WPP 2020 Interim Results

Resilient performance in challenging environment; market-leading new business performance; improved liquidity and on track to be towards the upper end of £700-800m cost savings target; interim dividend of 10p declared

NEW YORK & LONDON--()--WPP (NYSE: WPP) today reported its 2020 Interim Results.

Key figures – continuing operations

£ million

H1 2020

∆ reported1

∆ LFL2

H1 20193

Revenue

5,583

-12.3%

-11.5%

6,368

Revenue less pass-through costs

4,668

-10.2%

-9.5%

5,199

 

 

 

 

 

Reported:

 

 

 

 

Operating (loss)/profit

(2,453)

-

-

596

(Loss)/profit before tax

(2,581)

-

-

409

Diluted EPS (p)

(214.5)

-

-

21.4

Dividends per share (p)

10.0

-55.9%

-

22.7

 

 

 

 

 

Headline4:

 

 

 

 

Operating profit

382

-38.1%

-37.8%

617

Operating profit margin

8.2%

-3.7pt*

-3.7pt*

11.9%

Profit before tax

276

-44.2%

-

494

Diluted EPS (p)

15.4

-45.0%

-

28.0

* Margin points

H1 and Q2 financial highlights

  • H1 reported revenue -12.3%, LFL revenue -11.5% (Q2 -18.4%)
  • H1 revenue less pass-through costs -10.2%, LFL revenue less pass-through costs -9.5%
  • Q2 LFL revenue less pass-through costs -15.1%: US -9.6%, UK -23.3%, Germany -11.6%, Greater China -3.1%, India -25.1%
  • H1 headline operating margin 8.2%, down 3.7pt on prior year as cost savings offset the majority of revenue decline
  • Cost savings of £296 million in H1, on track to deliver towards the upper end of the £700-800 million target. Around 25% of these savings expected to be permanent when returning to 2019 levels of revenue less pass-through costs
  • Reported loss before tax impacted by £2.7 billion of impairments (£2.5 billion goodwill, £0.2 billion investment and other write-downs); relating to acquisitions whose carrying values have been reassessed, triggered by the impact of COVID-19, and driven by a combination of higher discount rates, a lower profit base in 2020 and lower industry growth rates
  • Net debt at 30 June 2020 £2.7 billion, down £1.5 billion year-on-year reflecting Kantar transaction and strong working capital management

Strategic progress, shareholder returns and outlook

  • Transformation delivering results: VMLY&R and Wunderman Thompson our two best-performing integrated agencies
  • Strong new business performance, reflecting enhanced offer and improved collaboration
  • Continued recognition of creativity and effectiveness: Effies winner for ninth successive year; Cannes Lions Agency Holding Company of the Decade
  • 2019 final dividend cancelled to support lower leverage; share buyback still under review but intention to restart when environment stabilises; 10p 2020 interim dividend declared
  • Current trading showing sequential improvement on Q2 but market remains volatile: July LFL revenue less pass-through costs -9.2%. US -6.1%, UK
    -10.5%, Germany -7.2%, Greater China -18.6%, India -15.5%
  • Full year 2020 LFL revenue less pass-through costs growth and headline operating margin expected to be within the range of analysts’ expectations5
  • Capital markets event to update on strategic progress, long-term efficiency savings and capital allocation planned before 2020 year end

Mark Read, Chief Executive Officer, WPP:

“After two months in which our strategic progress could be measured by growth outside Greater China, the second quarter saw an inevitable downturn, with like-for-like revenue less pass-through costs declining by 15%, albeit better than our expectations. Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery.

“Our strategic transformation remains on track but as COVID-19 accelerates the change in our sector, we are accelerating our plans. We continue to attract new talent, invest in technology and ecommerce, and train our people in the skills they need for the future, with more than 20,000 receiving accreditations from Adobe, Amazon, Facebook, Google and Salesforce this year.

“We are working with our clients to help them get back to business, adapt their marketing strategies at speed and reshape their operations for a new world. Brands are seeing increases in online sales of 100% and more, and we are supporting eight of our top ten clients on ecommerce strategies. Our new business record is industry-leading, at $4 billion in the first half, including wins from Intel, HSBC and Unilever, and our pipeline remains strong.

“With £4.7 billion of liquidity thanks to the Kantar transaction, and as we deliver against our cost savings targets, our financial position remains strong. As a result, we are able to return to paying our dividend, with an interim dividend of 10p for 2020.

“I would like to thank our people around the world, the vast majority of whom have been working from home and have shown great creativity, agility and collective spirit to support our clients in challenging times.”

To access WPP's 2020 interim results financial tables, please visit: www.wpp.com/investors

First half overview

Market environment

The market in the first two months of 2020 progressed in line with expectations, before the impact of COVID-19 began to be widely felt from March onwards. As a result of the significant restrictions on many aspects of economic activity, GroupM now forecasts that the global advertising economy will decline by 11.8% in 2020, after growth of 6.2% in 2019. Within this, spend on digital media is expected to increase to 54% of total spend in 2020, from 48% in 2019, as the impact of COVID-19 accelerates an underlying structural trend. As consumers increased their time at home, we generally saw heightened levels of consumption of media and a rapid expansion of ecommerce activity. As a result, businesses are looking to grow their ecommerce and multi-channel capabilities.

More specifically, TV and video consumption has grown rapidly, driven by on-demand and streaming services. Consumers have also needed to change their shopping patterns, with ecommerce surging, finding new adopters and penetrating new categories. On the other hand, media spend on outdoor, cinema and print has suffered materially.

Activity and spend trends by geography have for the most part been driven by the closing and re-opening of economies. Based on GroupM forecasts, China is expected to see only a 2.8% decline in the advertising market this year, reflecting its strong underlying economic growth and a rapid and successful response to the pandemic. Major markets in Europe, on the other hand, are forecast to decline 10-20% given the more sustained lockdowns and lower underlying growth. The USA is expected to decline 7.5%, or -12.9% excluding political spend.

In terms of sectors, marketing spend from consumer packaged goods, technology and pharmaceuticals businesses (56% of WPP’s revenue less pass-through costs in the first half) has held up relatively well as demand for their services has been less impacted or in some cases significantly enhanced. Automotive, luxury, travel and leisure businesses (22% of revenue less pass-through costs) have been understandably the hardest hit and this in turn has been reflected in their marketing spend.

Performance and progress

Revenue in the first half was £5.6 billion, down from £6.4 billion in the first half of 2019. Revenue less pass-through costs was £4.7 billion, down from £5.2 billion in the first half of 2019.

We started the year strongly, building on the progress made over the course of 2019, returning to LFL growth in revenue less pass-through costs of 0.4% outside Greater China in January and February, and landing a number of valuable new business wins. Since March, the environment has inevitably been more challenging, but we have responded positively as an organisation, supporting our people, staying closer than ever to clients and working with a number of partners to protect our communities. Our financial performance has been less geared to client media expenditure than in previous cycles, reflecting the broader spread of marketing services we now provide, as well as an ongoing shift to resource-driven revenue models and away from commission on media investment.

The nature and delivery of our client work has evolved significantly. Most of our major clients required rapid support in developing relevant communications, with new campaigns being developed in days rather than months. Our investment in production through Hogarth, combining leading-edge technology with a wide geographical footprint, has been a strong differentiator in this regard. We have also been working with clients to re-plan their communications spend, redirecting resources to alternative channels and maximising their media return on investment. Work on ecommerce and omnichannel services has also ramped up significantly, with ongoing ecommerce engagements with 8 of our top 10 clients.

Our PR businesses have held up relatively well (LFL revenue less pass-through costs -4.5% in the first half), as clients have sought advice on how to engage with their own stakeholders. We expect future demand for our experience, commerce and technology services to be very strong, with clients looking to adapt rapidly to permanent changes in consumer behaviour. On the other hand, we have seen pressure on some project-based work in branding and identity as clients look to cut costs.

Our new business performance has continued to be very strong. In the first half we won almost $4 billion of new business, with very few assignment losses, and this is testament to the success of our new strategy: WPP now has fewer, stronger agency brands working better together. We are seeing very strong levels of collaboration across WPP, with most pitches involving multi-agency teams with strong co-ordination and support from the client, new business and technology expertise we are building in the centre. Key wins included Intel (global creative), HSBC (global creative), Unilever (China media) and WW (global integrated creative and media).

Our sector exposure has also delivered a more resilient performance. Within our top 200 clients, 56% of revenue less pass-through costs comes from companies in the consumer packaged goods, technology and healthcare & pharma sectors, which were the least impacted by COVID-19. Their combined LFL performance in the first half was -0.7%. Within retail, financial services, telecom, media & entertainment and other clients, representing 22%, LFL growth was -2.7%. The sectors which suffered the most – automotive, luxury & premium and travel & leisure, which together comprise 22% of top 200 client income – saw a LFL decline of 11.7%.

Our commitment to creativity also continues to be reflected in the industry recognition our campaigns attract. In June, WPP was ranked the most effective marketing communications company in the world in the 2020 Effie Index. It is the ninth successive year that WPP has received this award. The Index, the world’s most comprehensive global ranking of marketing effectiveness, lists companies that create the most effective marketing and communications ideas in terms of measurable business results for clients. In the same month, the Cannes Lions International Festival of Creativity named WPP as holding company of the decade, in global rankings to recognise those companies which have demonstrated the greatest sustained creative excellence, based on winning and shortlisted work over the last 10 years.

We also continued to be recognised in independent research evaluation. In its March 2020 report, Gartner included four WPP agencies (AKQA, Ogilvy, VMLY&R and Wunderman Thompson) in its Magic Quadrant for Global Marketing Agencies, rating AKQA highest globally for both vision and execution.

Update to COVID-19 response

The significant majority of our people have been working remotely since March, with some recent re-opening of offices at reduced capacity in certain countries, involving very strict hygiene and social distancing protocols. As outlined above, we have ensured strong continuity of service to clients at a time when the need for our services and expertise has been greater than ever.

The latest level of office-based working in our main markets is as follows: US 1%, UK 3%, Germany 17%, China 77% and India 0%.

We have continued to work with clients, governments, national health organisations and NGOs to help limit the impact of COVID-19 on society, including our multi-agency support for the World Health Organization on a pro bono basis, delivering global and regional public awareness campaigns to encourage people to stay at home and adopt safe behaviours.

We have also successfully maintained the financial resilience of the business from both a liquidity and cost perspective. We raised over £900 million in the bond markets in May, and at 30 June 2020 had total liquidity of £4.7 billion. Our working capital position has improved year-on-year as a result of increased focus and discipline. Finally we have reduced operating costs 6.5% year-on-year in the first half, and we are on track to deliver towards the upper end of our cost savings target of £700-800 million this year. This is covered in more detail later in this release.

We have generally not applied for government support in response to COVID-19, although in some markets funding has been applied automatically. We did not use the UK Government funded Job Retention Scheme. In total we have received £29 million of funding, none of which related to the UK or US, and have also benefited from the deferral of certain taxes under local initiatives available to all companies in the countries concerned. These benefits are described in more detail in Appendix 1.

Impairments of £2.7 billion (including £2.5 billion of goodwill impairments and £0.2 billion of investment and other write-downs) were recognised in the first half. The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed in light of the impact of COVID-19. The impairments are driven by a combination of higher discount rates used to value future cash flows, a lower profit base in 2020 and lower industry growth rates.

On 31 March 2020, we announced the suspension of the 2019 final dividend of 37.3p per share and the share buyback funded by proceeds from the Kantar transaction. At the time, given the high level of uncertainty, the Board’s view was that preserving liquidity and maintaining lower leverage were the key financial priorities, and these two actions together provided WPP with additional liquidity of £1.1 billion.

Since then, the Board has continued to review the impact of COVID-19 on operational performance and liquidity, as well as the medium-term outlook for the broader economy. While impacted by the economy, our performance in the second quarter was much better than initially anticipated. As noted above, we have strong controls over working capital, and the flexibility of our business model is delivering the £700-800 million of cost savings targeted.

Nevertheless, leverage ratios are likely to be higher than the original budget for 2020 as a result of the inevitable pressure on EBITDA from sudden declines in revenue. As a result, the Board has decided to cancel the 2019 final dividend, permanently preserving approximately £450 million of capital to help offset the impact of lower EBITDA on our leverage ratios and better enable us to meet our original target of average net debt to EBITDA of 1.5-1.75x by the end of 2021. The share buyback funded from the Kantar proceeds remains under review, with an intention to restart when business performance and the medium-term outlook are more stable.

Despite the challenges of the economic environment, WPP continues to be profitable on a full-year headline basis. The Board therefore considers it appropriate to declare an interim dividend for 2020 of 10p per share, recognising the importance of income to many investors while maintaining prudent stewardship of WPP’s capital.

The Board has also decided to review our ongoing dividend policy, in the context of our overall capital allocation priorities. We intend to update investors on our plans as part of a wider capital markets event towards the end of 2020.

Current trading and outlook

Despite the significant challenges faced by our people, our clients and our communities over the first six months of the year, we have wherever possible continued to conduct business as usual. Our strong financial position, the renewed strength of our global networks, the range of our services and the depth of our client relationships have all underpinned our resilience. We have further consolidated this through our swift action on cost and liquidity.

In July, the Group recorded LFL revenue less pass-through costs of -9.2%, showing a steady improvement over the second quarter, although performance across markets remains volatile.

Whilst the macroeconomic environment remains uncertain, based on the impact we have seen so far, and assuming no further economic lockdowns in any of our major markets, we expect an outcome for the full year to be within the current range of analysts’ expectations of -10.0% to -11.5% for like-for-like growth in revenue less pass-through costs, and 10.4% to 12.5% for headline operating margin.

Given the acceleration of a number of the trends that will drive the future growth of WPP and the progress we have made against the three-year plan we set out in December 2018, we intend to host a capital markets event for investors and analysts towards the end of 2020, to update on our strategy, highlight efficiency savings and outline our plans for capital allocation.

Financial results

Unaudited headline income statement:

Six months ended (£ million)

 

30 June
2020

30 June
2019

∆ reported

∆ LFL

Continuing operations

 

 

 

 

Revenue

5,583

6,368

-12.3%

-11.5%

Revenue less pass-through costs

4,668

5,199

-10.2%

-9.5%

Operating profit

382

617

-38.1%

-37.8%

Operating margin %

8.2%

11.9%

-3.7pt

-3.7pt

Income from associates

-

15

-

 

PBIT

382

632

-39.6%

 

Net finance costs

(106)

(138)

23.3%

 

Profit before tax

276

494

-44.2%

 

Tax

(64)

(112)

42.9%

 

Profit after tax

212

382

-44.6%

 

Non-controlling interests

(21)

(31)

30.8%

 

Profit attributable to shareholders

191

351

-45.8%

 

Diluted EPS

15.4p

28.0p

-45.0%

 

Reconciliation of operating (loss)/profit to headline operating profit:

Six months ended (£ million)

30 June 2020

30 June 2019

Continuing operations

 

 

Operating (loss)/profit

(2,453)

596

Amortisation and impairment of acquired intangible assets

53

53

Goodwill impairment

2,521

-

Gains on disposal of investments and subsidiaries

(16)

(41)

Investment and other write-downs

220

-

Litigation settlement

-

(17)

Gain on sale of freehold property in New York

-

(8)

Restructuring and transformation costs

18

34

Restructuring costs in relation to COVID-19

39

-

Headline operating profit

382

617

Reported billings were £20.9 billion, down 17.5%, and down 16.8% like-for-like.

Reported revenue from continuing operations was down 12.3% at £5.6 billion. Revenue on a constant currency basis was down 12.4% compared with last year. Net changes from acquisitions and disposals had a negative impact of 0.9% on growth, leading to a like-for-like performance, excluding the impact of currency and acquisitions, of -11.5%.

Reported revenue less pass-through costs was down 10.2%, and down 10.3% on a constant currency basis. Excluding the impact of acquisitions and disposals, like-for-like growth was -9.5%. In the second quarter, like-for-like revenue less pass-through costs was down 15.1%, reflecting the impact of COVID-19 on economic activity.

Regional review

Revenue analysis

 

Q2

 

H1

 

£m

Reported
growth

LFL
growth

 

£m

Reported
growth

LFL
growth

N. America

1,076

-11.5%

-12.7%

 

2,177

-6.7%

-7.6%

United Kingdom

347

-27.3%

-24.9%

 

758

-16.5%

-14.0%

W Cont. Europe

531

-20.8%

-21.6%

 

1,093

-13.5%

-13.5%

AP, LA, AME, CEE6

782

-22.8%

-20.1%

 

1,555

-16.5%

-13.8%

Total Group

2,736

-19.0%

-18.4%

 

5,583

-12.3%

-11.5%

Revenue less pass-through costs analysis

 

Q2

 

H1

 

£m

Reported
growth

LFL
growth

 

£m

Reported
growth

LFL
growth

N. America

918

-8.7%

-10.2%

 

1,856

-4.9%

-6.1%

United Kingdom

272

-24.5%

-23.3%

 

586

-15.4%

-14.2%

W Cont. Europe

453

-18.0%

-18.8%

 

920

-11.7%

-11.7%

AP, LA, AME, CEE

659

-18.6%

-14.8%

 

1,306

-13.7%

-10.1%

Total Group

2,302

-15.6%

-15.1%

 

4,668

-10.2%

-9.5%

Headline operating profit analysis

£ million

2020

% margin*

2019

% margin*

N. America

215

11.6%

278

14.3%

United Kingdom

35

6.0%

87

12.5%

W Cont. Europe

44

4.8%

96

9.3%

AP, LA, AME, CEE

88

6.7%

156

10.3%

Total Group

382

8.2%

617

11.9%

* Headline operating profit as a percentage of revenue less pass-through costs

North America like-for-like revenue less pass-through costs was down 6.1% in the first half and down 10.2% in the second quarter. This reflects a good start to the year, before the impact of COVID-19 began to be felt from March. Our improved new business performance in 2019, and good momentum at VMLY&R which grew in the US in both the first half and the second quarter, led to the strongest regional performance across the Group. Specialist Agencies underperformed the overall North America performance, reflecting weakness in the automotive and travel sectors, as well as weaker performances across a number of smaller agencies. Our PR businesses outperformed, and were only slightly down year-on-year.

United Kingdom like-for-like revenue less pass-through costs was down 14.2% in the first half and down 23.3% in the second quarter. Performance overall reflected the extent of the lockdown in the second quarter, as well as a strong performance in the comparable period. VMLY&R was a relative outperformer, but all of our Global Integrated Agencies declined over the period. PR held up better than the other business segments, but was still down significantly year-on-year.

Western Continental Europe like-for-like revenue less pass-through costs was down 11.7% in the first half and down 18.8% in the second quarter. Of the larger markets, France, Italy and the Netherlands were particularly hard-hit in the second quarter, Germany was relatively resilient and Spain traded in line with the region as a whole. Denmark, where we have a commerce and technology centre of excellence, grew in the first half and second quarter.

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, like-for-like revenue less pass-through costs was down 10.1% in the first half and down 14.8% in the second quarter. Eastern Europe performed relatively better than the other regions in the second quarter. China bounced back to growth in the second quarter, which partly reflected the economic recovery but was also the result of a weak comparative period. The China performance was offset within Asia Pacific by weaker trends in Australia, India and Singapore.

Business sector review

Revenue analysis

 

Q2

 

H1

 

£m

Reported
growth

LFL
growth

 

£m

Reported
growth

LFL
growth

Global Int. Agencies

2,095

-20.3%

-19.1%

 

4,249

-12.8%

-11.4%

Public Relations

224

-8.1%

-9.6%

 

447

-5.2%

-6.3%

Specialist Agencies

417

-17.3%

-19.6%

 

887

-13.3%

-14.4%

Total Group

2,736

-19.0%

-18.4%

 

5,583

-12.3%

-11.5%

Revenue less pass-through costs analysis

 

Q2

 

H1

 

£m

Reported
growth

LFL
growth

 

£m

Reported
growth

LFL
growth

Global Int. Agencies

1,717

-16.3%

-15.7%

 

3,462

-10.3%

-9.5%

Public Relations

214

-6.0%

-7.5%

 

426

-3.6%

-4.5%

Specialist Agencies

371

-17.5%

-16.3%

 

780

-13.3%

-11.8%

Total Group

2,302

-15.6%

-15.1%

 

4,668

-10.2%

-9.5%

 

Headline operating profit analysis

£ million

2020

% margin*

2019

% margin*

Global Int. Agencies

256

7.4%

463

12.0%

Public Relations

72

16.9%

68

15.4%

Specialist Agencies

54

7.0%

86

9.6%

Total Group

382

8.2%

617

11.9%

* Headline operating profit as a percentage of revenue less pass-through costs

Global Integrated Agencies like-for-like revenue less pass-through costs was down 9.5% in the first half and down 15.7% in the second quarter. VMLY&R was the best performing integrated agency, reflecting its improving business momentum since the merger. Wunderman Thompson also performed better than the segment as a whole, again benefiting from the creation of an integrated agency. Hogarth, our specialist production business, experienced strong demand for its services. GroupM underperformed the segment, due to the closer correlation of its revenue to client media expenditure.

Public Relations like-for-like revenue less pass-through costs was down 4.5% in the first half and down 7.5% in the second quarter. Headline operating profit was up year-on-year as a result of improved margins. Demand for PR services held up well relative to other parts of the Group, as clients sought advice on their communication with all stakeholders in light of the pandemic. Hill+Knowlton was the best-performing of our major agencies. In July, we announced the merger of Finsbury, Glover Park and Hering Schuppener to form Finsbury Glover Hering, which will be a leading global strategic communications and public affairs business.

Specialist Agencies like-for-like revenue less pass-through costs was down 11.8% in the first half and down 16.3% in the second quarter. Of the larger agencies, AKQA and Geometry performed better than the overall segment, with GTB broadly in line. Brand Consulting, which is more project-based in nature, experienced short-term budget cuts. Smaller agencies focused on challenged sectors such as airlines, or in events production, suffered from a collapse in demand in the second quarter.

Operating profitability

Reported loss before tax was £2.6 billion, compared to a profit of £409 million in the prior period, reflecting principally the £2.7 billion of impairment charges and £57 million of restructuring and transformation costs (see table on page 8).

Reported loss after tax was £2.6 billion compared to a profit last year of £300 million.

Headline EBITDA (including IFRS 16 depreciation) for the first half was down 34.4% to £480 million, and down 35.1% in constant currency. Headline operating profit was down 38.1% to £382 million, and down 37.8% like-for-like. The sharp decline in profitability year-on-year reflects the sudden and significant impact of COVID-19 on revenue less pass-through costs.

Headline operating margin was down 370 basis points to 8.2%, and also down 370 basis points like-for-like. Operating costs were down 6.5%, with a year-on-year saving of £296 million. The main areas of cost reduction were in travel and discretionary expenditure (down 47%), property costs (down 5%) and staff costs (down 5%). Over the course of the first half, we offset 56% of the decline in revenue less pass-through costs with cost saving actions; in the second quarter, the offset was 68%. The monthly runrate of cost savings at the end of the first half makes us confident of delivering towards the upper end of our target of £700-800 million for the year. We expect most of these costs to rise again as the business recovers, but see more permanent opportunities in travel and property costs as a result of new ways of working, and expect around 25% of total cost savings to be permanent as we return to 2019 levels of revenue less pass-through costs.

The Group’s headline operating margin is after charging £19 million of severance costs, compared with £16 million in the first half of 2019 and £48 million of incentive payments, compared to £95 million in the first half of 2019.

On a like-for-like basis, the average number of people in the Group in the first half was 105,000 compared to 106,000 in the first half of 2019. On the same basis, the total number of people at 30 June 2020 was 101,000 compared to 106,000 at 30 June 2019. The decrease reflects a combination of voluntary leavers whose roles were not replaced as part of the hiring freeze, and redundancies. Wherever possible, the preservation of our workforce continues to be a priority.

Impairments

Impairments of £2.7 billion (including £2.5 billion of goodwill impairments and £0.2 billion of investment and other write-downs) were recognised in the first half. The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed in light of the impact of COVID-19. The impairments are driven by a combination of higher discount rates used to value future cash flows, a lower profit base in 2020 and lower industry growth rates. The majority of the impairments relate to businesses acquired as part of the Y&R acquisition in 2000. A full analysis of the impairments is provided in Appendix 1.

Exceptional items

In addition to the impairments outlined above, the Group incurred a net exceptional loss of £92 million in the first half of 2020. This comprises £16 million of gains on disposals, less losses including the Group’s share of associate company exceptional losses (£51 million) and restructuring and transformation costs (£57 million). The majority of the latter comprise severance costs arising from the continuing structural review of parts of the Group’s operations and our response to the COVID-19 situation. This compares with a net exceptional gain in the first half of 2019 of £18 million.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments) were £106 million, a decrease of £32 million year-on-year, primarily as a result of lower average net debt.

The headline tax rate (excluding associate income) was 23.1% (2019: 23.4%) and on reported profit before tax was -0.9% (2019: 26.7%), with the difference in the reported tax rate in 2020 principally due to impairments. Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

Earnings and dividend

Headline profit before tax was down 44.2% to £276 million, and down 45.8% like-for-like.

Losses attributable to share owners were £2.6 billion, again reflecting principally the £2.7 billion of impairments and £92 million of other net exceptional losses.

Headline diluted earnings per share from continuing operations fell by 45.0% to 15.4p and was down 45.1% like-for-like. Reported diluted loss per share, on the same basis, was 214.5p, compared to earnings per share of 21.4p in the prior period.

In March 2020, we announced the Board’s decision to suspend the 2019 final dividend of 37.3p per share to protect liquidity in light of the threat to liquidity and cash flow from the COVID-19 impact. The Board has now decided to cancel this dividend to contribute towards lower leverage.

For 2020, the Board is declaring an interim dividend of 10p. The record date for the interim dividend is 9 October 2020, and the dividend will be payable on 6 November 2020.

Further details of WPP’s financial performance are provided in Appendix 1.

Cash flow highlights

Six months ended (£ million)

30 June 2020

30 June 2019

Operating (loss)/profit of continuing and discontinued operations

(2,443)

673

Depreciation and amortisation

306

360

Impairments and investment write-downs

2,741

-

Lease payments (inc interest)

(203)

(156)

Non-cash compensation

31

33

Net interest paid

(32)

(75)

Tax paid

(201)

(261)

Capex

(141)

(167)

Earnout payments

(88)

(58)

Other

(44)

(83)

Trade working capital

(456)

(297)

Other receivables, payables and provisions

(295)

(482)

Free cash flow

(825)

(513)

Disposal proceeds

207

301

Net initial acquisition payments

(46)

(25)

Share buybacks

(286)

-

Net cash flow

(950)

(237)

 

Net cash outflow for the first half was £950 million, compared to £237 million in the first half of 2019. The main drivers of the cash flow performance year-on-year were the lower operating profit as a result of the impact of the pandemic, lower net disposal proceeds, the £286 million of share buybacks in the first quarter and the movement in working capital from a very strong position at December 2019. Over the last 12 months, net working capital improved by £404 million. A summary of the Group’s unaudited cash flow statement and notes for the six months to 30 June 2020 is provided in Appendix 1.

Balance sheet highlights

As at 30 June 2020 we had cash of £2.5 billion and total liquidity, including undrawn credit facilities, of £4.7 billion. Average net debt in the first half was £2.5 billion, compared to £4.5 billion in the prior period, at 2020 exchange rates. On 30 June 2020 net debt was £2.7 billion, against £4.3 billion on 30 June 2019, a reduction of £1.7 billion at 2020 exchange rates. The reduced net debt figure year-on-year reflects the benefit of the proceeds from the Kantar transaction as well as an improved working capital performance.

In May, we issued bonds of €750 million and £250 million. Our bond portfolio at 30 June 2020 had an average maturity of 8.1 years, with no maturities until 2022.

The average net debt to EBITDA ratio in the 12 months to 30 June 2020 is 2.1x, which excludes the impact of IFRS 16. Despite the actions we have taken on the 2019 final dividend, the continued suspension of the share buyback relating to part of the Kantar proceeds, and reductions to costs and capex, the immediate impact of the pandemic on profitability means that we expect to end the year slightly above our target leverage range of average net debt/EBITDA of 1.5-1.75x.

A summary of the Group’s unaudited balance sheet and notes as at 30 June 2020 is provided in Appendix 1.

1

Percentage change in reported sterling.

2

Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals.

3

Prior year figures have been re-presented in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, as described in note 13 of Appendix 1.

4

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.

5

Like-for-like growth in revenue less pass-through costs of -10.0% to -11.5%, and headline operating margin of 10.4% to 12.5%.

6

Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.

 

Contacts

Investors and analysts
Peregrine Riviere } +44 7909 907193
Fran Butera (US) } +1 914 484 1198

Media
Chris Wade } +44 20 7282 4600

Richard Oldworth, +44 20 7466 5000
Buchanan Communications +44 7710 130 634

wpp.com/investors

Contacts

Investors and analysts
Peregrine Riviere } +44 7909 907193
Fran Butera (US) } +1 914 484 1198

Media
Chris Wade } +44 20 7282 4600

Richard Oldworth, +44 20 7466 5000
Buchanan Communications +44 7710 130 634

wpp.com/investors