specialist healthcare media planning and buying agency, CMI Media Group, was
offset by declines at smaller agencies affected by delays in client projects.
Regional review
Regional segments - revenue less pass-through costs
% LFL +/(-) North America United Kingdom Western Continental Europe Rest of World
Q2 2023 (4.1) 9.0 3.9 4.3
H1 2023 (1.2) 8.2 3.7 3.1
North America declined by 1.2% in the first half reflecting the lower revenues
from technology clients, which predominantly impacted our integrated creative
agencies, and the expected impact of 2022 client losses in the retail sector.
This was partially offset by growth in spending from consumer packaged goods,
healthcare and financial services. GroupM continued to grow well in the
region.
The United Kingdom grew strongly led by GroupM. CPG and healthcare were the
strongest client sectors. In Western Continental Europe, strong performances
in Germany and Spain offset declines in France due to client losses.
The Rest of World saw good growth in the half. China grew 4.8% in the second
quarter, as that market continued to recover from Covid-related impacts,
albeit at a slower pace than anticipated. India moved into growth in Q2
against a strong comparative of 48% growth in Q2 2022.
Top five markets - revenue less pass-through costs
% LFL +/(-) USA UK Germany China India
Q2 2023 (4.5) 9.0 6.6 4.8 2.5
H1 2023 (1.2) 8.2 5.4 (4.0) 0.8
Client sector review
Client sector - revenue less pass-through costs
H1 2023 % share % growth +/(-)
CPG 26.1 15.1
Tech & Digital Services 17.8 (4.9)
Healthcare & Pharma 12.5 4.2
Automotive 10.2 (0.2)
Retail 9.5 (7.9)
Telecom, Media & Entertainment 6.2 (1.4)
Financial Services 6.1 10.0
Other 5.5 (0.3)
Travel & Leisure 3.6 8.9
Government, Public Sector & Non-profit 2.5 3.6
Strategic progress
There have never been more opportunities for advertisers to reach consumers,
reflected in the plethora of marketing channels available. In this
increasingly complex world, WPP's unique position and offer is more relevant
than ever. Our clients continue to invest in their brands and seek our support
as they navigate this complexity.
Clients: We have won $2.0bn of net new business billings in the first half (H1
2022: $3.4bn) including the potential loss of certain Pfizer assignments
currently held by WPP integrated creative agencies. Key assignment wins
included Maruti Suzuki (media), Pernod Ricard (creative), Reckitt (media),
Beko (creative), and Costa Coffee (PR).
Our Vantage global client satisfaction survey has shown the key measure of
"Likely To Recommend" has remained at all-time high levels with an increase in
scores related to world-class creativity.
Creativity and awards: Creativity is at the heart of our offer, and we
continue to be recognised for our creative excellence. WPP had another
successful year at Cannes Lions International Festival of Creativity, winning
a total of 165 Lions including one Titanium Lion, five Grand Prix, and 24 Gold
awards. Mindshare was also named Media Network of the Year.
Earlier in the year, WARC named WPP the top company in all three of their
rankings, the Creative 100, Effective 100 and Media 100 lists. Ogilvy ranked
as the top network of the year in both the Creative 100 and Effective 100
while EssenceMediacom took first place in the Media 100. In addition, the
Effie Awards named WPP the most effective communication company in the world,
with Ogilvy placing first in the most effective agency network rankings.
Investment for growth: We have invested in strategically important areas and
growth markets. We acquired Goat, a London-based, data-driven influencer
marketing agency; Obviously, a New York-based, technology-led influencer
marketing agency; 3K Communication, a Frankfurt-based healthcare PR agency;
and amp, one of the world's leading sonic branding companies. We also made a
minority investment in Majority, a diversity-focused US creative agency.
In July, KKR completed their minority investment to become a 29% shareholder
in FGS Global, after acquiring all of Golden Gate Capital's equity and a
proportion of the interests of WPP and FGS Global management. WPP remains the
majority owner at 51%. The transaction valued FGS Global at $1.425bn.
We have invested organically in new technology platforms to provide a
future-facing offer to clients and innovate for the medium term. The main
areas of investment are in Choreograph, our data company, and WPP Open, our
AI-powered technology platform.
We believe that AI will be fundamental to WPP's business and are excited by
its transformational potential. Our expertise in the application of AI to
marketing is based on investments that we have been making over many years,
including the appointment of a Head of Creative AI in 2019 and the acquisition
of Satalia in 2021.
AI is used extensively across our business today, particularly in GroupM and
in Hogarth, our creative production business. Our application of AI includes
automation of workflows, speeding up the process of ideation and concepting,
and producing innovative creative work for clients. An example is our work for
Cadbury's in India which used AI to allow Bollywood superstar Shah Rukh Khan
to produce personalised ads for local businesses which won a Titanium Lion for
Creativity at the 2022 Cannes Lions festival and won again at the festival in
2023, securing a Grand Prix for Creative Effectiveness.
We are working with technology from all the main AI companies, including
Adobe, Google, IBM, Microsoft, Nvidia, and OpenAI, with dedicated enterprise
platforms, proprietary to WPP, to deliver work to clients that protects their
information. We recognise the challenges of AI to society and have implemented
legal and ethical guidelines to help us responsibly deploy this technology.
In May, WPP and Nvidia announced plans to develop a content engine that
harnesses NVIDIA Omniverse™ and AI to enable creative teams to produce
high-quality commercial content faster, more efficiently and at scale while
staying fully aligned with a client's brand.
The new engine connects an ecosystem of 3D design, manufacturing and creative
supply chain tools, including those from Adobe and Getty Images, letting WPP's
artists and designers integrate 3D content creation with generative AI. This
enables our clients to reach consumers in highly personalised and engaging
ways, while preserving the quality, accuracy and fidelity of their company's
brand identity, products and logos.
Talent: Our success is driven by our exceptional talent. We have continued to
invest to attract, engage and develop the best talent in our industry. In May,
we hired Corey duBrowa, one of the industry's most highly regarded
communications leaders, as Chief Executive of BCW.
We have invested in education and training, including through our Future
Readiness Academies, a bespoke global learning programme available to everyone
across WPP. We also launched the second cohort of our Creative Technology
Apprenticeship, a nine-month intensive programme where apprentices learn
creative technology skills using the latest software and hardware to prepare
them for a career in today's creative technology field. In addition, we
sponsored a cohort of WPP leaders through a Postgraduate Diploma in AI for
Business at Oxford University's Saїd Business School, with 28 senior
executives graduating earlier this year.
Transformation: We are making progress on our transformation plan which we set
out in December 2020, designed to achieve £600m in gross annual cost
efficiencies by 2025. We are on target to achieve our annual run-rate of
£450m in efficiencies this year, against a 2019 baseline.
We opened five new campuses, in Atlanta, Austin, Guangzhou, Manchester and
Paris, in the half, taking the total to 38 campuses. By the end of the year,
we intend to open two further campuses and will accommodate around 60,000 of
our people in campus buildings.
A review of our property portfolio has led to ongoing actions including the
further consolidation of our operations in campuses across the US, in New York
and other cities.
Purpose and ESG
WPP's purpose is to use the power of creativity to build better futures for
our people, planet, clients and communities. During the first six months of
the year we have made good progress in fulfilling our commitments in each
pillar of our purpose statement.
People: We are committed to our $30m pledge, set out in June 2020, to fund
inclusion programmes within WPP and to support external organisations, as part
of our Racial Equity Programme. WPP agencies globally apply to receive
resources to create and run impactful programmes to advance racial equity.
During the quarter, the programme received applications for its fourth round
of funding.
Planet: In 2021, we announced our commitment 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 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.
In April, our 2022 Sustainability Report reported that we have delivered a
reduction in Scope 1 and 2 emissions of 71% in absolute terms since our 2019
baseline.
WPP maintained a low risk rating in the 2023 Sustainalytics risk rating, which
scores the ESG performance of companies. WPP has the lowest risk rating of its
peer group and saw an improvement in its score from 12.1 in 2022 to 10.6 in
2023.
Clients: We are proud to enable our clients in their own sustainability
journeys and ensure client work is inclusive and accessible. At the Cannes
Lions Festival of Creativity 2023 we were recognised for our purpose-driven
client work including a Titanium Lion for Corona's Extra Lime campaign in
which Corona partnered with local governments to equip and educate farmers to
expand their lime yield, and a Grand Prix for Dove's #TurnYourBack campaign
which raised awareness of the harmful impact of toxic beauty content.
Communities: We make a positive contribution to the communities in which we
live and work. WPP collaborated with The One Club for Creativity to introduce
ONE School UK, a free intensive portfolio programme spanning 16 weeks, aiming
to provide opportunities for promising Black creatives based in the UK. Funded
by WPP's Racial Equity Programme, the virtual ONE School UK welcomed its
inaugural cohort in March 2023.
Outlook
We are updating our guidance for 2023 as follows:
Like-for-like revenue less pass-through costs growth of 1.5-3.0% for FY 2023
(previously 3-5%); guidance for FY 2023 headline operating margin of around
15% (excluding the impact of FX) maintained
Other 2023 financial guidance:
• Mergers and acquisitions will add 0.5-1.0% to revenue less
pass-through costs growth
• FX impact: current rates (at 31 July 2023) imply a c.2.0% drag on
FY 2023 revenues less pass-through costs and a c.0.25pt drag on FY 2023
headline operating margin
• Headline income from associates is expected to be around 40m(5)
• Effective tax rate (measured as headline tax as a % of headline
profit before tax) of around 27%
• Capex of around £250m (previously £300m)
• Restructuring and property costs of around £400m, consisting of
costs of £180m detailed in prior guidance with the addition of £220m of cost
relating to the 2023 property review (of which £200m is non-cash)
• Trade working capital expected to be broadly flat year-on-year,
with operational improvement offsetting increased client focus on cash
management
• Non-trade working capital expected to be an outflow of £150m
• Average adjusted net debt/headline EBITDA within the range of
1.5x-1.75x
• Year-end adjusted net debt flat year-on-year
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.
Financial results
Unaudited headline income statement(6):
Six months ended (£m) 30 June 2023 30 June 2022 +/(-) % reported +/(-) % LFL
Revenue 7,221 6,755 6.9 3.5
Revenue less pass-through costs 5,811 5,509 5.5 2.0
Operating profit 666 639 4.3 2.7
Operating profit margin % 11.5% 11.6% (0.1pt*) 0.1pt*
Income from associates 8 12 (38.2)
PBIT 674 651 3.5
Net finance costs (128) (89) (43.5)
Profit before tax 546 562 (2.9)
Tax (148) (143) (3.1)
Profit after tax 398 419 (5.0)
Non-controlling interests (37) (43) 13.7
Profit attributable to shareholders 361 376 (4.0)
Diluted EPS 33.1p 33.0p 0.3
*margin points
Reconciliation of profit before tax to headline operating profit:
Six months ended (£m) 30 June 2023 30 June 2022
Profit before taxation 204 419
Finance and investment income (102) (56)
Finance costs 231 145
Revaluation and retranslation of financial instruments (26) (33)
Profit before interest and taxation 307 475
(Earnings)/loss from associates - after interest and tax (1) 64
Operating profit 306 539
Goodwill impairment 53 -
Amortisation and impairment of acquired intangible assets 36 31
Investment and other impairment charges 11 -
Losses on disposal of investments and subsidiaries 3 48
Gains on remeasurement of equity interests arising from a change in scope of - (60)
ownership
Litigation settlement (10) -
Restructuring and transformation costs 87 81
Property related costs 180 -
Headline operating profit 666 639
Business sector review(7)
Revenue analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 3,211 3.3 2.9 6,107 7.2 4.0
Public Relations 311 2.2 1.7 618 7.6 2.7
Specialist Agencies 239 (4.7) (4.6) 496 3.0 (1.3)
Total Group 3,761 2.7 2.3 7,221 6.9 3.5
Revenue less pass-through costs analysis
Q2 H1
£m +/(-) % reported +/(-) % LFL £m +/(-) % reported +/(-) % LFL
Global Int. Agencies 2,474 1.8 1.5 4,782 5.4 2.2
Public Relations 292 2.3 2.0 584 6.7 2.1
Specialist Agencies 216 (1.8) (1.6) 445 4.5 0.2
Total Group 2,982 1.6 1.3 5,811 5.5 2.0
Headline operating profit analysis
£m 2023 % margin* 2022 % margin*
Global Int. Agencies 540 11.3 507 11.2
Public Relations 88 15.0 83 15.2
Specialist Agencies 38 8.6 49 11.4
Total Group 666 11.5 639 11.6
* Headline operating profit as a percentage of revenue less pass-through costs
Regional review
Revenue analysis
Q2 H1
£m % reported % £m % reported %
LFL LFL
N. America 1,376 (1.6) (2.1) 2,744 6.1 0.4
United Kingdom 567 14.6 12.7 1,065 11.3 10.4
W Cont. Europe 781 6.8 4.3 1,477 9.3 5.0
AP, LA, AME, CEE* 1,037 (0.2) 2.3 1,935 4.0 3.6
Total Group 3,761 2.7 2.3 7,221 6.9 3.5
* Asia Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe
Revenue less pass-through costs analysis
Q2 H1
£m % reported % £m % reported %
LFL LFL
N. America 1,134 (3.3) (4.1) 2,284 4.4 (1.2)
United Kingdom 419 9.0 9.0 796 8.0 8.2
W Cont. Europe 621 7.3 3.9 1,179 8.5 3.7
AP, LA, AME, CEE 808 1.2 4.3 1,552 3.6 3.1
Total Group 2,982 1.6 1.3 5,811 5.5 2.0
Headline operating profit analysis
£m 2023 % margin* 2022 % margin*
N. America 287 12.6 300 13.7
United Kingdom 98 12.3 67 9.1
W Cont. Europe 111 9.4 99 9.1
AP, LA, AME, CEE 170 11.0 173 11.6
Total Group 666 11.5 639 11.6
* Headline operating profit as a percentage of revenue less pass-through costs
Operating profitability
Reported profit before tax was £204m, compared to £419m in the prior period,
principally reflecting the impairment taken as a result of the 2023 property
review.
Reported profit after tax was £149m compared to £301m in the prior period.
Headline EBITDA (including IFRS 16 depreciation) for the first half was up
2.9% to £767m. Headline operating profit was up 4.3% to £666m.
Headline operating profit margin was down 10 basis points to 11.5% and up 10
basis points year on year on a constant currency basis. Total operating costs
were up 5.7% to £5.1bn. Staff costs, excluding incentives, were up 5.4%
year-on-year to £4.0bn, including severance costs of £40m (H1 2022: £17m),
partially offset by good control over our freelance spend. Severance costs
increased as we aligned headcount to market conditions. Incentive costs were
£172m, compared to £164m in the first half of 2022.
Establishment costs were up 3.6% at £272m while IT costs were up 13.6% at
£350m, reflecting investment in our IT infrastructure, cyber security and a
move to cloud computing.
Personal costs rose 16.3% to £112m, reflecting higher client-related business
travel, and other operating expenses were down 1.0% at £270m.
On a like-for-like basis, the average number of people in the Group in the
first half was 115,000 compared to 113,000 in the first half of 2022. The
total number of people as at 30 June 2023 was 114,000 compared to 115,000 as
at 30 June 2022.
Adjusting items
The Group incurred £360m of adjusting items in the first half of 2023, mainly
relating to restructuring and transformation costs and property and goodwill
impairments. This compares with net adjusting items in the first half of 2022
of £100m.
Restructuring costs related to IT and other transformation were £87m in the
first half of 2023 (H1 2022: £81m), in line with expectations and as guided.
Charges related to the 2023 property review were £180m and relate to lease
impairments, primarily in the US, all of which are non-cash. For the full year
2023 we expect adjusting items of around £400m, consisting of £180m detailed
in prior guidance with the addition of £220m of charges relating to the 2023
property review (of which £200m is non-cash).
Goodwill impairment, amortisation of acquired intangibles and investment
write-downs were £101m in the first half (H1 2022: £31m).
Interest and taxes
Net finance costs (excluding the revaluation of financial instruments) were
£128m, an increase of £39m year-on-year, due to higher levels of debt and
lower investment income partially offset by higher interest earned on cash.
The headline tax rate (based on headline profit before tax) was 27.0% (2022:
25.5%) and on reported profit before tax was 26.9% (2022: 28.1%). The increase
in the headline tax rate is driven by changes in tax rates or tax bases in the
markets in which we operate. 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
Reported profit before tax was down 51.2% to £204m. Headline profit before
tax was down 2.9% to £546m.
Profits attributable to share owners were £112m, compared to a profit of
£258m in the prior period.
Headline diluted earnings per share from continuing operations rose by 0.3% to
33.1p. Reported diluted earnings per share, on the same basis, was 10.3p,
compared to 22.7p in the prior period.
For 2023, the Board is declaring an interim dividend of 15.0p (2022: 15.0p).
The record date for the interim dividend is 13 October 2023, and the dividend
will be payable on 3 November 2023.
Further details of WPP's financial performance are provided in Appendix 1.
Cash flow highlights
Six months ended (£ million) 30 June 2023 30 June 2022
Operating profit 306 539
Depreciation and amortisation 259 255
Impairments and investment write-downs 204 8
Lease payments (inc interest) (184) (190)
Non-cash compensation 76 67
Net interest paid (47) (60)
Tax paid (171) (163)
Capex (104) (117)
Earnout payments (12) (63)
Other (37) (9)
Trade working capital (522) (1,015)
Other receivables, payables and provisions (523) (726)
Adjusted free cash flow (755) (1,474)
Disposal proceeds 14 34
Net initial acquisition payments (203) (46)
Share purchases (37) (681)
Net cash flow (981) (2,167)
Net cash outflow for the first half was £1.0bn, compared to £2.2bn in the
first half of 2022. The main drivers of the cash flow performance year-on-year
were lower reported operating profit and higher consideration for acquisitions
offset by a continued focus on working capital management and lower share
purchases. A summary of the Group's unaudited cash flow statement and notes
for the six months to 30 June 2023 is provided in Appendix 1.
Balance sheet highlights
As at 30 June 2023 we had cash and cash equivalents of £1.5bn (H1 2022:
£1.5bn) and total liquidity, including undrawn credit facilities, of £3.6bn.
Average adjusted net
debt(8) in the first half was £3.6bn, compared to £2.6bn in the prior
period, at 2023 exchange rates. On 30 June 2023 adjusted net debt was
£3.5bn, against £3.1bn on 30 June 2022, an increase of £0.3bn on reported
basis and at 2023 exchange rates.
We spent £37m on share purchases in the first half of the year to offset
dilution from share-based payments.
Our bond portfolio at 30 June 2023 had an average maturity of 5.8 years.
In May 2023, we refinanced the November 2023 €750m bond as planned, issuing
a May 2028 €750m bond priced at 4.125%.
The average adjusted net debt to EBITDA ratio in the 12 months to 30 June
2023 is 1.68x, which excludes the impact of IFRS 16.
A summary of the Group's unaudited balance sheet and notes as at 30 June 2023
is provided in Appendix 1.
(4)Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Public Relations.
(5)In accordance with IAS 28: Investments in Associates and Joint Ventures
once an investment in an associate reaches zero carrying value, the Group does
not recognise any further losses, nor income, until the cumulative share of
income returns the carrying value to above zero. WPP's cumulative reported
share of losses in Kantar reduced the carrying value of the investment to zero
at the end of December 2022.
(6)Non-GAAP measures in this table are reconciled in Appendix 1
(7)Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Public Relations.
(8)Average adjusted net debt calculated based on a month-end average
( )
( )
( )
( )
( )
Unaudited condensed consolidated interim income statement for the six months
ended 30 June 2023
£ million Notes Six months ended Six months
30 June 2023 ended
30 June 2022
Revenue 7 7,221.2 6,755.3
Costs of services 4 (6,157.0) (5,708.1)
Gross profit 1,064.2 1,047.2
General and administrative costs 4 (758.1) (508.5)
Operating profit 306.1 538.7
Earnings/(loss) from associates - after interest and tax 5 1.0 (63.8)
Profit before interest and taxation 307.1 474.9
Finance and investment income 6 102.4 55.5
Finance costs 6 (230.7) (144.9)
Revaluation and retranslation of financial instruments 6 25.5 33.1
Profit before taxation 204.3 418.6
Taxation 8 (55.0) (117.5)
Profit for the period 149.3 301.1
Attributable to:
Equity holders of the parent 112.0 257.9
Non-controlling interests 37.3 43.2
149.3 301.1
Earnings per share
Basic earnings per ordinary share 10 10.5p 23.1p
Diluted earnings per ordinary share 10 10.3p 22.7p
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 2023
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Profit for the period 149.3 301.1
Items that may be reclassified subsequently to profit or loss:
Foreign exchange differences on translation of foreign operations (285.0) 459.7
Gain/(loss) on net investment hedges 77.8 (129.9)
Cash flow hedges:
Fair value (loss)/gain arising on hedging instruments (23.8) 18.7
Less: gain/(loss) reclassified to profit or loss 24.4 (18.7)
Share of other comprehensive income of associates undertakings - 30.7
(206.6) 360.5
Items that will not be reclassified subsequently to profit or loss:
Movements on equity investments held at fair value through other comprehensive (3.8) (5.2)
income
(3.8) (5.2)
Other comprehensive (loss)/income relating to the period (210.4) 355.3
Total comprehensive (loss)/income relating to the period (61.1) 656.4
Attributable to:
Equity holders of the parent (76.0) 593.3
Non-controlling interests 14.9 63.1
(61.1) 656.4
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 2023
£ million Notes Six months ended Six months ended
30 June 2023 30 June 2022
Net cash outflow from operating activities(1) 11 (444.1) (1,132.5)
Investing activities
Acquisitions(1) 11 (197.9) (81.0)
Disposals of investments and subsidiaries 11 10.3 29.2
Purchases of property, plant and equipment (80.7) (102.4)
Purchases of other intangible assets (including capitalised computer software) (23.1) (14.6)
Proceeds on disposal of property, plant and equipment 3.4 4.5
Net cash outflow from investing activities (288.0) (164.3)
Financing activities
Repayment of lease liabilities (135.1) (146.3)
Share option proceeds 0.7 1.1
Cash consideration for purchase of non-controlling interests 11 (16.0) (6.2)
Share repurchases and buy-backs 11 (37.0) (680.5)
Proceeds from borrowings and issue of bonds 11 1,044.5 247.2
Repayment of borrowings 11 (469.8) (220.6)
Financing and share issue costs (5.7) -
Dividends paid to non-controlling interests in subsidiary undertakings (61.2) (37.2)
Net cash inflow/(outflow) from financing activities 320.4 (842.5)
Net decrease in cash and cash equivalents (411.7) (2,139.3)
Translation of cash and cash equivalents (59.0) 88.0
Cash and cash equivalents at beginning of period 1,985.8 3,540.6
Cash and cash equivalents at end of period 12 1,515.1 1,489.3
The accompanying notes form an integral part of this unaudited condensed
consolidated interim cash flow statement.
(1) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior year excess amounts were recorded as
investing activities and have been re-presented as operating activities. See
note 11.
Unaudited condensed consolidated interim balance sheet as of 30 June 2023
£ million Notes 30 June 31 December 2022
2023
Non-current assets
Intangible assets:
Goodwill 13 8,296.8 8,453.4
Other 1,500.9 1,451.9
Property, plant and equipment 942.7 1,000.7
Right-of-use assets 1,454.2 1,528.5
Interests in associates and joint ventures 248.1 305.1
Other investments 332.9 369.8
Deferred tax assets 287.8 322.1
Corporate income tax recoverable 102.4 74.1
Trade and other receivables 14 156.8 218.6
13,322.6 13,724.2
Current assets
Corporate income tax recoverable 110.8 107.1
Trade and other receivables 14 11,058.1 12,499.7
Cash and short-term deposits 1,962.6 2,491.5
13,131.5 15,098.3
Current liabilities
Trade and other payables 15 (13,155.8) (15,834.9)
Corporate income tax payable (324.1) (422.0)
Short-term lease liabilities (298.2) (282.4)
Bank overdrafts, bonds and bank loans (1,092.9) (1,169.0)
(14,871.0) (17,708.3)
Net current liabilities (1,739.5) (2,610.0)
Total assets less current liabilities 11,583.1 11,114.2
Non-current liabilities
Bonds and bank loans (4,338.0) (3,801.8)
Trade and other payables 16 (517.4) (490.9)
Deferred tax liabilities (339.1) (350.8)
Provisions for post-employment benefits (133.8) (137.5)
Provisions for liabilities and charges (283.8) (244.6)
Long-term lease liabilities (1,905.9) (1,928.2)
(7,518.0) (6,953.8)
Net assets 4,065.1 4,160.4
Equity
Called-up share capital 114.1 114.1
Share premium account 576.6 575.9
Other reserves 104.9 285.2
Own shares (1,012.9) (1,054.1)
Retained earnings 3,854.5 3,759.7
Equity shareholders' funds 3,637.2 3,680.8
Non-controlling interests 427.9 479.6
Total equity 4,065.1 4,160.4
The accompanying notes form an integral part of this unaudited condensed
consolidated interim balance sheet.
Unaudited condensed consolidated interim statement of changes in equity for
the for the six months ended 30 June 2023
Total equity
Called-up Share Other reserves Retained earnings(1) share Non-
share capital premium account Own shares holders' funds controlling interests Total
£ million
Balance at 1 January 2023 114.1 575.9 285.2 (1,054.1) 3,759.7 3,680.8 479.6 4,160.4
Ordinary shares issued - 0.7 - - - 0.7 - 0.7
Share cancellations - - - - - - - -
Treasury shares used for share option schemes - - - 55.2 (55.2) - - -
Profit for the period - - - - 112.0 112.0 37.3 149.3
Foreign exchange differences on translation of foreign operations - - (262.6) - - (262.6) (22.4) (285.0)
Gain on net investment hedges - - 77.8 - - 77.8 - 77.8
Cash flow hedges:
Fair value loss arising on hedging instruments - - (23.8) - - (23.8) - (23.8)
Less: gain reclassified to profit or loss - - 24.4 - - 24.4 - 24.4
Share of other comprehensive income of associates undertakings - - - - - - - -
Movements on equity investments held at fair value through other comprehensive - - - - (3.8) (3.8) - (3.8)
income
Other comprehensive loss - - (184.2) - (3.8) (188.0) (22.4) (210.4)
Total comprehensive (loss)/income - - (184.2) - 108.2 (76.0) 14.9 (61.1)
Dividends paid - - - - - - (61.2) (61.2)
Non-cash share-based incentive plans (including share options) - - - - 75.5 75.5 - 75.5
Tax adjustment on share-based payments - - - - 2.4 2.4 - 2.4
Net movement in own shares held by ESOP Trusts - - - (14.0) (23.0) (37.0) - (37.0)
Recognition/derecognition of liabilities in respect of put options - - 3.9 - (1.8) 2.1 - 2.1
Acquisition and disposal of subsidiaries(2) - - - - (11.3) (11.3) (5.4) (16.7)
Balance at 30 June 2023 114.1 576.6 104.9 (1,012.9) 3,854.5 3,637.2 427.9 4,065.1
The accompanying notes form an integral part of this unaudited condensed
consolidated interim statement of changes in equity.
(1)Accumulated losses on existing equity investments held at fair value
through other comprehensive income are £347.2 million at 30 June 2023 (31
December 2022: £343.4 million).
(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 six months ended 30 June 2023 (continued)
Total equity
Called-up Share Other reserves Retained earnings share Non-
share capital premium account Own shares holders' funds controlling interests Total
£ million
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)
Treasury shares used for share option schemes - - - - - - - -
Profit for the period - - - - 257.9 257.9 43.2 301.1
Foreign exchange differences on translation of foreign operations - - 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 adjustments 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
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 buybacks 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. After the close period ended on 18 February 2022,
the liability was settled and the amount in other reserves was reclassified to
retained earnings.
(2)Acquisition of subsidiaries represents movements in retained earnings and
non-controlling interests arising from changes in ownership of existing
subsidiaries and recognition of non-controlling interests on new acquisitions.
Notes to the unaudited condensed consolidated interim financial statements
1. Basis of accounting
The unaudited condensed consolidated interim financial statements are prepared
under the historical cost convention, except for the revaluation of certain
financial instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited condensed consolidated interim financial statements comply with
IAS 34 Interim Financial Reporting 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 160 - 165 of the 2022
Annual Report and Accounts. No changes have been made to the Group's
accounting policies in the period ended 30 June 2023.
The Group does not consider that the amendments to standards adopted during
the period have a significant impact on the financial statements.
Statutory information and Independent Review
The unaudited condensed consolidated interim financial statements for the six
months to 30 June 2023 and 30 June 2022 do not constitute statutory
accounts. The statutory accounts for the year ended 31 December 2022 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 41.
The announcement of the interim results was approved by the Board of Directors
on 4 August 2023.
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 2023 unaudited condensed consolidated interim income
statement is prepared using, among other currencies, average exchange rates of
US$1.23 to the pound (period ended 30 June 2022: US$1.30) and €1.14 to the
pound (period ended 30 June 2022: €1.19). The unaudited condensed
consolidated interim balance sheet as at 30 June 2023 has been prepared using
the exchange rates on that day of US$1.27 to the pound (31 December 2022:
US$1.21) and €1.16 to the pound (31 December 2022: €1.13).
4. Costs of services and general and administrative costs
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Costs of services 6,157.0 5,708.1
General and administrative costs 758.1 508.5
6,915.1 6,216.6
Costs of services and general and administrative costs include:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Staff costs 4,141.5 3,930.7
Establishment costs 272.1 262.8
Media pass-through costs 1,022.8 1,016.7
Other costs of services and general and administrative costs(1) 1,478.7 1,006.4
6,915.1 6,216.6
Staff costs include:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Wages and salaries 2,944.0 2,718.5
Cash-based incentive plans 91.7 93.5
Share-based incentive plans 75.5 67.3
Severance 40.1 17.4
Other staff costs 990.2 1,034.0
4,141.5 3,930.7
(1) Other costs of services and general and administrative costs include
£387.2 million (period ended 30 June 2022: £229.1 million) of other
pass-through costs.
Other costs of services and general and administrative costs include:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Amortisation and impairment of acquired intangible assets 36.6 31.5
Goodwill impairment 52.9 -
Investment and other impairment charges 11.0 -
Losses on disposals of investments and subsidiaries 2.9 48.1
Gains on remeasurement of equity interests arising from a change in scope of - (60.4)
ownership
Restructuring and transformation costs 86.8 81.2
Property related costs 180.0 -
Litigation settlement (10.0) -
Amortisation and impairment of acquired intangible assets of £36.6 million
(2022: £31.5 million) includes an impairment charge in the year of
£1.7 million (2022: £1.3 million) in regard to certain brand names that
are no longer in use.
The goodwill impairment charge of £52.9 million in the period ended 30 June
2023 (2022: £nil) relates to two businesses in the Group where the current,
local economic conditions and trading circumstances are sufficiently severe to
indicate impairment to the carrying value.
Investment and other impairment charges of £11.0 million (2022: £nil)
relate to the same macro-economic factors noted above.
Losses on disposal of investments and subsidiaries of £2.9 million in the
period ended 30 June 2023 (2022: £48.1 million) mainly relates to a disposal
of the Group's investment in Astus Australia, which completed in May 2023. The
prior period primarily includes a loss of £65.1 million on the divestment of
the Group's Russian interests which completed in May 2022.
In the prior period, 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. There were no remeasurements of
equity interest in the period ended 30 June 2023.
Restructuring and transformation costs of £86.8 million (2022:
£81.2 million) include £53.9 million (2022: £59.5 million) in relation
to the Group's IT transformation programme. It includes costs of
£23.8 million (2022: £46.3 million) in relation to the rollout of new ERP
systems in order to drive efficiency and collaboration throughout the Group
and £15.2 million (2022: £nil) incurred related to a transition programme
to move to a multi vendor environment. Included within restructuring and
transformation costs is £7.0 million (2022: £5.9 million) of ongoing
property costs, related to impairments the Group recognised in response to the
COVID-19 pandemic. The remaining £25.9 million (2022: £15.8 million)
relates to the continuing restructuring plan. As part of that plan,
restructuring actions have been taken to right-size under-performing
businesses, address high-cost severance markets and simplify operational
structures.
Property related costs of £180.0 million (2022: £nil) have been incurred
related to a review of the Group's property requirements, following the
stabilisation of return-to-work practices post the COVID-19 pandemic and
campus strategy. This identified a number of properties that are surplus to
requirements and opportunities to further consolidate Agencies within the
existing Campus portfolio.
£10.0 million (2022: £nil) has been received by the Group related to a
previous litigation matter that settled in the period.
5. Earnings/(loss) from associates - after interest and tax
Earnings/(loss) from associates - after interest and tax for the period ended
30 June 2023 was £1.0 million (2022: loss of £63.8 million). In 2022 this
includes £46.7 million of amortisation and impairment of acquired intangible
assets, and £24.8 million of restructuring and one-off transaction costs
within Kantar.
6. Finance and investment income, finance costs and revaluation and
retranslation of financial instruments
Finance and investment income includes:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Income from equity investments 3.4 20.1
Interest income 99.0 35.4
102.4 55.5
Finance costs include:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Interest payable and similar charges(1) 180.2 98.9
Interest expense related to lease liabilities 50.5 46.0
230.7 144.9
Revaluation and retranslation of financial instruments include:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Movements in fair value of treasury instruments 4.4 1.9
Revaluation of investments held at fair value through profit or loss (24.2) 9.0
Revaluation of put options over non-controlling interests 7.1 19.6
Revaluation of payments due to vendors (earnout agreements) 25.7 (1.1)
Retranslation of financial instruments 12.5 3.7
25.5 33.1
(1) Interest expense and similar charges are payable on bank overdrafts,
bonds and bank loans held at amortised cost.
7. Segmental analysis
Substantially all of the Group's revenue is from contracts with customers.
Reported contributions by reportable segments were as follows:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Revenue(1,2)
Global Integrated Agencies 6,107.0 5,698.8
Public Relations 618.0 574.6
Specialist Agencies 496.2 481.9
7,221.2 6,755.3
Revenue less pass-through costs(1,3)
Global Integrated Agencies 4,781.6 4,536.0
Public Relations 584.4 547.6
Specialist Agencies 445.2 425.9
5,811.2 5,509.5
Headline operating profit(1,5)
Global Integrated Agencies 540.5 507.0
Public Relations 87.5 83.5
Specialist Agencies 38.3 48.6
666.3 639.1
Reported contributions by geographical area were as follows:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Revenue(2)
North America(4) 2,744.0 2,586.5
United Kingdom 1,064.6 956.1
Western Continental Europe 1,477.1 1,352.0
Asia Pacific, Latin America, Africa & Middle East and Central & 1,935.5 1,860.7
Eastern Europe
7,221.2 6,755.3
Revenue less pass-through costs(3)
North America(4) 2,284.6 2,188.9
United Kingdom 796.2 737.0
Western Continental Europe 1,178.7 1,086.1
Asia Pacific, Latin America, Africa & Middle East and Central & 1,551.7 1,497.5
Eastern Europe
5,811.2 5,509.5
Headline operating profit(5)
North America(4) 287.1 299.7
United Kingdom 97.8 67.3
Western Continental Europe 111.1 98.7
Asia Pacific, Latin America, Africa & Middle East and Central & 170.3 173.4
Eastern Europe
666.3 639.1
(1) Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Public Relations.
(2) Intersegment sales have not been separately disclosed as they are not
material.
(3) Revenue less pass-through costs is defined in Appendix 2.
(4) North America includes the United States with revenue of £2,578.7 million
(2022: £2,440.9 million), revenue less pass-through
costs of £2,144.2 million (2022: £2,052.1 million) and headline operating
profit of £268.1 million (2022: £280.9 million).
(5) A reconciliation from profit before taxation to headline operating profit
is provided in Appendix 2.
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 2023. This is then adjusted for certain
discrete items which occurred in the interim period.
The tax rate on reported profit before tax was 26.9% (2022: 28.1%). 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 restructuring, the resolution of open tax issues, and the
ability to use brought forward tax losses. Changes in local or international
tax rules, 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 (2022: 15.0p) per
ordinary share. This is expected to be paid on 3 November 2023 to
shareholders on the register at 13 October 2023. The Board recommended a
final dividend of 24.4p per ordinary share in respect of 2022. This was paid
on 7 July 2023.
10. Earnings per share
Basic EPS
The calculation of basic EPS is as follows:
Six months ended Six months ended
30 June 2023 30 June 2022
Reported earnings(1) (£ million) 112.0 257.9
Weighted average shares used in basic EPS calculation (million) 1,071.2 1,115.2
Reported EPS 10.5p 23.1p
Diluted EPS
The calculation of diluted EPS is as follows:
Six months ended Six months ended
30 June 2023 30 June 2022
Diluted reported earnings(1) (£ million) 112.0 257.9
Weighted average shares used in diluted EPS calculation (million) 1,090.8 1,137.8
Diluted reported EPS 10.3p 22.7p
A reconciliation between the shares used in calculating basic and diluted EPS
is as follows:
million Six months ended Six months ended
30 June 2023 30 June 2022
Weighted average shares used in basic EPS calculation 1,071.2 1,115.2
Dilutive share options outstanding 0.8 1.4
Other potentially issuable shares 18.8 21.2
Weighted average shares used in diluted EPS calculation 1,090.8 1,137.8
At 30 June 2023 there were 1,141,513,196 (30 June 2022: 1,162,563,018)
ordinary shares in issue, including treasury shares of 66,675,497 (30 June
2022: 70,489,953).
(1) Reported earnings is equivalent to profit for the period attributable to
equity holders of the parent.
( )
11. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 18:
Net cash outflow from operating activities:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Profit for the period 149.3 301.1
Taxation 55.0 117.5
Revaluation and retranslation of financial instruments (25.5) (33.1)
Finance costs 230.7 144.9
Finance and investment income (102.4) (55.5)
(Earnings)/loss from associates - after interest and tax (1.0) 63.8
Operating profit for the period 306.1 538.7
Adjustments for:
Non-cash share-based incentive plans (including share options) 75.5 67.3
Depreciation of property, plant and equipment 83.7 79.9
Depreciation of right-of-use assets 129.3 129.9
Impairment charges included within adjusting items(1) 140.4 8.1
Goodwill impairment 52.9 -
Amortisation and impairment of acquired intangible assets 36.6 31.5
Amortisation of other intangible assets 9.0 13.6
Investment and other impairment charges 11.0 -
Losses on disposal of investments and subsidiaries 2.9 48.1
Gains on remeasurement of equity interests arising from a change in scope of - (60.4)
ownership
Gains on sale of property, plant and equipment (0.5) (1.1)
Operating cash flow before movements in working capital and provisions 846.9 855.6
Movements in trade working capital(2,3) (521.9) (1,015.3)
Movements in other working capital and provisions(4) (522.7) (725.9)
Cash used in operations (197.7) (885.6)
Corporation and overseas tax paid (171.3) (162.7)
Interest and similar charges paid (155.9) (86.8)
Interest paid on lease liabilities (48.8) (44.1)
Interest received 108.5 26.9
Investment income 3.4 20.1
Dividends from associates 18.9 21.4
Earnout payments recognised in operating activities(5) (1.2) (21.7)
Net cash outflow from operating activities (444.1) (1,132.5)
(1) Impairment charges included within restructuring costs includes
impairments for right-of-use assets and property, plant and
equipment.
(2) Trade working capital represents trade receivables, work in progress,
accrued income, trade payables and deferred income. A
reconciliation is provided in Appendix 2.
(3) 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.
(4) Other working capital represents other receivables and other payables.
(5) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior year excess amounts
were recorded as investing activities and have been re-presented as
operating activities.
11. Analysis of cash flows (continued)
Acquisitions and disposals:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Initial cash consideration (202.0) (35.0)
Cash and cash equivalents acquired 23.0 0.7
Earnout payments(1) (11.2) (41.6)
Purchase of other investments (including associates) (7.7) (5.1)
Acquisitions (197.9) (81.0)
Proceeds on disposal of investments and subsidiaries(2) 10.5 41.7
Cash and cash equivalents disposed (0.2) (12.5)
Disposals of investments and subsidiaries 10.3 29.2
Cash consideration for purchase of non-controlling interests (16.0) (6.2)
Cash consideration for non-controlling interests (16.0) (6.2)
Net acquisition payments and disposal proceeds (203.6) (58.0)
Share repurchases and buy-backs:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Purchase of own shares by ESOP Trusts (37.0) (43.2)
Shares purchased into treasury - (637.3)
(37.0) (680.5)
Proceeds from borrowings:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Proceeds from €750 million bonds 644.5 -
Draw down from revolving credit facility 400.0 -
Increase in drawings on bank loans - 247.2
1,044.5 247.2
Repayments of borrowings:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Repayment of bank loans - (11.3)
Repayment of revolving credit facility (400.0) -
Repayment of debt assumed on acquisition (69.8) -
Repayment of €250 million bonds - (209.3)
(469.8) (220.6)
(1) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior period excess
amounts were recorded as investing activities and have been re-presented as
operating activities.
(2) Proceeds on disposal of investments and subsidiaries includes return of
capital from investments in associates.
12. Cash and cash equivalents and debt financing
£ million 30 June 31 December 2022
2023
Cash at bank and in hand 1,682.8 2,271.6
Short-term bank deposits 279.8 219.9
Overdrafts(1) (447.5) (505.7)
Cash and cash equivalents 1,515.1 1,985.8
Bank loans, bonds and other due within one year (645.4) (663.3)
Bank loans, bonds and other due after one year (4,338.0) (3,801.8)
Adjusted net debt (3,468.3) (2,479.3)
The Group estimates that the fair value of corporate bonds is £4,565.0
million at 30 June 2023 (31 December 2022: £4,049.1 million). The Group
considers that the carrying amount of bank loans approximates their fair
value.
The following table is an analysis of future anticipated cash flows in
relation to the Group's debt, on an undiscounted basis which, therefore,
differs from the carrying value:
£ million 30 June 31 December 2022
2023
Within one year (779.7) (791.6)
Between one and two years (1,129.2) (724.3)
Between two and three years (99.1) (524.2)
Between three and four years (1,376.0) (740.3)
Between four and five years (711.6) (719.9)
Over five years (1,904.9) (1,963.7)
Debt financing (including interest) under the Revolving Credit Facility and in (6,000.5) (5,464.0)
relation to unsecured loan notes
Short-term overdrafts - within one year (447.5) (505.7)
Future anticipated cash flows (6,448.0) (5,969.7)
Effect of discounting/financing rates 1,017.1 998.9
Debt financing (5,430.9) (4,970.8)
Cash and short-term deposits 1,962.6 2,491.5
Adjusted net debt (3,468.3) (2,479.3)
13. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings decreased by £156.6 million
in the period. This movement primarily relates to the impact of currency
translation of £320.8 million and impairment charges of £52.9 million.
This is offset by the recognition of goodwill and fair value adjustments
arising from M&A activity in the current and prior year of
£217.1 million.
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 2023 or between 30 June 2023 and the date
the interim financial statements were approved.
(1) Bank overdrafts are included in cash and cash equivalents because they
form an integral part of the Group's cash management.
14. Trade and other receivables
Amounts falling due within one year:
£ million 30 June 31 December 2022
2023
Trade receivables (net of loss allowance) 6,167.8 7,403.9
Work in progress 292.7 352.4
VAT and sales taxes recoverable 425.5 448.1
Prepayments 305.7 236.6
Accrued income 3,193.4 3,468.3
Fair value of derivatives 2.4 5.1
Other debtors 670.6 585.3
11,058.1 12,499.7
Amounts falling due after more than one year:
£ million 30 June 31 December 2022
2023
Prepayments 2.2 3.9
Fair value of derivatives 15.3 0.6
Other debtors 139.3 214.1
156.8 218.6
The Group has applied the practical expedient permitted by IFRS 15 to not
disclose the transaction price allocated to performance obligations
unsatisfied (or partially unsatisfied) as of the end of the reporting period
as contracts typically have an original expected duration of a year or less.
Other debtors falling due after more than one year for 30 June 2023 includes
£16.0 million (31 December 2022: £15.4 million) in relation to pension
plans in surplus.
Impairment losses on work in progress, accrued income and other debtors were
immaterial for the periods presented.
The Group considers that the carrying amount of trade and other receivables
approximates their fair value.
A bad debt credit of £5.4 million (period ended 30 June 2022: expense of
£11.5 million) on the Group's trade receivables in the period is a result of
the decrease in expected credit losses since 31 December 2022. The loss
allowance is equivalent to 0.8% (31 December 2022: 1.0%) of gross trade
receivables.
15. Trade and other payables: amounts falling due within one year
£ million 30 June 31 December 2022
2023
Trade payables 9,351.1 11,182.3
Deferred income 1,310.5 1,599.0
Payments due to vendors (earnout agreements) 73.3 62.0
Liabilities in respect of put option agreements with vendors 14.9 18.8
Fair value of derivatives 40.2 58.0
Other creditors and accruals 2,365.8 2,914.8
13,155.8 15,834.9
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 2022
2023
Payments due to vendors (earnout agreements) 114.6 98.1
Liabilities in respect of put option agreements with vendors 305.9 323.3
Fair value of derivatives 12.6 -
Other creditors and accruals 84.3 69.5
517.4 490.9
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 2022
2023
Within one year 73.3 62.0
Between 1 and 2 years 37.8 19.5
Between 2 and 3 years 34.8 27.6
Between 3 and 4 years 28.8 28.6
Between 4 and 5 years 13.2 22.4
187.9 160.1
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 2023.
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 2023, revenue of £111.8 million (period ended
30 June 2022: £82.7 million) was reported in relation to Compas, an
associate in the USA, and revenue of £6.6 million (period ended 30 June
2022: £7.4 million) was reported in relation to Kantar. All other
transactions in the periods presented were immaterial.
The following amounts were outstanding at 30 June 2023:
£ million 30 June 31 December 2022
2023
Amounts owed by related parties
Kantar 24.7 26.1
Other 50.5 62.4
75.2 88.5
Amounts owed to related parties
Kantar (7.4) (10.5)
Other (55.2) (65.2)
(62.6) (75.7)
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 Group modelled a range of revenue less pass-through costs compared with
the year ended 31 December 2022 and a number of mitigating cost actions that
are available to the Group. Considering the Group's bank covenant and
liquidity headroom and cost mitigation actions which could be implemented,
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 18% in 2023 and up to 12% in
2024 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.
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 2023
Derivatives in designated hedge relationships
Derivative assets - 14.8 -
Derivative liabilities - (51.0) -
Held at fair value through profit or loss
Other investments 0.4 - 257.5
Derivative assets - 2.9 -
Derivative liabilities - (1.8) -
Payments due to vendors (earnout agreements) - - (187.9)
Liabilities in respect of put options - - (320.8)
Held at fair value through other comprehensive income
Other investments 7.2 - 67.8
Reconciliation of level 3 fair value measurements:
£ million Payments due to vendors (earnout agreements) Liabilities in respect of put options Other investments
1 January 2023 (160.1) (342.1) 358.5
Gains/(losses) recognised in the income statement 25.7 7.1 (24.7)
Gains recognised in other comprehensive income - - 0.1
Additions (66.7) (2.4) 1.8
Disposals - - (10.4)
Cancellations - 2.8 -
Settlements 12.4 1.8 -
Exchange adjustments 0.8 12.0 -
30 June 2023 (187.9) (320.8) 325.3
The fair values of financial assets and liabilities are based on quoted market
prices where available. Where the market value is not available, the Group has
estimated relevant fair values on the basis of available information from
outside sources. There have been no movements between level 3 and other
levels.
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 2023, the weighted average growth rate in estimating future
financial performance was 11.6%, which reflects the prevalence of recent
acquisitions in the faster growing markets and new media sectors. The weighted
average risk adjusted discount rate applied to these obligations at 30 June
2023 was approximately 7.4%.
19. Financial instruments (continued)
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 £8.6
million and £8.3 million, respectively. A 0.5 percentage point increase or
decrease in the risk adjusted discount rate would decrease or increase the
combined liabilities by approximately £6.3 million and £6.5 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.
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 information from outside sources using the most
appropriate valuation technique, including all external funding rounds,
revenue and EBITDA multiples, the share of fund net asset value and discounted
cash flows. The sensitivity to changes in unobservable inputs is specific to
each individual investment. A change to one or more of these unobservable
inputs to reflect a reasonably possible alternative assumption would not
result in a significant change to the fair value.
Principal risks and uncertainties
The Board regularly reviews the principal and emerging risks and uncertainties
affecting the Group and these are summarised below:
Strategic and External Risks
Economic Risk
• Adverse economic conditions, including those caused by the Ukrainian
conflict, severe and sustained inflation in key markets where the Group
operates, supply chain issues affecting the distribution of clients' products
and/or disruption in credit markets, pose a risk the Group's clients may
reduce or cancel spend, or be unable to satisfy obligations.
Geopolitical Risk
• Growing geopolitical tension and conflicts continue to have a
destabilising effect in markets where the Group has operations. This rise in
geopolitical activity continues to have an adverse effect upon the economic
outlook, the general erosion of trust and an increasing trend of national
ideology and regional convergence over global cooperation and integration.
Such factors and economic conditions may reflect in clients' confidence in
making longer term investments and commitments in marketing spend.
Pandemic
• The impact of a pandemic on our business will depend on factors that
we are not able to accurately predict, including the duration and scope of a
pandemic, any existing or new variants, government actions to mitigate the
effects of a pandemic and the continuing and long term impact of a pandemic on
our clients' spending plans.
Strategic Plan
• The failure to successfully complete the strategic plan updated in
December 2020 - to simplify the Group structure, continue to introduce market
leading products and services, identify cost savings and successfully
integrate acquisitions - may have a material adverse effect on the Group's
market share and its business revenues, results of operation, financial
condition, or prospects.
IT Transformation
• The IT Transformation programme prioritises the most critical
changes necessary to support the Group's Strategic Plan whilst maintaining the
operational performance and security of core Group systems. The Group is also
reliant on third parties for the performance of a significant portion of our
worldwide information technology and operations functions. A failure to
provide these functions could have an adverse effect on our business.
Operational Risks
Client Loss
• The Group competes for clients in a highly competitive industry
which has been evolving and undergoing structural change. Client net loss to
competitors or as a consequence of client consolidation, insolvency or a
reduction in marketing budgets due to a geopolitical change or shift in client
spending would have a material adverse effect on our market share, business,
revenues, results of operations, financial condition and prospects.
Client Concentration
• 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.
Reputation
• The Group is subject to increased reputational risk associated with
working on client briefs perceived to be environmentally detrimental and/or
misrepresenting environmental claims.
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 has in the past and may in the future experience a cyber
attack that leads to harm or disruption to our operations, systems or
services. Such an attack may also affect suppliers and partners through the
unauthorised access, manipulation, corruption or the destruction of data.
Credit risk
• We are subject to credit risk through the default of a client or other
counterparty.
• Challenging economic conditions, heightened geopolitical issues,
shocks to consumer confidence, disruption in credit markets and challenges in
the supply chain disrupting our client operations can lead to a worsening of
the financial strength and outlook for our clients who may reduce, suspend or
cancel spend with us, request extended payment terms beyond 60 days or be
unable to satisfy obligations.
Internal Controls
• The Group's performance could be adversely impacted if we failed to
ensure adequate internal control procedures are in place.
• The Group has previously identified material weaknesses in internal
control over financial reporting and a failure to properly remediate these or
any new material weaknesses could adversely affect our results of operations,
investor confidence in the Group and the market price of our ADSs and ordinary
shares.
Compliance Risks
Data Privacy
• 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.
Environment Regulation and Reporting
• The Group could be subject to increased costs to comply with potential
future changes in environmental law and regulations and increasing carbon
offset pricing to meet net zero commitments.
Regulatory, Sanctions, Anti-Trust and Taxation
• The Group may be subject to regulations restricting its activities or
effecting changes in taxation.
• 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, the EU and
other jurisdictions that impose sanctions and regulate the supply of services
to certain countries. The Ukraine conflict 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. Failure to comply which these laws could expose the Group
to civil and criminal penalties.
Emerging Risks
• The Group's operations could be disrupted by an increased frequency of
extreme weather and climate related natural disasters.
• A failure to manage the complexity in carbon emission accounting for
marketing & media or to consider scope 3 emissions in new technology and
business model innovation across the supply chain could have an adverse effect
on our business and reputation.
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 Company'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.
These forward-looking statements may include, among other things, plans,
objectives, beliefs, intentions, strategies, projections and anticipated
future economic performance based on assumptions and the like that are subject
to risks and uncertainties. These statements can be identified by the fact
that they do not relate strictly to historical or current facts. They use
words such as 'aim', 'anticipate', 'believe', 'estimate', 'expect',
'forecast', 'guidance', 'intend', 'may', 'will', 'should', 'potential',
'possible', 'predict', 'project', 'plan', 'target', and other words and
similar references to future periods but are not the exclusive means of
identifying such statements. As such, all forward-looking statements involve
risk and uncertainty because they relate to future events and circumstances
that are beyond the control of the Company. Actual results or outcomes may
differ materially from those discussed or implied in the forward-looking
statements. Therefore, you should not rely on such forward-looking statements,
which speak only as of the date they are made, as a prediction of actual
results or otherwise. Important factors which may cause actual results to
differ include but are not limited to: the impact of epidemics or pandemics
including restrictions on businesses, social activities and travel; 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; changes in competitive factors in
the industries in which we operate and demand for our products and services;
changes in client advertising, marketing and corporate communications
requirements; our inability to realise the future anticipated benefits of
acquisitions; failure to realise our assumptions regarding goodwill and
indefinite lived intangible assets; natural disasters or acts of terrorism;
the Company's ability to attract new clients; the economic and geopolitical
impact of the Russian invasion of Ukraine; the risk of global economic
downturn; slower growth, increasing interest rates and high and sustained
inflation; supply chain issues affecting the distribution of our clients'
products; technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting from
increased threat of cyber and other attacks; effectively managing the risks,
challenges and efficiencies presented by using Artificial Intelligence (AI)
technologies and partnerships in our business; 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 in
Item 3D, captioned 'Risk Factors' in the Group's Annual Report on Form 20-F
for 2022, which could also cause actual results to differ from forward-looking
information. Neither the Company, nor any of its directors, officers or
employees, provides any representation, assurance or guarantee that the
occurrence of any events anticipated, expressed or implied in any
forward-looking statements will actually occur. 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.
Other than in accordance with its legal or regulatory obligations (including
under the Market Abuse Regulation, the UK Listing Rules and the Disclosure and
Transparency Rules of the Financial Conduct Authority), The Company undertakes
no obligation to update or revise any such forward-looking statements, whether
as a result of new information, future events or otherwise.
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 at the time.
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 Wilson
Chief Financial Officer
4 August 2023
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 2023 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 2023 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 (ISRE (UK) 2410). 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) 2410; 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
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion 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 ISRE (UK) 2410.
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
4 August 2023
Appendix 2: Alternative performance measures for the six months ended 30 June
2023
The Group presents alternative performance measures, including headline
operating profit, headline operating profit margin, headline profit before
interest and tax, headline profit before tax, headline earnings, headline EPS,
headline EBITDA, revenue less pass-through costs, adjusted net debt and
adjusted free cash flow. 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 measures, 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 Six months ended
30 June 2023 30 June 2022
Revenue 7,221.2 6,755.3
Media pass-through costs (1,022.8) (1,016.7)
Other pass-through costs (387.2) (229.1)
Revenue less pass-through costs 5,811.2 5,509.5
Pass-through costs comprise fees paid to external suppliers when they are
engaged to perform part or all of a specific project and are charged directly
to clients. This includes the cost of media where the Group is buying digital
media for its own account on a transparent opt-in basis and, as a result, the
subsequent media pass-through costs have to be accounted for as revenue, as
well as billings. Therefore, management considers that revenue less
pass-through costs gives a helpful reflection of top-line growth.
Reconciliation of profit before taxation to headline operating profit:
Margin Six months ended Margin Six months ended
£ million % 30 June 2023 % 30 June 2022
Profit before taxation 204.3 418.6
Finance and investment income (102.4) (55.5)
Finance costs 230.7 144.9
Revaluation and retranslation of financial instruments (25.5) (33.1)
Profit before interest and taxation 307.1 474.9
(Earnings)/loss from associates - after interest and tax (1.0) 63.8
Operating profit 5.3 306.1 9.8 538.7
Goodwill impairment 52.9 -
Amortisation and impairment of acquired intangible assets 36.6 31.5
Investment and other impairment charges 11.0 -
Restructuring and transformation costs 86.8 81.2
Property related costs 180.0 -
Losses on disposal of investments and subsidiaries 2.9 48.1
Gains on remeasurement of equity interests arising from a change in scope of - (60.4)
ownership
Litigation settlement (10.0) -
Headline operating profit 11.5 666.3 11.6 639.1
Finance and investment income 102.4 55.5
Finance costs (excluding interest expense related to lease liabilities) (180.2) (98.9)
(77.8) (43.4)
Interest cover(1) on headline operating profit 8.6 times 14.7 times
Headline operating profit and headline operating margin are metrics that
management use to assess the performance of the business.
Headline operating profit margin before and after share of results of
associates:
£ million Margin Six months ended Margin Six months ended
% 30 June 2023 % 30 June 2022
Revenue less pass-through costs 5,811.2 5,509.5
Headline operating profit 11.5 666.3 11.6 639.1
Earnings from associates (after interest and tax, excluding adjusting items) 7.6 12.3
Headline PBIT 11.6 673.9 11.8 651.4
Headline PBIT 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.
Calculation of headline EBITDA:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Headline PBIT 673.9 651.4
Depreciation of property, plant and equipment 83.7 79.9
Amortisation of other intangible assets 9.0 13.6
Headline EBITDA (including depreciation of right-of-use assets) 766.6 744.9
Depreciation of right-of-use assets 129.3 129.9
Headline EBITDA 895.9 874.8
Headline EBITDA is used 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 Six months ended
30 June 2023 30 June 2022
Profit before taxation 204.3 418.6
Goodwill impairment 52.9 -
Amortisation and impairment of acquired intangible assets 36.6 31.5
Investment and other impairment charges 11.0 -
Restructuring and transformation costs 86.8 81.2
Property related costs 180.0 -
Losses on disposal of investments and subsidiaries 2.9 48.1
Gains on remeasurement of equity interests arising from a change in scope of - (60.4)
ownership
Litigation settlement (10.0) -
Share of adjusting items of associates 6.6 76.1
Revaluation and retranslation of financial instruments (25.5) (33.1)
Headline PBT 545.6 562.0
Headline tax charge (147.5) (143.1)
Headline non-controlling interests (37.3) (43.2)
Headline earnings 360.8 375.7
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 Six months ended
30 June 2023 30 June 2022
Headline PBT 545.6 562.0
Tax charge 55.0 117.5
Tax charge relating to gains on disposal of investments and subsidiaries - (3.2)
Tax credit relating to restructuring and transformation costs and property 88.9 26.6
related costs
Tax charge relating to litigation settlement (3.2) -
Deferred tax impact of the amortisation of acquired intangible assets and 11.0 2.2
other goodwill items
Deferred tax relating to gains and losses on disposal of investments and (4.2) -
subsidiaries
Headline tax charge 147.5 143.1
Headline tax rate 27.0% 25.5%
The headline tax rate as a percentage of headline PBT (that includes the share
of headline results of associates) is 27.0% (2022: 25.5%). Given the Group's
geographic mix of profits and the changing international tax environment, the
headline tax rate is expected to increase slightly over the next few years.
Headline earnings per share:
The calculation of basic headline EPS is as follows:
Six months ended Six months ended
30 June 2023 30 June 2022
Headline earnings (£ million) 360.8 375.7
Weighted average shares used in basic EPS calculation (million) 1,071.2 1,115.2
Headline EPS 33.7p 33.7p
The calculation of diluted headline EPS is as follows:
Six months ended Six months ended
30 June 2023 30 June 2022
Diluted headline earnings (£ million) 360.8 375.7
Weighted average shares used in diluted EPS calculation (million) 1,090.8 1,137.8
Diluted headline EPS 33.1p 33.0p
Reconciliation of adjusted free cash flow:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Cash used in operations (197.7) (885.6)
Plus:
Interest received 108.5 26.9
Investment income received 3.4 20.1
Dividends from associates 18.9 21.4
Share option proceeds 0.7 1.1
Less:
Earnout payments (12.4) (63.3)
Corporation and overseas tax paid (171.3) (162.7)
Interest and similar charges paid (155.9) (86.8)
Interest paid on lease liabilities (48.8) (44.1)
Repayment of lease liabilities (135.1) (146.3)
Purchase of property, plant and equipment (80.7) (102.4)
Purchases of other intangible assets (including capitalised computer software) (23.1) (14.6)
Dividends paid to non-controlling interests in subsidiary undertakings (61.2) (37.2)
Adjusted free cash flow (754.7) (1,473.5)
The Group bases its internal cash flow objectives on adjusted free cash flow.
Management believes adjusted 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 adjusted 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.
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.
Presentation of adjusted net debt:
£ million 30 June 31 December 2022 30 June
2023 2022
Cash and short-term deposits 1,962.6 2,491.5 1,775.0
Bank overdrafts, bonds and bank loans due within one year (1,092.9) (1,169.0) (289.1)
Bonds and bank loans due after one year (4,338.0) (3,801.8) (4,620.7)
Adjusted net debt (3,468.3) (2,479.3) (3,134.8)
Average adjusted net debt is calculated as the average monthly net borrowings
of the Group. Adjusted net debt excludes lease liabilities.
Future restructuring and transformation costs
Restructuring and transformation costs are expected from 2023 to 2025, with
approximately £250 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 £100 million and £150 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 50.
Reconciliation of reported revenue to like-for-like revenue:
£ million
Revenue
Six months ended 30 June 2022 reported 6,755.3
Impact of exchange rate changes 168.7 2.5%
Impact of acquisitions and disposals 60.8 0.9%
Like-for-like growth 236.4 3.5%
Six months ended 30 June 2023 reported 7,221.2 6.9%
Reconciliation of reported revenue less pass-through costs to like-for-like
revenue less pass-through costs:
£ million
Revenue less pass-through costs
Six months ended 30 June 2022 reported 5,509.5
Impact of exchange rate changes 142.6 2.6%
Impact of acquisitions and disposals 49.4 0.9%
Like-for-like growth 109.7 2.0%
Six months ended 30 June 2023 reported 5,811.2 5.5%
Earnings/(loss) from associates - after interest and tax
Management reviews the 'earnings/(loss) from associates - after interest and
tax' by assessing the underlying component movements including 'share of
profit before interest and taxation of associates', 'share of adjusting items
of associates', 'share of interest and non-controlling interests of
associates', and 'share of taxation of associates', which are derived from the
Income Statements of the associate undertakings.
The following table is an analysis of 'earnings/(loss) from associates - after
interest and tax' and underlying component movements:
£ million Six months ended Six months ended
30 June 2023 30 June 2022
Share of profit before interest and taxation 65.9 93.3
Share of adjusting items of associates (6.6) (76.1)
Share of interest and non-controlling interests (55.1) (58.9)
Share of taxation (3.2) (22.1)
Earnings/(loss) from associates - after interest and tax 1.0 (63.8)
Share of adjusting items of associates of £6.6 million (2022: £76.1
million). In 2022, this included £46.7 million of amortisation and impairment
of acquired intangible assets, and £24.8 million of restructuring and one-off
transaction costs within Kantar.
Trade working capital
Trade working capital is a metric that is directly associated with everyday
business operations and used by management to assess the ability of the Group
to meet the short-term obligations.
£ million 30 June 31 December 2022 30 June
2023 2022
Trade receivables 6,167.8 7,403.9 6,491.7
Accrued income 3,193.4 3,468.3 3,516.4
Work in progress 292.7 352.4 343.8
Trade payables (9,351.1) (11,182.3) (9,674.4)
Deferred income (1,310.5) (1,599.0) (1,457.2)
Trade working capital (1,007.7) (1,556.7) (779.7)
Appendix 3: Re-presented segmental analysis for the year ended 31 December
2022
During 2023, the Group re-presented prior year figures to reflect the
reallocation of a number of businesses between Global Integrated Agencies and
Public Relations. For information purposes, the re-presented reported
contributions by operating sector for the year ended 31 December 2022 are
presented below:
£ million Year ended 31 December 2022
Revenue
Global Integrated Agencies 12,186.8
Public Relations 1,232.5
Specialist Agencies 1,009.4
14,428.7
Revenue less pass-through costs(1)
Global Integrated Agencies 9,738.6
Public Relations 1,161.2
Specialist Agencies 899.5
11,799.3
Headline operating profit(2)
Global Integrated Agencies 1,431.3
Public Relations 191.9
Specialist Agencies 118.6
1,741.8
(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
Adjusted free cash flow
Adjusted free cash flow is calculated as cash used in operations plus
dividends received from associates, interest received, investment income
received, and share option proceeds, 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.
Adjusting items
Adjusting items include gains/losses on disposal of investments and
subsidiaries, gains/losses on remeasurement of equity interests arising from
change in scope of ownership, investment and other charges/reversals,
litigation settlement, restructuring and transformation costs, property
related costs, goodwill impairment, amortisation and impairment of acquired
intangible assets, intangible asset impairment, property related costs and
share of adjusting items of associates.
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 2023 exchange rates to
local currency reported results for the current and prior year, which excludes
any variances attributable to foreign exchange rate movements.
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 charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, amortisation of other intangibles, depreciation of property, plant
and equipment, depreciation of right-of-use assets, restructuring and
transformation costs, property related costs, litigation settlement, share of
adjusting items 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 charges/(reversals), goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, property related costs,
litigation settlement, and gains/losses on remeasurement of equity interests
arising from a change in scope of ownership.
Headline PBIT
Profit before finance income/costs and revaluation and retranslation of
financial instruments, taxation, gains/losses on disposal of investments and
subsidiaries, investment and other charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, property related costs,
litigation settlement, share of adjusting items 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
(defined above) 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 charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, property related costs,
litigation settlement, share of adjusting items 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, investment and other charges/reversals, goodwill
impairment, restructuring and transformation costs, property related costs,
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, and the
reclassification of certain businesses to associates in 2022. 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.
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