WPP Quarterly Trading Update

  WPPQuarterly Trading Update

  *Reported revenues in sterling up almost 6% at £2.532 billion
  *Reported revenues in dollars up over 4% at $3.917 billion and in euros up
    3.6% at €2.970 billion
  *Constant currency revenues up over 5%
  *Like-for-like revenues up over 2%
  *First quarter profits and operating margin above budget and well ahead of
    last year

Business Wire

NEW YORK & LONDON -- April 26, 2013

WPP (NASDAQ: WPPGY) today reported its 2013 First Quarter Trading Update.

Quarter 1 highlights

  *Revenue growth of 5.9%, with like-for-like growth of 2.1%, 3.0% growth
    from acquisitions and 0.8% from currency, reflecting a weaker £ sterling.
    Quarter one of 2013 showed a similar pattern to the final quarter of 2012
    with strong like-for-like growth in Asia Pacific, Latin America, Africa
    and the Middle East and Central and Eastern Europe and advertising and
    media investment management and sub-sector direct, digital and interactive
  *Constant currency growth in all regions and business sectors, except
    public relations and public affairs,  characterised by particularly strong
    growth geographically in the United Kingdom and Asia Pacific, Latin
    America and Africa and Central and Eastern Europe and functionally in
    advertising and media investment management and sub-sector direct, digital
    and interactive
  *Like-for-like gross margin^1 growth of 1.9%, slightly lower than revenues
    as the scale of digital activities increased
  *The number of people in the business continues to be managed effectively,
    falling 0.4%, like-for-like, since 1 January 2013 and by 0.5% on average
    in the first quarter, whilst revenues rose 2.1%
  *Average net debt increased by £331m (-12%) to £3.015 billion reflecting
    not only significant acquisition payments last year, (chiefly AKQA),
    partly offset by an improvement in the underlying relative working capital
    position since the 2012 year end
  *Net new business of $1.504 billion in the first quarter, compared to
    $1.855 billion in the first quarter last year and in line with the
    quarterly average in 2012 of approximately $1.5 billion. A number of very
    significant new business decisions are awaited

Current trading and outlook

  *FY 2013 quarter 1 preliminary revised forecasts | Ahead of budget, with
    like-for-like revenue and gross margin growth above budget and a headline
    operating margin target of 15.3% up 0.5 margin points

  *Dual focus in 2013 | 1. Revenue growth from leading position in faster
    growing geographic markets and digital, premier parent company creative
    position, new business, “horizontality” and strategically targeted
    acquisitions; 2. Continued emphasis on balancing revenue growth with
    headcount increases and improvement in staff costs/revenue ratio to
    enhance operating margins
  *Long-term targets reaffirmed | Above industry revenue growth due to
    geographically superior position in new markets and functional strength in
    new media and consumer insight, including data analytics and application
    of new technology; improvement in staff costs/revenue ratio of 0.3  to 0.6
    margin points p.a. depending on revenue and gross margin growth; operating
    margin expansion of 0.5  margin points or more; and PBIT growth of 10% to
    15% p.a. from organic growth, margin expansion and strategically targeted
    small and medium-sized acquisitions

^1 Gross margin is revenue less direct costs

Review of quarter one

Revenues

As shown in the table below, in the first quarter of 2013, reported revenues
were up 5.9% at £2.532 billion. Revenues in constant currency were up 5.1%,
reflecting the slight weakness of the pound sterling against the US dollar and
the Euro. On a like-for-like basis, excluding the impact of acquisitions and
currency fluctuations, revenues were up 2.1% with gross margin up 1.9%
compared with the same period last year, as the scale of digital activities
increased.

The pattern of revenue growth in 2013 has started similarly to the final
quarter of 2012, with constant currency growth showing continuing improvement
across all sectors, except public relations and public affairs and across all
geographies. On a like-for-like basis, advertising and media investment
management and branding & identity, healthcare and specialist communications
(including direct, digital and interactive), as in the final quarter of 2012,
were the strongest by sector, with consumer insight also improving. Our
budgets for 2013 indicated like-for-like growth of around 3% over last year.
For the first three months actual performance was well ahead of the
projections for quarter one. A preliminary look at our quarter one revised
forecasts for the full year indicates revenue growth ahead of budget, with a
stronger second half than previously, partly reflecting easier comparatives
with the second half of 2012. The mature markets of the United States and
Western Continental Europe slowed in 2012, although the United Kingdom,
against market trends, grew strongly. This pattern has continued into the
first quarter of 2013 and as indicated in the budgets for this year, the
faster growing markets of Asia Pacific, Latin America, Africa and the Middle
East and Central and Eastern Europe were strongest in the first quarter,
followed by the United Kingdom.

Regional review

The pattern of revenue growth differed regionally. The table below gives
details of revenue and revenue growth by region for the first quarter of 2013,
as well as the proportion of Group revenues by region;

Revenue analysis

£         2013   ∆         ∆           ∆      %       2012   %      
million             reported   constant^2   LFL^3   group            group
N.        886    2.5%      0.9%        -1.0%  35.0%   864    36.1%  
America
United    318    11.9%     11.9%       3.7%*  12.5%   284    11.9%  
Kingdom
W. Cont   592    5.1%      2.7%        -0.8%  23.4%   563    23.5%  
Europe
AP, LA,
AME,      736    8.1%      9.7%        7.8%   29.1%   681    28.5%  
CEE^4
Total     2,532  5.9%      5.1%        2.1%*  100.0%  2,392  100.0% 
Group
                                                                              

* Like-for-like gross margin growth of 4.9% in the UK and 1.9% for the Group

^2  Percentage change at constant currency exchange rates
^3   Like-for-like growth at constant currency exchange rates and excluding
     the effects of acquisitions and disposals
^4   Asia Pacific, Latin America, Africa & Middle East and Central & Eastern
     Europe
     

North America, with constant currency growth of 0.9% and like-for-like growth
of -1.0% was slower than the last quarter of 2012, with the custom and project
parts of the Group’s consumer insight, public relations and public affairs and
branding & identity, healthcare and specialist communications businesses most
affected.

The United Kingdom, continuing to “buck” market trends showed further strong
growth in the first quarter with constant currency revenues up 11.9% and
like-for-like revenues up 3.7%, well ahead of budget, with strong growth in
advertising and media investment management and sub-sector direct, digital and
interactive, partly offset by pressure on consumer insight, and sub-sector
branding & identity and healthcare communications. Gross margin like-for-like
growth was even stronger at 4.9%.

Western Continental Europe, although currently very challenged, as recent
industry quarter one company results have already indicated, showed relative
stability in the first quarter, with constant currency revenues up 2.7% and
like-for-like revenues down only 0.8%, compared with -2.1% in quarter three
and -0.7% in quarter four of last year. Finland, Germany, Italy, Switzerland
and Turkey grew but Belgium, Denmark, France, Portugal and Spain were tougher,
with the continuing effects of the Eurozone crisis still impacting many parts
of Western Continental Europe.

In Asia Pacific, Latin America, Africa & the Middle East and Central and
Eastern Europe, revenue growth was strongest, as it was during the whole of
2012, with constant currency revenues up 9.7% and like-for-like revenues up
7.8%, principally driven by Latin America and the BRICs^5 and Next 11^6 parts
of Asia Pacific and the CIVETS^7 and the MIST^8.

^5  Brazil, Russia, India and China (accounting for over $520 million
     revenues, including associates, in the first quarter)
     Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria, Pakistan,
^6   Philippines, Vietnam and Turkey (the Group has no operations in Iran,
     accounting for over $170 million revenues, including associates, in the
     first quarter)
     Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (accounting
^7   for over $200 million revenues, including associates, in the first
     quarter)
^8   Mexico, Indonesia, South Korea and Turkey, (accounting for over $130
     million revenues, including associates, in the first quarter)
     

Latin America showed the strongest growth of all of our sub-regions in the
first quarter, with constant currency revenues up 14.1% and like-for-like
revenues up 12.5%. The Middle East, improved in the first quarter with
like-for-like growth over 4%. In Central and Eastern Europe, like-for-like
revenues were up 0.5%, with Russia and Kazakhstan up strongly, but Poland,
Slovakia, Romania and the Ukraine more challenging. Growth in the BRICs, was
over 10%, on a like-for-like basis, with Next 11 and CIVETS up over 11% and
over 15% respectively on the same basis. The MIST was up over 11%.

In the first quarter of 2013, the seasonally smallest quarter for faster
growth markets, 29.1% of the Group’s revenues came from Asia Pacific, Latin
America, Africa and the Middle East and Central and Eastern Europe – 0.6
percentage points more compared with the previous year and against the Group’s
strategic objective of 35-40% in the next three to four years.

Business sector review

The pattern of revenue growth also varied by communications services sector
and operating brand. The table below gives details of revenue, revenue growth
by communications services sector as well as the proportion of Group revenues
by those sectors;

Revenue analysis

£          2013   ∆         ∆           ∆       %       2012   %      
million              reported   constant^9   LFL^10   group            group
AMIM^11    1,032  6.0%      5.4%        3.9%    40.8%   973    40.7%  
Consumer   588    3.2%      2.5%        1.0%*   23.2%   569    23.8%  
Insight
PR &       221    -1.4%     -2.7%       -4.1%   8.7%    225    9.4%   
PA^12
BI, HC &   691    10.6%     10.0%       2.4%    27.3%   625    26.1%  
SC^13
Total      2,532  5.9%      5.1%        2.1%*   100.0%  2,392  100.0% 
Group
                                                                                

* Like-for-like gross margin growth of 0.9% in Consumer Insight and 1.9% for
the Group

^9   Percentage change at constant currency exchange rates
^10   Like-for-like growth at constant currency exchange rates and excluding
      the effects of acquisitions and disposals
^11   Advertising, Media Investment Management
^12   Public Relations & Public Affairs
^13   Branding and Identity, Healthcare and Specialist Communications
      

In the first quarter of 2013, over one-third or almost 34% of the Group’s
revenues came from direct, digital and interactive, up 3.1 percentage points
from the previous year. Digital revenues across the Group were up 15.8% in
constant currency and 7.5% like-for-like.

Advertising and Media Investment Management

In constant currencies, advertising and media investment management revenues
grew by 5.4% with like-for-like growth of 3.9%, the strongest performing
sector. Of the Group’s advertising networks, Y&R and Grey in particular, had a
strong start to the year, especially in the United States and both still await
significant new business decisions, even after yesterday’s significant win.
Growth in the Group’s media investment management businesses was consistently
strong throughout 2012 and this has continued into the first quarter of 2013,
with constant currency revenues up 8.5% for the first quarter and
like-for-like growth up 7.4%.

The Group gained a total of £940 million ($1.504 billion) in net new business
wins (including all losses) in the first quarter, compared to £1.159 billion
($1.855 billion) in the same period last year and in line with the quarterly
average in 2012 of approximately $1.5 billion. Of this, JWT, Ogilvy & Mather,
Y&R, Grey and United generated net new business billings of £281 million ($449
million). Also, out of the Group total, GroupM, the Group’s media investment
management company, which includes Mindshare, MEC, MediaCom, Maxus, GroupM
Search and Xaxis, together with tenthavenue, generated net new business
billings of £465 million ($743 million).

Consumer Insight

On a constant currency basis, consumer insight revenues grew 2.5%, with
like-for-like revenues up 1.0% and gross margin up 0.9%, a significant
improvement on the last quarter of 2012. All regions except the United Kingdom
and Western Continental Europe grew in the first quarter, with particularly
strong growth in the faster growing sub-regions Asia Pacific, Latin America
and Africa and the Middle East. Pleasingly, like-for-like revenues in North
America showed growth in the quarter, the first time for a considerable
period.

Public Relations and Public Affairs

In constant currencies, public relations and public affairs revenues were down
2.7% and down 4.1% like-for-like. North America, Western Continental Europe
and Asia Pacific were particularly difficult. The United Kingdom and Latin
America were stronger.

Branding and Identity, Healthcare and Specialist Communications

At the Group’s branding and identity, healthcare and specialist communications
businesses (including direct, digital and interactive) constant currency
revenues grew strongly at 10.0% with like-for-like growth of 2.4%. All of the
Group’s businesses in this sector, except branding & identity, performed well
in the first quarter.

Operating profitability

In the first quarter, profits and operating margins were ahead of budget and
well ahead of last year, in line with a full year margin target improvement of
0.5 margin points. Incentives and severance costs in the first quarter were
similar to the first quarter of 2012.

We are in the process of reviewing our quarter one preliminary revised
forecasts, but early indications are that full year like-for-like revenue
growth will be above budget, with a stronger second half.

The number of people in the Group, on a proforma basis excluding associates,
was down 0.3% or 300 at 31 March 2013 to 115,832, as compared to 31 March
2012, against an increase in revenues on the same basis of 2.4%. Similarly,
the average number of people in the Group in the first quarter of this year
was down 0.5% to 115,641 compared to 116,242 for the same period last year.
Since the beginning of this year, on a like-for-like basis, the number of
people in the Group has fallen by 0.4% or 405 at 31 March 2013 to 115,832,
which was a lower figure than budget, reflecting continued caution by the
Group’s operating companies in hiring. As noted above, the preliminary quarter
one revised forecast indicates an improvement in revenues over budget, whilst
forecast headcount at the end of the year remains well balanced.

Balance sheet highlights

The Group continues to implement its strategy of using free cash flow to
enhance share owner value through a combination of capital expenditure,
acquisitions, share repurchases and dividend increases. In the twelve months
to 31 March 2013, the Group’s free cash flow was over £1.4 billion (almost
$2.3 billion). Over the same period, the Group’s capital expenditure,
acquisitions, share repurchases and dividends was also £1.4 billion.

During the quarter, 4.6 million shares, or 0.4% of the issued share capital
were purchased at an average price of £10.63, with 1.7 million shares being
held as Treasury stock and 2.9 million shares held by the ESOP Trusts.

Average net debt in the first quarter of 2013 was £3.015 billion, compared to
£2.684 billion in 2012, at 2013 exchange rates. This represents an increase of
£331 million and reflects the timing of significant recent acquisition
payments, particularly AKQA, partly offset by a recent relative improvement in
levels of working capital, following the deterioration towards the end of last
year. Net debt at 31 March 2013 was £3.331 billion, compared to £2.862 billion
in 2012 (at 2013 exchange rates), an increase of £469 million, reflecting
increased spend on acquisitions and higher dividends partly offset by the
relative improvement in working capital in the first quarter. The current
quarterly average net debt figure of £3.015 billion compares with a market
capitalisation of approximately £13.6 billion, giving an enterprise value of
£16.6 billion.

Having largely achieved the target of a dividend pay-out of 40%, your Board
will give consideration to the merits of increasing the dividend pay-out
target ratio from its current level of approximately 40% to either 45% or 50%.

Acquisitions

In line with the Group’s strategic focus on new markets, new media and
consumer insight the Group completed 13 transactions in the first quarter; 9
acquisitions and investments were classified in new markets (of which 8 were
in new media), 2 in consumer insight, including data analytics and the
application of technology, with the balance of 2 driven by individual client
or agency needs.

Specifically, in the first quarter of 2013, acquisitions and increased equity
stakes have been completed in advertising and media investment management in
Canada, Colombia, Hong Kong, Indonesia, Myanmar, Philippines and Thailand; in
consumer insight in the United States and Myanmar; in public relations and
public affairs in China; in direct, digital and interactive in the United
States, the United Kingdom, South Africa, Turkey, Argentina, Brazil, Colombia,
Uruguay and Australia.

Outlook

Macroeconomic and industry context

Following the Group’s record year in 2012, 2013 has started similarly to the
final quarter of 2012, with all geographies and sectors, except public
relations and public affairs, growing revenues on a constant currency basis.
Like-for-like revenues were up 2.1% compared with 2.5% in the fourth quarter
of last year and against the strongest quarter of last year. Our operating
companies are still hiring cautiously and responding to any geographic,
functional and client changes in revenues – positive or negative. Operating
profit is above budget and well ahead of last year and the increase in margin
is in line with the Group’s full year margin target of a 0.5 margin point
improvement.

Concerns globally about the grey swans including the Eurozone crisis, the
Middle East, a Chinese or BRICs hard or soft landing and, perhaps, most
importantly, dealing with the US deficit and a record $16 trillion of debt,
continue to make clients reluctant to take further risks, despite stronger
balances sheets. Clients remain focussed on a strategy of adding capacity and
brand building in both fast growth geographic markets and functional markets
like media and digital.

The pattern of 2013 looks similar to 2012 and equally demanding, perhaps with
slightly increased client confidence balancing the lack of maxi- or
mini-quadrennial events. Forecasts of worldwide real GDP growth still hover
around 3%, with inflation of 2% giving nominal GDP growth of 5%. Advertising
as a proportion of GDP should at least remain constant overall, although it is
still at relatively depressed historical levels, particularly in mature
markets, post-Lehman and advertising should, as a result, grow at least at a
similar rate to nominal GDP. The three maxi-quadrennial events of 2012, the
UEFA Football Championships in Central and Eastern Europe, the Summer Olympics
and Paralympics in London and last, but not least, the US Presidential
Elections in November did underpin industry growth but not, perhaps, as much
as was thought, with client money being switched from existing budgets,
particularly in the cases of the UEFA Championships and Olympics. Both
consumers and corporates are likely to remain cautious and risk averse, but
corporates should continue to invest in capacity and brands in fast growth
markets, and in slow growth markets invest in brands to maintain market share,
as they squeeze capacity.

2014 looks a better prospect, however, with the World Cup in Brazil, the
Winter Olympics in Sochi and, would you believe, another United States
election - the mid-term Congressionals. The first two events will continue to
reposition Brazil and Latin America and Russia and Central and Eastern Europe
in the world’s mind, just like the Beijing Olympics did for China and Asia and
the World Cup did for South Africa and the continent of Africa - and,
possibly, London 2012 did for the UK.

Financial guidance

The budgets for 2013 have been prepared on a somewhat more conservative basis
than usual (hopefully) following the slowing like-for-like revenue growth rate
in the middle two quarters of 2012, but continue to reflect the faster growing
geographical markets of Asia Pacific, Latin America, Africa and the Middle
East and Central and Eastern Europe and faster growing functional sectors and
sub-sectors of advertising, media investment management and direct, digital
and interactive to some extent moderated by the slower growth in the mature
markets of the United States and Western Continental Europe. Whilst our
quarter one preliminary revised forecasts are up on budget our targets remain
the following;

  *Like-for-like revenue and gross margin growth of around 3%
  *Target operating margin improvement of 0.5 margin points

In 2013, our prime focus will remain on growing revenues and gross margin
faster than the industry average, driven by our leading position in the new
markets, in new media, in consumer insight, including data analytics and the
application of technology, creativity and “horizontality”. At the same time,
we will concentrate on meeting our operating margin objectives by managing
absolute levels of costs and increasing our flexibility, in order to adapt our
cost structure to significant market changes and ensuring that the benefits of
the restructuring investments taken in 2012 are realised. The initiatives
taken by the parent company in the areas of human resources, property,
procurement, information technology and practice development continue to
improve the flexibility of the Group’s cost base. Flexible staff costs
(including incentives, freelance and consultants) remain close to historical
highs of around 7% of revenues and continue to position the Group extremely
well should current market conditions change for the worse.

The Group continues to improve co-operation and co-ordination among its
operating companies in order to add value to our clients’ businesses and our
people’s careers, an objective which has been specifically built into
short-term incentive plans. “Horizontality” has been accelerated through the
appointment of over 30 global client leaders for our major clients, accounting
for about one third of total revenues of $17 billion and country managers in a
growing number of test markets and regions. Emphasis has been laid on the
areas of media investment management, healthcare, sustainability, government,
new technologies, new markets, retailing, shopper marketing, internal
communications, financial services and media and entertainment. The Group
continues to lead the industry, in co-ordinating investment geographically and
functionally through parent company initiatives and winning Group pitches. For
example, the Group has been extremely successful in the recent unpublicised
wave of consolidation in the pharmaceutical industry and the resulting "team"
pitches.

Our business is, geographically and functionally, well positioned to compete
successfully and to deliver on our long-term targets:

  *Revenue and gross margin growth greater than the industry average
    including acquisitions
  *Improvement in operating margin of 0.5 margin points or more depending on
    revenue growth and staff cost to revenue ratio improvement of 0.3 margin
    points or more
  *Annual PBIT growth of 10% to 15% p.a. delivered through organic revenue
    growth, margin expansion and acquisitions

This announcement has been filed at the Company Announcements Office of the
London Stock Exchange and is being distributed to all owners of Ordinary
shares and American Depository Receipts. Copies are available to the public at
the Company’s registered office.

The following cautionary statement is included for safe harbour purposes in
connection with the Private Securities Litigation Reform Act of 1995
introduced in the United States of America. This announcement may contain
forward-looking statements within the meaning of the US federal securities
laws. These statements are subject to risks and uncertainties that could cause
actual results to differ materially including adjustments arising from the
annual audit by management and the Company’s independent auditors. For further
information on factors which could impact the Company and the statements
contained herein, please refer to public filings by the Company with the
Securities and Exchange Commission. The statements in this announcement should
be considered in light of these risks and uncertainties.

Contact:

WPP
Sir Martin Sorrell / Paul Richardson / Chris Sweetland / Feona McEwan / Chris
Wade
+44 20 7408 2204
or
Kevin McCormack / Fran Butera
+1 212-632-2235
www.wppinvestor.com
 
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