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WPP 2013 Interim Results

  WPP 2013 Interim Results

  *Billings up 5% at £22.7 billion
  *Reportable revenues up 7.1% to over £5.3 billion
  *Like-for-like revenue up 2.4%
  *Operating margin of 12.0% up 0.5 margin points and 0.5 margin points
    like-for-like
  *Headline profit before interest and tax £637 million up almost 12%
  *Headline profit before tax £524 million (over half a billion pounds
    sterling in first half for first time) up over 12%
  *Profit before tax £427 million up over 19%
  *Headline diluted earnings per share 28.4p up over 10%
  *Dividends per share 10.56p up 20%, a pay-out ratio of 37% versus 34% last
    year
  *Targeted dividend pay-out ratio lifted to 45% within two years from
    current 40%
  *Raising strategic targets for each of faster growing markets and new media
    sectors to 40-45% from 35-40% over the next five years
  *Including all of associates and investments, revenues total over $23
    billion annually and people well over 170,000

Business Wire

NEW YORK & LONDON -- August 29, 2013

WPP (NASDAQ:WPPGY) today reported its 2013 Interim Results.

                                                                                  
Key
figures
                                                                                                       
£ million    H1        ∆             ∆             %           H1       %
                2013         reported^1       constant^2       revenues       2012        revenues
Revenue      5,327     7.1%          5.5%          -           4,972    -
Gross        4,884     6.9%          5.3%          -           4,568    -
Margin
Headline     753       10.6%         8.5%          14.1%       682      13.7%
EBITDA^3
Headline     637       11.8%         9.6%          12.0%       570      11.5%
PBIT^4
EPS
headline     28.4p     10.1%         6.7%          -           25.8p    -
diluted^5
Diluted      21.5p     -0.5%         -4.7%         -           21.6p    -
EPS^6
Dividends    10.56p    20.0%         20.0%         -           8.80p    -
per share
                                                                                                       

^1  Percentage change in reported sterling
^2   Percentage change at constant currency rates
^3   Headline earnings before interest, tax, depreciation and amortisation
^4   Headline profit before interest and tax
^5   Diluted earnings per share based on headline earnings
^6   Diluted earnings per share based on reported earnings
     

First-half and Q2 highlights

  *Billings increased by 5.0% to £22.7bn
  *Revenue growth of 7.1%, with like-for-like growth of 2.4%, 3.1% growth
    from acquisitions and 1.6% from currency, reflecting a weaker £ sterling.
    Quarter two has seen significant improvement over the first quarter of the
    year
  *Constant currency growth in all regions and business segments, except
    public relations and public affairs, with Q2 improvement in the USA and
    the UK, partly offset by slower rates of growth in the faster growing
    markets and the mature markets of Western Continental Europe. Continuing
    double-digit growth from Latin America and Africa
  *Like-for-like gross margin growth in line with revenue growth at 2.4%,
    with data investment management (formerly consumer insight) and the United
    Kingdom growing faster than revenue
  *Headline EBITDA growth of 10.6% delivered through organic revenue growth
    and by 0.4 margin point improvement, with operating costs up 6.3%, rising
    less than revenues
  *Headline PBIT increase of 11.8% with PBIT margin rising by 0.5 margin
    points
  *Gross margin margins, probably a more accurate competitive comparator,
    also up 0.5 margin points to 13.0%
  *Headline diluted EPS up 10.1% driving a 20% higher interim ordinary
    dividend of 10.56p, in line with the Company’s previous objective of
    reaching a 40% pay-out ratio, in the medium term
  *Targeted dividend pay-out ratio raised to 45%, to be reached in two years
  *Average net debt increased by £205m (+7%) to £3.128bn compared to last
    year, at 2013 constant rates, an improvement over the first four months
    figure. The higher average net debt figure continues to reflect the timing
    of significant acquisition payments, largely offset by the conversion, at
    30 June, of £390 million of the £450 million Convertible Bond, but with a
    significant improvement in working capital in July and onwards
  *Creative and effectiveness excellence recognised again in 2013 with the
    award of the Cannes Lion to WPP for the most creative Holding Company for
    the third successive year since its initiation, another to Ogilvy & Mather
    Worldwide for the second consecutive year as the most creative agency
    network and another to Ogilvy Brazil as the most creative agency. For the
    second consecutive year, WPP was awarded the EFFIE as the most effective
    Holding Company
  *Strategy implementation accelerated in a pre- and post-POG (Publicis
    Omnicom Group) world as sector targets for fast growth markets and new
    media raised from 35-40% to 40-45% over next five years

Current trading and outlook

  *July 2013 | Revenues up stronger than the first half at 5.0% like-for-like
    for the month, the highest monthly growth rate this year, with
    year-to-date like-for-like revenue growth of 2.8%
  *FY 2013 quarter 2 revised forecast | Slight increase in like-for-like
    revenue growth from the quarter 1 revised forecast, which was itself over
    3%, with the second half and third quarter stronger than first half and
    headline operating margin target, as previously, of 15.3% up 0.5 margin
    points
  *Focus in 2013 | 1. Revenue growth from leading position in both faster
    growing geographic markets and digital, “horizontality”, premier parent
    company creative and effectiveness position, new business strength 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 data investment management, including data analytics and
    application of new technology; improvement in staff cost/revenue ratio of
    0.3 to 0.6 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 margin expansion and from strategically targeted
    small and medium-sized acquisitions

In this press release not all of the figures and ratios used are readily
available from the unaudited interim results included in Appendix 1. Where
required, details of how these have been arrived at are shown in the
Appendices.

Review of group results

Revenues

Revenue                                                                        
analysis
                                                                                                    
£           2013     ∆           ∆             ∆        acquisitions    2012
million                    reported       constant^7       LFL^8
First       2,532    5.9%        5.1%          2.1%     3.0%            2,392
quarter
Second      2,795    8.3%        5.8%          2.7%     3.1%            2,580
quarter
First          5,327       7.1%           5.5%             2.4%        3.1%               4,972
half
                                                                                                    

^7  Percentage change at constant currency exchange rates
^8   Like-for-like growth at constant currency exchange rates and excluding
     the effects of acquisitions and disposals
     

Billings were up 5.0% at £22.7 billion. Estimated net new business billings of
£2.613 billion ($4.180 billion) were won in the first half of the year,
compared with £2.475 billion in the first half of last year, placing the Group
first in all leading net new business tables. The Group continues to benefit
from consolidation trends in the industry, winning assignments from existing
and new clients, including several very large industry-leading advertising,
digital and media assignments, the full benefit of which will be seen in Group
revenues later in 2013 and in 2014. Pitch results following recent
pharmaceutical client consolidations have benefited the Group’s healthcare
communications businesses significantly.

Reportable revenue was up 7.1% at £5.327 billion. Revenue on a constant
currency basis was up 5.5% compared with last year, chiefly reflecting the
weakness of the pound sterling against the US dollar, the euro and renminbi.
As a number of our current competitors report in US dollars and in euros,
appendices 2 and 3 show WPP’s interim results in reportable US dollars and
euros respectively. This shows that US dollar reportable revenues were up 4.7%
to $8.211 billion, which compares with the $7.036 billion of our closest
current competitor and euro reportable revenues were up 3.4% to €6.255
billion, which compares with €3.351 billion of our nearest current
European-based competitor.

On a like-for-like basis, which excludes the impact of acquisitions and
currency, revenues were up 2.4% in the first half, with gross margin also up
2.4%. In the second quarter, like-for-like revenues were up 2.7%, a
significant strengthening over the first quarter’s 2.1%, with gross margin up
2.8%, following 1.9% in the first quarter giving 2.4% for the first half.
Client data continues to reflect increased advertising and promotional
spending – with the former tending to grow faster than the latter, which from
our point of view is more positive – across most of the Group’s major
geographic and functional sectors. Quarter two saw a continuation of the
strength of advertising spending in fast moving consumer goods, especially.
Nonetheless, clients understandably continue to demand increased effectiveness
and efficiency, i.e. better value for money. Although corporate balance sheets
are much stronger than pre-Lehman and confidence is higher as a result, the
Eurozone, Middle East, BRICs hard or soft landing and US deficit uncertainties
still demand caution. The $2 trillion net cash lying virtually idle in those
balance sheets, still seems destined to remain so, with companies unwilling to
take excessive acquisition risk (except perhaps in our own industry) or expand
capacity, particularly in mature markets.

Operating profitability

Headline EBITDA was up 10.6% to £753 million and up 8.5% in constant
currencies. Headline operating profit was up 11.8% to £637 million from £570
million and up 9.6% in constant currencies. It should be noted that our
profitability tends to be more skewed to the second half of the year compared
with our competitors.

Headline operating margins were up 0.5 margin points to 12.0% compared to
11.5% in the first half of last year, in line with the Group’s full year
margin target of a 0.5 margin point improvement. On a like-for-like basis,
operating margins were also up 0.5 margin points.

Given the significance of data investment management revenues to the Group,
with none of our direct parent company competitors significantly present in
that sector, despite recent claims to the contrary, gross margin margins are a
more meaningful measure of competitive comparative margin performance. This is
because data investment management revenues include pass-through costs,
principally for data collection, on which no margin is charged and with the
growth of the internet, the process of data collection becomes more efficient.
Headline gross margin margins were also up 0.5 margin points to 13.0%.

On a reported basis, operating margins, before all incentives^9, were 14.4%,
up 0.4 margin points, compared with 14.0% last year. The Group’s staff cost to
revenue ratio, including incentives, decreased by 0.2 margin points to 60.9%
compared with 61.1% in the first half of 2012. This reflected better staff
cost to revenue ratio management through an improved balance in the growth of
staff numbers and salary and related costs with revenue in the first half of
2013.

Operating costs

In the first half of 2013, reported operating costs^10 rose by 6.5% and by
5.0% in constant currency, compared with reported revenue growth of 7.1% and
constant currency growth of 5.5%. Reported staff costs excluding all
incentives were flat at 58.5% of revenues and up slightly in constant
currency. Incentive costs amounted to £127.9 million or 17.4% of headline
operating profits before incentives and income from associates, compared to
£127.4 million last year, or 19.0%, a slight increase of £0.5 million or 0.4%.
Target incentive funding is set at 15% of operating profit before bonus and
taxes, maximum at 20% and in some instances super-maximum at 25%. Variable
staff costs were 6.9% of revenues, at the high end of historic ranges and,
again, reflecting good staff cost management and flexibility in the cost
structure.

On a like-for-like basis, the average number of people in the Group, excluding
associates, was 116,073 in the first half of the year, compared to 116,461 in
the same period last year, a decrease of 0.3%. On the same basis, the total
number of people in the Group, excluding associates, at 30 June 2013 was
116,911 virtually flat with the 116,906 at 30 June 2012 and up only 434 or
0.4% on 116,477 at 1 January 2013, reflecting careful control of headcount
increases. On the same basis both revenues and gross margin increased 2.4%.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments) were
£113.3 million compared to £103.2 million in 2012, an increase of £10.1
million, reflecting higher levels of average net debt and lower interest
earned on cash deposits.

The headline tax rate was 21.8% (2012 22.0%). The tax rate on reported profit
before tax was 26.2% (2012 14.2%). In 2012 there was a significant deferred
tax credit of £52 million (2013 £2 million) in relation to the amortisation of
acquired intangible assets and other goodwill items, resulting in a lower
reported tax rate.

Earnings and dividend

Headline profit before tax was up 12.2% to £524 million from £467 million,
over half a billion pounds sterling in the first half for the first time and
up 9.7% in constant currencies.

Reported profit before tax rose by 19.4% to £427 million from £358 million, or
up 16.4% in constant currency, principally reflecting lower revaluation of
financial instruments than in 2012.

Excluding the significant tax credit of £52 million in relation to the
amortisation of acquired intangibles and other goodwill items in the first
half of 2012, profits attributable to share owners rose by 23.3%, to £278
million from £226 million. In the first half of 2013 the tax credit amounted
to £2 million. Profits attributable to share owners rose by 1.1% to £281
million from £278 million, again reflecting the exceptional tax credit in
2012.

Diluted headline earnings per share rose by 10.1% to 28.4p from 25.8p. In
constant currencies, earnings per share on the same basis rose by 6.7%.
Diluted reported earnings per share were down 0.5% to 21.5p and down 4.7% in
constant currencies, both reflecting the impact of the exceptional tax credit
in 2012.

In the AGM statement in June 2011, the Board set an objective to increase the
dividend pay-out ratio to approximately 40% over time, compared to the 2010
ratio of 31%. This was largely achieved in 2012, some eighteen months later
and as outlined in the June 2013 AGM statement, the Board has given
consideration to the merits of increasing the dividend pay-out ratio from its
current level of approximately 40% to between 45% and 50%. Following that
deliberation, the Board has decided to target an increase in the pay-out ratio
to 45% over the next two years and, as a result, declares an increase of 20%
in the interim dividend to 10.56p per share, compared with the 10.1% growth in
diluted headline earnings per share. The dividend pay-out ratio for the first
half is, therefore, 37%, reflecting the stronger weighting of the final
dividend, against 34% last year. The record date for the interim dividend is
11 October 2013, payable on 11 November 2013.

Further details of WPP’s financial performance are provided in Appendices 1, 2
and 3.

^9   Short and long-term incentives and the cost of share-based incentives
      Includes direct costs, but excluding goodwill impairment, amortisation
^10   and impairment of acquired intangibles, investment gains and write-downs
      and gains on re-measurement of equity interests on acquisition of
      controlling interest
      

Regional review

The pattern of revenue growth differed regionally. The tables below give
details of revenue and revenue growth by region for the second quarter and
first half of 2013, as well as the proportion of Group revenues and operating
profit and operating margin by region;

                                                                                     
Revenue
analysis
                                                                                                             
£           Q2       ∆           ∆              ∆         %         Q2       %
million        2013        reported       constant^11       LFL^12       group        2012        group
N.          954      7.9%        4.9%           2.4%      34.2%     884      34.3%
America
United      350      14.1%       14.1%          5.4%*     12.5%     307      11.9%
Kingdom
W. Cont.    667      6.9%        1.9%           -1.2%     23.8%     624      24.2%
Europe
AP, LA,
AME,        824      7.7%        6.8%           5.2%      29.5%     765      29.6%
CEE^13
Total          2,795       8.3%           5.8%              2.7%         100.0%       2,580       100.0%
Group

*  Gross margin like-for-like growth 7.1%

^11  Percentage change at constant currency rates
^12   Like-for-like growth at constant currency exchange rates and excluding
      the effects of acquisitions and disposals
^13   Asia Pacific, Latin America, Africa & Middle East and Central & Eastern
      Europe
      

                                                                                
£          H1       ∆           ∆           ∆ LFL    %         H1       %
million       2013        reported       constant                   group        2012        group
N.         1,840    5.3%        2.9%        0.8%     34.5%     1,748    35.1%
America
United     669      13.1%       13.1%       4.6%*    12.6%     591      11.9%
Kingdom
W.
Cont.      1,258    6.0%        2.3%        -1.0%    23.6%     1,187    23.9%
Europe
AP, LA,
AME,       1,560    7.9%        8.1%        6.4%     29.3%     1,446    29.1%
CEE
Total         5,327       7.1%           5.5%           2.4%        100.0%       4,972       100.0%
Group

*  Gross margin like-for-like growth 6.0%
    

                                                              
Operating profit
analysis
(Headline PBIT)
                                                                             
£ million           H1 2013    % margin    H1       % margin
                                                    2012
N. America          255        13.8%       239      13.7%
United Kingdom      85         12.7%       73       12.3%
W. Cont. Europe     100        7.9%        95       8.0%
AP, LA, AME, CEE    197        12.7%       163      11.2%
Total Group            637           12.0%          570         11.5%
                                                                             

North America revenue growth increased in the second quarter, with
like-for-like growth of 2.4%, compared with -1.0% in the first quarter,
following increased client spending in parts of the Group’s media investment
management, data investment management and healthcare businesses.

United Kingdom revenue growth also improved over the first quarter and was the
strongest region with like-for-like growth of 5.4% in the second quarter,
compared with 3.7% in the first quarter. The Group’s advertising and media
investment management, branding and identity, healthcare and direct, digital
and interactive businesses showed particularly strong growth.

Western Continental Europe, which remains currently very challenged from a
macro-economic point of view, showed it again in the second quarter, with
constant currency revenues up 1.9% and down 1.2% like-for-like. Belgium,
Germany, the Netherlands and Turkey showed strong growth in the second quarter
but France, Spain, Portugal, Italy, Switzerland, Greece, Ireland, Norway,
Sweden and Finland remain tough. In the first half, the region benefited from
restructuring, however, it does feel that some markets, like Spain, are
bottoming out, although still not repairing the social catastrophe of high
unemployment levels, particularly amongst the younger age groups – we continue
to see jobless growth recoveries particularly in mature markets.

Asia Pacific, Latin America, Africa & the Middle East and Central and Eastern
Europe, although still showing strong overall growth, slowed in the second
quarter, with constant currency revenues up 6.8% in the second quarter and up
5.2% like-for-like, lower than the first quarter like-for-like growth of 7.8%.
This strong growth was driven principally by Latin America and the BRICs^14
and Next 11^15, parts of Asia Pacific and the CIVETS^16 and the MIST^17.
Africa continued the strong growth seen in the first quarter, with
like-for-like revenues up 11% in the second quarter, with particularly strong
growth in South Africa, Ghana, Kenya, Nigeria and Egypt.

Latin America grew strongly in the second quarter, with like-for-like revenues
up almost 9%, following over 12% in the first quarter. Growth in the BRICs was
up 9% on a like-for-like basis in the second quarter, with Next 11 and CIVETS
up well over 9% and up over 17% respectively on the same basis. In Central and
Eastern Europe, revenues were up almost 1% like-for-like in the second
quarter, stronger than the first quarter, with above average growth in Russia,
Romania and Kazakhstan, but with Hungary, the Slovak Republic and the Ukraine
tougher.

In the first half of 2013, which is seasonally lower than the second half,
29.3% of the Group’s revenues came from Asia Pacific, Latin America, Africa
and the Middle East and Central and Eastern Europe, similar to the first half
of last year and compared with 29.1% in the first quarter. This is against the
Group’s previous strategic objective of 35-40% in the next three to four
years, now raised to 40-45% over the next five years.

^14  Brazil, Russia, India and China (accounting for over $1.1 billion
      revenues, including associates, in the first half)
      Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria, Pakistan,
^15   Philippines, Vietnam and Turkey (the Group has no operations in Iran,
      accounting for over $380 million revenues, including associates, in the
      first half)
      Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (accounting
^16   for almost $440 million revenues, including associates, in the first
      half)
^17   Mexico, Indonesia, South Korea and Turkey (accounting for over $290
      million revenues, including associates, in the first half)
      

Business sector review

The pattern of revenue growth also varied by communications services sector
and operating brand. The tables below give details of revenue, revenue growth
by communications services sector as well as the proportion of Group revenues
for the second quarter and first half of 2013 and operating profit and
operating margin by communications services sector;

                                                                                 
Revenue
analysis
                                                                                                         
£           Q2       ∆           ∆           ∆ LFL    %         Q2       %
million        2013        reported       constant                   group        2012        group
AMIM^18     1,161    8.4%        5.9%        4.7%     41.5%     1,071    41.5%
Data
Inv.        651      4.6%        2.1%        0.8%*    23.3%     622      24.1%
Mgt.^19
PR &        236      1.0%        -1.8%       -3.1%    8.5%      234      9.1%
PA^20
BI, HC &    747      14.4%       11.9%       3.4%     26.7%     653      25.3%
SC ^ 21
Total          2,795       8.3%           5.8%           2.7%        100.0%       2,580       100.0%
Group

*  Gross margin like-for-like growth 2.4%

^18  Advertising, Media Investment Management
^19   Data Investment Management (formerly Consumer Insight)
^20   Public Relations & Public Affairs
^21   Branding and Identity, Healthcare and Specialist Communications
      

                                                                                
£          H1       ∆           ∆           ∆ LFL    %         H1       %
million       2013        reported       constant                   group        2012        group
AMIM       2,193    7.2%        5.7%        4.3%     41.2%     2,044    41.1%
Data
Inv.       1,238    3.9%        2.3%        0.9%*    23.2%     1,191    24.0%
Mgt.
PR & PA    458      -0.2%       -2.2%       -3.6%    8.6%      459      9.2%
BI, HC     1,438    12.6%       11.0%       2.9%     27.0%     1,278    25.7%
& SC
Total         5,327       7.1%           5.5%           2.4%        100.0%       4,972       100.0%
Group

*  Gross margin like-for-like growth 1.7%

                                                              
                                                                             
Operating profit
analysis (PBIT)
                                                                             
£ million           H1 2013    % margin    H1       % margin
                                                    2012
AMIM                315        14.4%       283      13.9%
Data Inv. Mgt.      93         7.5%        84       7.0%
PR & PA             60         13.0%       62       13.5%
BI, HC & SC         169        11.8%       141      11.0%
Total Group            637           12.0%          570         11.5%
                                                                             

Advertising and Media Investment Management

As in the first quarter, advertising and media investment management remains
the strongest performing sector. Constant currency revenues grew by 5.9% in
the second quarter, compared with 5.4% in the first quarter, with
like-for-like growth of 4.7%, an increase over the first quarter like-for-like
growth of 3.9%. Growth in the Group’s advertising businesses was slower than
the first quarter, with media investment management considerably stronger,
posting double digit growth in the second quarter. Of the Group’s advertising
networks, as in the first quarter, Y&R and Grey in particular, continued their
strong performance, especially in North America. Growth in the Group’s media
investment management businesses was consistently strong throughout 2011 and
2012 and this has continued into the first half of 2013, with constant
currency revenues up over 9% for the first half and like-for-like growth up
over 8%.

The Group gained a total of £2.613 billion ($4.180 billion) in net new
business wins (including all losses and excluding retentions) in the first
half, compared to £2.475 billion ($3.960 billion) in the same period last
year. Of this, JWT, Ogilvy & Mather Worldwide, Y&R, Grey and United generated
net new business billings of £897 million ($1.436 billion). 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 £1.372 billion
($2.195 billion). This new business performance ranks top of the class in all
new business surveys in the first half.

Reported operating margins improved 0.5 margin points to 14.4% in the first
half, as revenue and cost growth continued to be well balanced.

Data Investment Management

On a constant currency basis, data investment management revenues grew 2.1% in
the second quarter, very similar to the first quarter, with like-for-like
revenues up 0.8% compared with 1.0% in the first quarter. However, gross
margin, probably a more accurate measure of top-line performance was up
strongly in quarter two with constant currency gross margin up 3.8% and up
2.4% like-for-like. This compares with 2.3% and 0.9% respectively in the first
quarter. As in the first quarter, all regions except the United Kingdom and
Western Continental Europe grew in the second quarter with a significant
improvement in North America, with like-for-like revenues up almost 5% in the
second quarter. The faster growing markets of Asia Pacific, Latin America,
Africa and the Middle East maintained their strong growth seen in the first
quarter, although slightly slower, with like-for-like revenues up over 7%. In
the USA, the custom research business in TNS and Millward Brown, together with
call centre operations, performed particularly well. Reported operating
margins improved 0.5 margin points to 7.5%, partly reflecting the improved
performance in North America, the faster growing markets and a minor impact of
restructuring.

Public Relations and Public Affairs

In constant currencies, public relations and public affairs revenues were down
1.8% in the second quarter, with like-for-like down 3.1%, reflecting some
relative improvement compared with the first quarter, where constant currency
revenues were down 2.7% and like-for-like down 4.1% - although the sector
reflected continuing client examination of discretionary spending,
particularly in mature markets. There was some improvement in the United
States, Western Continental Europe, Africa & the Middle East and Asia Pacific,
but the United Kingdom was slower. Reported operating margins fell 0.5 margin
points to 13.0%, but H+K Strategies, Cohn & Wolfe, Penn Schoen & Berland and
RLM Finsbury showed improving margins in the first half.

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 11.9% in the second quarter, with like-for-like
growth of 3.4%, an improving trend compared with the first quarter. On a
like-for-like basis the Group’s branding & identity, healthcare and direct,
digital and interactive businesses all showed stronger growth than the first
quarter. In the Group’s healthcare businesses in the United States, revenues
were up over 12% in the second quarter, following a significant number of
recent “Team” account wins. Reported operating margins showed strong growth,
up 0.8 margin points to 11.8% in the first half.

Associates, Investments, People, Countries, Clients, “Horizontality”

Including 100% of associates and investments, the Group has annual revenues of
over $23 billion and well over 170,000 full-time people in over 3,000 offices
in 110 countries. The Group, therefore, has adequate access to an unparalleled
breadth and depth of marketing communications resources. It services 340 of
the Fortune Global 500 companies, all 30 of the Dow Jones 30, 65 of the NASDAQ
100, 30 of the Fortune e-50 and 685 national or multi-national clients in
three or more disciplines. 427 clients are served in four disciplines and
these clients account for well over 56% of Group revenues. This reflects the
increasing opportunities for co-ordination between activities, both nationally
and internationally. The Group also works with 344 clients in 6 or more
countries. The Group estimates that well over a third of new assignments in
the first half of the year were generated through the joint development of
opportunities by two or more Group companies. “Horizontality” is clearly
becoming an increasingly important part of client strategies, particularly as
they continue to invest in brand in slower-growth markets and both capacity
and brand in faster-growth markets.

Cash flow highlights

In the first half of 2013, operating profit was £514 million (above half a
billion pounds sterling for the first time), depreciation, amortisation and
impairment £211 million, non-cash share-based incentive charges £50 million,
net interest paid £121 million, tax paid £130 million, capital expenditure
£151 million and other net cash inflows £19 million. Free cash flow available
for working capital requirements, debt repayment, acquisitions, share
re-purchases and dividends was, therefore, £392 million.

This free cash flow was absorbed partly by £98 million in net cash acquisition
payments and investments (of which £7 million was for earnout payments with
the balance of £91 million for investments and new acquisitions payments) and
£133 million in share re-purchases, a total outflow of £231 million. This
resulted in a net cash inflow of £161 million, before any changes in working
capital.

A summary of the Group’s unaudited cash flow statement and notes as at 30 June
2013 is provided in Appendix 1.

Acquisitions

In line with the Group’s strategic focus on new markets, new media and data
investment management, the Group completed 26 transactions in the first half;
17 acquisitions and investments were in new markets (of which 13 were in new
media), 7 in data investment management, including data analytics and the
application of technology, with the balance of 2 driven by individual client
or agency needs.

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

A further 13 acquisitions and investments were made in July and August in
advertising and media investment management in the Czech Republic, South
Africa and South Korea; in data investment management in the United States,
the United Kingdom, Brazil, Bangladesh and South Korea; in branding & identity
in the United Kingdom; in direct, digital and interactive in the United States
and Argentina.

Balance sheet highlights

Average net debt in the first six months of 2013 was £3.128 billion, compared
to £2.923 billion in 2012, at 2013 exchange rates. This represents an increase
of £205 million, an underlying improvement over the first four months figures.
The higher average net debt figure continues to reflect the timing of
significant acquisition payments, largely offset by the conversion of £390
million of the £450 million Convertible Bond. On 30 June 2013 net debt was
£2.717 billion, against £2.861 billion on 30 June 2012, a decrease of £144
million and £208 million in constant currencies. The lower net debt figure
reflects increased spend on acquisitions and higher dividends, more than
offset by the relative improvement in working capital and the conversion of
the 2014 Convertible Bond. There has been a significant improvement in the
relative net debt position in July and beyond. By 31 July 2013, net debt was
£2.955 billion, as compared with £3.714 billion on 31 July 2012. This decrease
of £759 million and £850 million in constant currencies reflected the
conversion of £390 million of the £450 million Convertible Bond, combined with
improving trends in working capital management.

Your Board continues to examine the allocation of its EBITDA (of £1.8 billion
or over $2.8 billion for the preceding twelve months) and substantial free
cash flow (of over £1.1 billion or approximately $1.7 billion per annum, also
for the previous twelve months), to enhance share owner value. The Group’s
current market value of £15.7 billion implies an EBITDA multiple of 8.6 times,
on the basis of the trailing 12 months EBITDA to 30 June 2013. Including net
debt at 30 June of £2.717 billion, the Group’s enterprise value to EBITDA
multiple is 10.1 times. The Group’s free cash flow multiple is 14.2 times for
the same period.

During May and June 2013 the majority of holders of the company’s £450 million
Convertible Bond maturing in June 2014 exercised their right to convert early,
in order to receive the benefit of the upcoming dividend, and as a result, at
30 June, £390 million of convertible debt had been exchanged for 66.3 million
shares, reducing the company’s net debt by this amount. This has no impact on
the projected fully diluted EPS as both the interest saving from the
conversion and the dilution from the new shares are included in such
calculations.

A summary of the Group’s unaudited balance sheet and notes as at 30 June 2013
is provided in Appendix 1.

Return of funds to share owners

Following the decision to increase the dividend pay-out ratio of approximately
40% to 45% over the next two years and the strong first-half results, your
Board raised the interim dividend by 20%, a pay-out ratio in the first half of
37%. This reflects the relative absolute size and weighting of the final
dividend.

During the first six months of 2013, 12.6 million shares, or 1.0% of the
issued share capital, were purchased at a cost of £133 million and an average
price of £10.58 per share.

Current trading

July revenues were up 5% like-for-like, the highest monthly growth so far this
year and showed a similar pattern to the second quarter, although the USA,
Western Continental Europe, Central and Eastern Europe and Africa were ahead
of the second quarter growth rates with the UK, Asia Pacific and Latin America
slightly below. Cumulative like-for-like revenue growth for the first seven
months of 2013 is now 2.8%. The Group's quarter 2 revised forecasts, having
been reviewed at the parent company level in the first half of August,
indicate full year like-for-like revenue growth of over 3%, slightly ahead of
the budget and the quarter 1 revised forecast and with a stronger third
quarter and second half than the first half.

Outlook

Macroeconomic and industry context

Following the Group’s record year in 2012, 2013 started reasonably well with a
fair first quarter, a stronger second quarter and July year-to-date
like-for-like growth of 2.8%. All geographies and sectors, except public
relations and public affairs, grew. There has been some slowing of revenue
growth rates in the faster growing markets of Asia Pacific, Latin America,
Africa & the Middle East and Central and Eastern Europe, but this was more
than compensated by a significant improvement in the revenue growth rates in
the mature markets of North America and the United Kingdom in the second
quarter. Despite the improvement in the second quarter, our operating
companies remain cautious and hire only in response to any geographic,
functional and client shifts in revenues, with headcount at the end of June
2013 up just 0.4% from the beginning of the year, on a like-for-like basis.
Revenue and operating profit are above budget, the quarter 1 revised forecast
and last year. The increase in reported margin is in line with the Group’s
full year margin target of 0.5 margin points improvement.

Continuing 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, a record $16 trillion of debt
and the consequent sequester, continue to make clients reluctant to take
further risks, despite record profitability and stronger balance sheets.
Clients remain focused on a strategy of adding capacity and brand building in
both fast growth geographic markets and functional markets like media and
digital, whilst containing or reducing capacity in the slow growth markets,
like Western Continental Europe and traditionally-produced newspapers and
magazines. Free-to-air television is also coming under some pressure,
initially in the United States as audience ratings fall, particularly amongst
younger age groups. This change in media consumption habits is being driven by
alternative screen consumption on tablets and smart phones (and exacerbated,
perhaps, by inadequate measurement) and by alternative distribution channels
through the internet. Concerns are also starting to build about what may
happen to financial and real markets when loose monetary policy, quantitative
easing, for example, in the USA, UK and Japan is reversed and interest rates
start to rise, as they must do at some point in time, although recent
pronouncements from Mark Carney, Governor of the Bank of England, may keep
interest rates at their current levels in the United Kingdom for three or four
more years. The crucial question seems to be the speed at which quantitative
easing will be withdrawn. All in all, there are enough uncertainties for
clients to remain cautious and the focus remains, perhaps unwisely, on cost
reduction, rather than revenue stimulation and on liquidity, which explains
the recent unrealistic requests for extended payment terms. Procurement and
finance are becoming increasingly powerful in corporate structures.
Paradoxically, concerns about inflation in both the United States and United
Kingdom may give our clients and ourselves a little more pricing power wiggle
room and a renewed focus on top-line growth.

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. Early forecasts of worldwide real GDP
growth for 2014 are around 4%, with a slower rate of inflation giving nominal
forecasts of 5.5%. If advertising remains at the same percentage of GDP, which
looks at least likely, the prospects for the communications services industry
are set fair.

In addition, it is particularly pleasing to report that further progress was
made in Cannes this year by the award, for the third consecutive year since
its inception, of the Cannes Lion for the most creative Holding Company and
another to Ogilvy & Mather Worldwide for the second consecutive year as the
most creative agency network. Ogilvy Brazil capped these achievements by being
awarded a third 2013 Lion for Agency of the Year. Furthermore, record
effectiveness was added to record creativity, as WPP won the Holding Company
EFFIE for effectiveness for the second time in a row. Rumour has it that POG
may have even been formed to try and topple this dominance.

Financial guidance

For 2013, reflecting the first half revenue growth and quarter 2 revised
forecasts, which indicate:

  *Like-for-like revenue and gross margin growth of over 3.0%
  *Target operating margin improvement of 0.5 margin points in line with full
    year margin target

For the remainder of 2013, our prime focus will be on meeting our margin
objectives by balancing revenue growth and operating costs and by increasing
our cost flexibility. In addition to managing absolute levels of cost, 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 (incentives, freelancers and consultants) have returned to historical
highs of around 7% of revenues in a full year and continue to position the
Group well for the balance of 2013 and 2014.

At the same time, we still intend to grow faster than the industry average,
but without sacrificing operating margin or operating margin expansion.
Following our growth by acquisition, there are also significant back-office
finance systems and infrastructure economies to be gained through process
simplification, off-shoring and outsourcing, which should add over one margin
point in achieving the targeted operating margins over the next five years and
improving working capital. The Group continues to also 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 by the appointment of client leaders for 38 global clients,
accounting for well over one third of rolling twelve months revenues of over
$17 billion, and country managers in twelve test markets and regions. The
focus continues on the “horizontal practice 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 talent geographically and functionally through
parent company initiatives and winning Group pitches. The continued success of
this approach has been further demonstrated by the winning of many major
“Team” assignments in the last few months.

A Post-POG world, regulators permitting

Before summing up, it would be reasonable to expect some comment on a recent
big, bold, surprising, move in our industry. Whilst we have consistently
predicted further consolidation in our industry, it is true to say that the
scale of the latest move caught us by surprise, at least before 18 July,
although whether such a move, if implemented, proves to be successful remains
to be seen. It runs counter to the strategies and cultures of both parties.
Its structure and organisation is clunky. Potential client and, even more
importantly, people conflicts are considerable, exacerbated by a lack of
pre-announcement consultation. And, finally, the regulatory and corporate
governance issues are significant. If that was not enough, we have
consistently said that with the exception of media buying there are
diseconomies of scale in creative industries, that have to be managed
carefully.

All in all, we believe a post-POG world presents us and other competitors, as
a result, with enhanced opportunities and is at worst neutral and at best
highly positive, resulting in further consolidation and concentration.

In a more constructive vein, what does it mean for our strategy? Simply - more
and faster. It just underlines how important it is for us to deliver focused
client benefits in fast growing markets, in new media, in data investment
management and the application of technology and in horizontality. To
underline the importance of these strategies and their client centricity, we
are raising each of our fast growth market and new media sector targets from
35-40% of total revenues to 40-45% each, over the next five years i.e. by
2018. Again, a reinforcement of the same strategy, but more and faster, as we
have already started to implement.

In summary

In the future, our business is structurally well positioned to compete
successfully and to deliver on our long-term targets:

  *Revenue growth greater than the industry average
  *Annual improvement in gross margin or staff-cost-to-revenue ratio of +0.3
    to +0.6 points
  *Annual PBIT growth of +10% to +15% p.a. delivering margin expansion of
    +0.5 to +1.0 points

To access WPP's 2013 interim results financial tables, please visit:

http://www.wpp.com/investor

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