WPP WPP PLC

• Reported revenues up 2.7% at £5.469 billion in sterling, up 11.3% at $9.135 billion in dollars and up 6.5% at €6.663 billion in euros
• Constant currency revenues up 11.3%, like-for-like revenues up 8.7%
• Constant currency net sales up 6.4%, like-for-like net sales up 4.1%
• Reported billings down 3.0% at £22.060 billion ravaged by sterling strength, but up 5.7% in constant currency
• Reported net sales margin of 13.0%, flat with last year, up 0.3 margin points on a constant currency basis and up 0.3 margin points like-for-like in line with the full year margin target
• Headline reported profit before interest and tax £622 million, down 2.4%, but up 9.0% in constant currency
• Headline profit before tax £532 million up 1.5%, up 15.6% in constant currency
• Profit before tax £491 million up 15.0%, up 33.7% in constant currency
• Reported profit after tax £396 million up 25.6%, up 47.9% in constant currency
• Headline diluted earnings per share 29.2p up 2.8%, up 17.1% in constant currency
• Reported diluted earnings per share 27.0p up 25.6%, up 47.7% in constant currency
• Dividends per share 11.62p up 10%, a pay-out ratio of 40% versus 37% last year
• Share buy-backs upped significantly in line with target to £390 million in the first half, up from £133 million last year, equivalent to 2.3% of the issued share capital against 1.0% last year
• Targeted dividend pay-out ratio of 45% likely to be achieved this year well ahead of schedule
• Including all associates and investments, revenues total over $24 billion annually and people average over 179,000

WPP (NASDAQ:WPPGY) today reported its 2014 Interim Results.

                             

Key figures

£ million         H1 2014      

∆ reported1

     

∆ constant2

      H1 2013 Billings         22,060       -3.0%       5.7%       22,736 Revenue         5,469       2.7%       11.3%       5,327 Net sales         4,792       -1.9%       6.4%       4,884

Headline EBITDA3

        733       -2.7%       8.1%       753

Headline PBIT4

        622       -2.4%       9.0%       637

Net sales margin5

       

13.0%

      -      

0.36

      13.0% Profit before tax         491       15.0%       33.7%       427 Profit after tax         396       25.6%       47.9%       315

Headline diluted EPS7

        29.2p       2.8%       17.1%       28.4p

Diluted EPS8

        27.0p       25.6%       47.7%       21.5p Dividends per share         11.62p       10.0%       10.0%       10.56p  

First-half and Q2 highlights

• Reported billings decreased by 3.0% to £22.060bn, but up 5.7% in constant currency
• Reported revenue growth of 2.7%, with like-for-like growth of 8.7%, 2.6% growth from acquisitions and -8.6% from currency, reflecting the continuing strength of the pound sterling against the US dollar, Euro and many currencies in the faster growth markets, as seen in the final quarter of 2013 and the first half of this year. Quarter two growth has seen significant improvement over the first quarter of the year
• Reported net sales down 1.9% in sterling (up 6.3% in dollars and 1.8% in euros), with like-for-like growth of 4.1%, 2.3% growth from acquisitions and -8.3% from currency
• Constant currency revenue growth in all regions and business sectors, characterised by particularly strong growth geographically in North America, the United Kingdom and Asia Pacific, Latin America, Africa & the Middle East and Central and Eastern Europe, and functionally in advertising and media investment management and sub-sectors direct, digital and interactive and specialist communications
• Like-for-like net sales growth of 4.1%, an improvement over the first quarter, with the gap compared to revenue growth widening further in the second quarter, as the scale of digital media purchases in media investment management and data investment management revenues increased
• Reported headline EBITDA down 2.7%, with constant currency growth of 8.1%, delivered through strong like-for-like organic net sales growth and by 0.3 margin points improvement, with operating costs up 6.2%, rising less than net sales
• Reported headline PBIT decreased slightly by 2.4%, but up 9.0% in constant currency with both constant currency and like-for-like net sales margin, a more accurate competitive comparator, increasing by 0.3 margin points, in line with the Group’s full year target
• Reported headline diluted EPS up 2.8%, up 17.1% in constant currency, enabling the payment of a 10% higher interim ordinary dividend of 11.62p, giving a pay-out ratio of 40% compared with 37% last year. The Group’s targeted pay-out ratio is 45% over the next two years, which is likely to be achieved in 2014 well ahead of schedule
• Average net debt decreased by £348m (+11%) to £2.765 billion compared to last year, at 2014 constant rates, reflecting improvements in working capital and also the benefit of converting the £450 million Convertible Bond in mid-2013
• Creative and effectiveness excellence recognised again in 2014 with the award of the Cannes Lion to WPP for the most creative Holding Company for the fourth successive year since the award’s inception and another to Ogilvy & Mather Worldwide for the third consecutive year as the most creative agency network. In another rare occurrence in our industry, Grey was named Global Agency of the Year 2013 by both US trade magazines Ad Age and Ad Week. For the third consecutive year, WPP was awarded the EFFIE as the most effective Holding Company
• Clear number one position in all net new business tables for the last two and a half years
• Strategy implementation accelerated even in a dead POG 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 2014 | July net sales were up 2.8% like-for-like, against a strong comparative growth rate in 2013 of 4.1%. All regions and sectors were positive, and showed a similar pattern to the first half, albeit slightly lower overall. Cumulative like-for-like net sales growth for the first seven months of 2014 is now 4.0%
• FY 2014 quarter 2 revised forecast | Increase in like-for-like revenue growth from the quarter 1 revised forecast, as the scale of digital media purchases increased, with net sales growth similar at over 3% and a stronger first half and a similar second half. Headline net sales operating margin target improvement, as previously, of 0.3 margin points in constant currency
• Dual Focus in 2014 | 1. Stronger than competitor revenue and net sales growth due to leading position in both faster growing geographic markets and digital, premier parent company creative position, new business, horizontality and strategically targeted acquisitions; 2. Continued emphasis on balancing net sales growth with headcount increases and improvement in staff costs/net sales ratio to enhance operating margins
• Long-term targets reaffirmed | Above industry revenue and net sales growth due to geographically superior position in new markets and functional strength in new media and data investment management, including data analytics and the application of new technology; improvement in staff cost/net sales ratio of 0.2 or more depending on net sales growth; net sales operating margin expansion of 0.3 margin points or more; and headline diluted EPS growth of 10% to 15% p.a. from net sales growth, margin expansion, strategically targeted small and medium-sized acquisitions and share buy-backs

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   £ million         2014       ∆ reported      

∆ constant9

     

∆ LFL10

      acquisitions       2013   First quarter         2,570       1.5%       9.6%       7.0%       2.6%       2,532   Second quarter         2,899       3.7%       12.8%       10.2%       2.6%       2,795   First half         5,469       2.7%       11.3%       8.7%       2.6%       5,327                                            

Net sales analysis

  £ million         2014       ∆ reported       ∆ constant       ∆ LFL       acquisitions       2013 First quarter         2,283       -1.8%       6.1%       3.8%       2.3%       2,326 Second quarter         2,509       -2.0%       6.8%       4.4%       2.4%       2,558 First half 4,792 -1.9% 6.4% 4.1% 2.3% 4,884  

Reported billings were down 3.0% at £22.060 billion, but up 5.7% in constant currency. Estimated net new business billings of £2.556 billion ($4.089 billion) were won in the first half of the year, compared with a similar level of £2.613 billion in the first half of last year, resulting in the Group leading all net new business tables once again. 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 2014 and in 2015. Pitch results following recent pharmaceutical client consolidations have benefited the Group’s healthcare communications businesses significantly.

Reportable revenue was up 2.7% at £5.469 billion. Revenue on a constant currency basis was up 11.3% compared with last year, the difference to the reportable number reflecting the continuing strength of the pound sterling against the US dollar, Euro and many currencies in the faster growth markets, as seen in the final quarter of 2013 and the first half of this year. 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 11.3% to $9.135 billion, which compares with the $7.373 billion of our closest current competitor and euro reportable revenues were up 6.5% to €6.663 billion, which compares with €3.358 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 8.7% in the first half, with net sales up 4.1%, with the gap compared to revenue growth widening further in the second quarter, as the scale of digital media purchases in media investment management and data investment management revenues increased. In the second quarter, like-for-like revenues were up 10.2%, a significant strengthening over the first quarter’s 7.0%, with net sales also further strengthening up 4.4%, following 3.8% in the first quarter giving 4.1% 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 now over $7 trillion net cash lying virtually idle in those balance sheets, still seems destined to remain so, with companies, even after the recent upturn in merger activity, unwilling to attempt excessive acquisition risk (except perhaps in our own industry) or expand capacity, particularly in mature markets.

Operating profitability

Reported headline EBITDA was down 2.7% to £733 million, up 8.1% in constant currency. Reported headline operating profit was down 2.4% to £622 million from £637 million, but up 9.0% in constant currency. As has been noted before, our profitability tends to be more skewed to the second half of the year compared with some of our competitors, for reasons which we do not yet understand.

Reported headline net sales operating margins were flat with the first half of last year at 13.0%, up 0.3 margin points in constant currency, in line with the Group’s full year margin target of a 0.3 margin points improvement on a constant currency basis. On a like-for-like basis, operating margins were also up 0.3 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, net sales are a more meaningful measure of competitive comparative top line and 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. In addition, the Group’s media investment management sub-sector is increasingly buying digital media on its own account and, as a result, the subsequent billings to clients have to be accounted for as revenue, as well as billings. Thus, revenues and the rate of growth of revenues will increase, although net sales and the growth rate of net sales will remain unaffected and the latter will present a clearer picture of underlying performance. Because of these two significant factors, the Group, whilst continuing to report revenue and revenue growth, will focus even more on net sales and the net sales operating margin in the future. In the first half, as noted above, the constant currency and like-for-like headline net sales margin was up 0.3 margin points.

On a reported basis, net sales operating margins, before all incentives11, were 15.3%, down 0.4 margin points, compared with 15.7% last year. The Group’s staff cost to net sales ratio, including incentives, increased by 0.1 margin points to 66.6% compared with 66.5% in the first half of 2013. On a constant currency basis, however, net sales margins, before all incentives, were 15.4%, flat with the first half of 2013, and the staff cost to net sales ratio, including incentives, was down 0.2 margin points to 66.5% compared with 66.7% in the first half of 2013. This reflected better staff cost to net sales ratio management, through better control of the growth of staff numbers and salary and related costs, as compared to net sales, than in the first half of 2013.

Operating costs

In the first half of 2014, reported operating costs12 fell by 1.8% and were up by 6.2% in constant currency, compared with reported net sales down 1.9% and constant currency growth of 6.4%. Reported staff costs excluding all incentives were up 0.5 margin points at 64.3% of net sales and up 0.3 margin points in constant currency. Incentive costs amounted to £113.0 million or 16.0% of headline operating profits before incentives and income from associates, compared to £127.9 million last year, or 17.4%, a decrease of £14.9 million or 11.6%. 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%. Severances were £27.5 million in the first half, up £9.4 million on last year. Variable staff costs were 6.5% of revenues and 7.4% of net sales, at the higher end of historical 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 120,102 in the first half of the year, compared to 118,315 in the same period last year, an increase of 1.5%. On the same basis, the total number of people in the Group, excluding associates, at 30 June 2014 was 121,883, up only 1.7% compared to 119,801 at 30 June 2013, and up only 808, or 0.7%, on 121,075 at 1 January 2014, reflecting careful control of headcount increases. On the same basis revenues increased 8.7%, with net sales up 4.1%.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments) were £90.4 million compared to £113.3 million in the first half of 2013, a decrease of £22.9 million, reflecting lower levels of average net debt and higher income from investments.

The headline tax rate was 20.0% (2013 21.8%). The tax rate on reported profit before tax was 19.3% (2013 26.2%).

Earnings and dividend

Reported headline profit before tax was up 1.5% to £532 million from £524 million and up 15.6% in constant currency.

Reported profit before tax rose by 15.0% to £491 million from £427 million, or up 33.7% in constant currency. Reported profits attributable to share owners rose by 29.9% to £365 million from £281 million. In constant currency, profits attributable to share owners rose by 53.3%.

Reported diluted headline earnings per share rose by 2.8% to 29.2p from 28.4p. In constant currency, diluted headline earnings per share on the same basis rose by 17.1%. Diluted reported earnings per share rose by 25.6% to 27.0p from 21.5p and by 47.7% in constant currency.

As outlined in the June 2013 AGM statement, the Board gave consideration to the merits of increasing the dividend pay-out ratio from the then current level of approximately 40% to between 45% and 50%. Following that review, the Board decided to target a further increase in the pay-out ratio to 45% over the next two years and, as a result, declared an increase of 20% in the 2013 final dividend to 23.65p per share, which together with the interim dividend of 10.56p per share, made a total of 34.21p per share for 2013, an overall increase of 20%. This represented a dividend pay-out ratio of 42%, compared to a pay-out ratio of 39% in 2012. Given your Company’s better than expected progress, your Board believes it is likely we will reach the targeted dividend pay-out ratio of 45% in 2014, one year ahead of the anticipated date and, as a result, declares an increase of 10% in the interim dividend to 11.62p per share, compared with the 2.8% growth in reported diluted headline earnings per share and reported earnings per share up 24.2%. The dividend pay-out ratio for the first half is, therefore, 40%, reflecting the stronger weighting of the final dividend, against 37% last year. The record date for the interim dividend is 10 October 2014, payable on 10 November 2014. Further details of WPP’s financial performance are provided in Appendices 1, 2 and 3.

Regional review

The pattern of revenue and net sales growth differed regionally. The tables below give details of revenue and net sales and revenue and net sales growth by region for the second quarter and first half of 2014, as well as the proportion of Group revenues and net sales and operating profit and operating margin by region;

                                               

Revenue analysis

  £ million         Q2 2014       ∆ reported      

∆ constant13

     

∆ LFL14

      % group       Q2 2013       % group N. America         963       0.9%       10.9%       11.4%       33.2%       954       34.2% United Kingdom         426       21.7%       21.7%       19.2%       14.7%       350       12.5% W. Cont. Europe         653       -2.1%       3.1%       1.7%       22.5%       667       23.8%

AP, LA, AME, CEE15

        857       4.0%       19.4%       11.9%       29.6%       824       29.5% Total Group 2,899 3.7% 12.8% 10.2% 100.0% 2,795 100.0%                                                     £ million           H1 2014       ∆ reported       ∆ constant       ∆ LFL       % group       H1 2013       % group N. America           1,878       2.1%       11.1%       10.4%       34.4%       1,840       34.5% United Kingdom           784       17.2%       17.2%       15.2%       14.3%       669       12.6% W. Cont. Europe           1,244       -1.1%       3.6%       2.6%       22.7%       1,258       23.6% AP, LA, AME, CEE           1,563       0.2%       15.4%       8.7%       28.6%       1,560       29.3% Total Group 5,469 2.7% 11.3% 8.7% 100.0% 5,327 100.0%  

Net sales analysis

                                                  £ million         Q2 2014       ∆ reported       ∆ constant       ∆ LFL       % group       Q2 2013       % group N. America         851       -5.8%       3.6%       4.1%       33.9%       903       35.3% United Kingdom         349       8.2%       8.2%       6.5%       13.9%       322       12.6% W. Cont. Europe         548       -4.3%       0.8%       -0.3%       21.9%       573       22.4% AP, LA, AME, CEE         761       0.1%       15.0%       7.5%       30.3%       760       29.7% Total Group 2,509 -2.0% 6.8% 4.4% 100.0% 2,558 100.0%                                                     £ million           H1 2014       ∆ reported       ∆ constant       ∆ LFL       % group       H1 2013       % group N. America           1,678       -3.7%       4.8%       4.3%       35.0%       1,743       35.7% United Kingdom           665       8.4%       8.4%       6.9%       13.9%       613       12.5% W. Cont. Europe           1,052       -3.3%       1.3%       0.6%       22.0%       1,089       22.3% AP, LA, AME, CEE           1,397       -3.0%       11.9%       5.5%       29.1%       1,439       29.5% Total Group 4,792 -1.9% 6.4% 4.1% 100.0% 4,884 100.0%  

Operating profit analysis (Headline PBIT)

                              £ million         H1 2014       % margin       H1 2013       % margin N. America         250       14.9%       255       14.6% United Kingdom         91       13.7%       85       13.9% W. Cont. Europe         98       9.3%       100       9.2% AP, LA, AME, CEE         183       13.1%       197       13.7% Total Group 622 13.0% 637 13.0%  

North America like-for-like net sales growth increased 4.1% in the second quarter, slightly down on the first quarter growth of 4.4%, with a slight decline in the rate of growth in the Group’s advertising and media investment management and healthcare communications businesses, largely offset by stronger growth in the Group’s data investment management, public affairs and public relations and specialist communications businesses, which include direct, digital and interactive.

United Kingdom net sales were up 6.5% like-for-like in the second quarter, similar to the first quarter, with YTD growth of 6.9%. There was continuing strong growth in the Group’s media investment management businesses, with growth accelerating in the Group’s direct, digital and interactive, public relations and public affairs and specialist communications agencies, offset by some softening in data investment management, healthcare communications and branding & identity.

Western Continental Europe, which although very challenged from a macro-economic point of view, maintained positive growth in the second quarter, albeit at a slower rate, as it did in the first quarter, with like-for-like revenue growth of 1.7%. The Netherlands, Portugal, Spain and Turkey showed strong growth in the second quarter but Austria, Belgium, Greece, Ireland, Italy and Switzerland remain difficult. Net sales slipped back slightly in the second quarter, down 0.3% compared with 1.7% growth in the first quarter. France, Greece, Portugal, Spain and Turkey improved over the first quarter, but Germany, the Netherlands, Denmark, Norway, Belgium, Switzerland and Italy were slower. By sector, advertising and media investment management improved over the first quarter, offset by a slower rate of growth in the Group’s data investment management, public relations and public affairs and direct, digital and interactive businesses.

Asia Pacific, Latin America, Africa & the Middle East and Central and Eastern Europe, improved significantly in the second quarter, with like-for-like revenue growth of 11.9%, more than double that of the first quarter growth of 5.2%, driven by strong growth in Asia Pacific and Central and Eastern Europe. The BRICs16 and Next 1117 parts of Asia Pacific and the MIST18 showed strong growth. Net sales growth also improved in the second quarter, with like-for-like growth of 7.5% compared with 3.2% in the first quarter, and the improvement in Asia Pacific driven largely by gains in the Group’s media investment management, data investment management and direct, digital and interactive businesses in Greater China, India and Pakistan.

In Central and Eastern Europe, like-for-like net sales were up almost 14% compared with 1% in the first quarter, with double digit growth across several markets including Poland and the Czech Republic. Russia also performed strongly despite the current political tensions, but the Ukraine, understandably, saw continued softness.

Due to the first half of 2014 being seasonally lower, as usual, than the second half and also due to sterling’s strength, 29.1% of the Group’s net sales came from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, slightly down on the same period last year, but up over 1.0 margin point compared with the first quarter. This is against the Group’s revised strengthened strategic objective of 40-45% over the next five years.

Business sector review

The pattern of revenue and net sales growth also varied by communications services sector and operating brand. The tables below give details of revenue and net sales, revenue and net sales growth by communications services sector, as well as the proportion of Group revenues and net sales for the second quarter and first half of 2014 and operating profit and operating margin by communications services sector;

                                               

Revenue analysis

  £ million         Q2 2014       ∆ reported       ∆ constant      

∆ LFL

      % group       Q2 2013       % group

AMIM19

        1,302       12.2%       22.7%       19.4%       44.9%       1,161       41.5%

Data Inv. Mgt.20

        611       -6.0%       1.7%       2.6%       21.1%       651       23.3%

PR & PA21

        223       -5.6%       2.6%       2.8%       7.7%       236       8.5%

BI, HC & SC 22

        763       2.0%       10.6%       4.9%       26.3%       747       26.7% Total Group 2,899 3.7% 12.8% 10.2% 100.0% 2,795 100.0%                                                   £ million         H1 2014       ∆ reported       ∆ constant       ∆ LFL       % group       H1 2013       % group AMIM         2,391       9.0%       18.9%       16.4%       43.7%       2,193       41.2% Data Inv. Mgt.         1,177       -5.0%       2.6%       1.8%       21.5%       1,238       23.2% PR & PA         435       -4.9%       2.7%       2.3%       8.0%       458       8.6% BI, HC & SC         1,466       1.9%       9.9%       5.0%       26.8%       1,438       27.0% Total Group 5,469 2.7% 11.3% 8.7% 100.0% 5,327 100.0%  

Net sales analysis

                                            £ million     Q2 2014       ∆ reported       ∆ constant       ∆ LFL       % group       Q2 2013       % group AMIM     1,120       -0.9%       8.6%       6.1%       44.6%       1,129       44.1% Data Inv. Mgt.     436       -8.0%       -0.4%       1.7%       17.4%       474       18.5% PR & PA     221       -4.9%       3.4%       3.5%       8.8%       232       9.1% BI, HC & SC     732       1.2%       9.9%       3.8%       29.2%       723       28.3% Total Group 2,509 -2.0% 6.8% 4.4% 100.0% 2,558 100.0%                                                   £ million         H1 2014       ∆ reported       ∆ constant       ∆ LFL       % group       H1 2013       % group AMIM         2,118       -1.2%       7.8%       5.9%       44.2%       2,144       43.9% Data Inv. Mgt.         843       -6.3%       1.1%       1.2%       17.6%       899       18.4% PR & PA         430       -4.5%       3.2%       2.7%       9.0%       451       9.2% BI, HC & SC         1,401       0.8%       8.9%       3.8%       29.2%       1,390       28.5% Total Group 4,792 -1.9% 6.4% 4.1% 100.0% 4,884 100.0%  

Operating profit analysis (PBIT)

                              £ million         H1 2014       % margin       H1 2013       % margin AMIM         312       14.7%       315       14.7% Data Inv. Mgt.         88       10.5%       93       10.4% PR & PA         65       15.0%       60       13.2% BI, HC & SC         157       11.2%       169       12.2% Total Group 622 13.0% 637 13.0%  

Advertising and Media Investment Management

As in the first quarter, advertising and media investment management remains the strongest performing sector. Constant currency net sales grew by 8.6% in the second quarter, an acceleration over the 7.0% growth seen in the first quarter. Like-for-like growth was 6.1%, a slight increase over the first quarter growth of 5.7%. The rate of growth in the Group’s advertising businesses was slower than the first quarter, principally in North America and the United Kingdom, more than offset by the increased rate of growth in the Group’s media investment management businesses, principally in Asia Pacific as noted above. Of the Group’s advertising networks, as in the first quarter, Grey in particular, continued their strong performance, especially in North America. Growth in the Group’s media investment management businesses has been consistently strong over the last three years and this has continued into the first half of 2014, with constant currency net sales growth almost 12% for the first half and like-for-like growth up over 10%.

The Group gained a total of £2.556 billion ($4.089 billion) in net new business wins (including all losses and excluding retentions) in the first half, compared to £2.613 billion ($4.180 billion) in the same period last year. Of this, J. Walter Thompson Company (celebrating its 150th Anniversary year with a return to its original name), Ogilvy & Mather Worldwide, Y&R, Grey and United generated net new business billings of £431 million ($690 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 £1.759 billion ($2.815 billion). This new business performance ranks top of the class in all new business surveys in the first half, as in the last two years.

On a reportable basis, net sales margins were flat at 14.7%, reflecting the impact of the strength of sterling on high margin markets, but up 0.3 margin points on a constant currency basis.

Data Investment Management

On a constant currency basis, data investment management net sales decreased 0.4% in the second quarter, as a result of the sale of the call centre business in the United States in April. Like-for-like net sales were up 1.7% compared with 0.6% in the first quarter. In the second quarter, all regions except the United Kingdom and Western Continental Europe grew, with a significant improvement in North America, Asia Pacific, Africa and Central & Eastern Europe. The faster growing markets of Asia Pacific, Latin America, Africa and the Middle East maintained the strong growth seen in the first quarter, with like-for-like net sales up over 6% in the first half. Constant currency net sales margins improved strongly by 0.8 margin points, partly reflecting the improved performance in North America and in the faster growing markets and a minor benefit from restructuring.

Public Relations and Public Affairs

In constant currency, public relations and public affairs net sales increased 3.4% in the second quarter, compared with 2.9% in the first quarter. Like-for-like net sales were up 3.5%, a significant improvement over the first quarter growth of 1.9%, reflecting stronger growth in North America and the United Kingdom. Burson-Marsteller, Cohn & Wolfe and the specialist public relations and public affairs businesses performed particularly well. Constant currency net sales margins improved by 1.9 margin points and by 1.8 margin points on a reportable basis, with Burson-Marsteller, Cohn & Wolfe and the specialist businesses showing improved 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 net sales grew strongly at 9.9% in the second quarter, with like-for-like growth of 3.8%, similar to the first quarter growth of 3.7%. On a like-for-like basis the Group’s direct, digital and interactive and specialist communications businesses performed strongly in the second quarter with the Group’s branding and identity and healthcare agencies slower. Like-for-like, digital revenues now account for almost 36% of Group revenues and grew by 12.7% in the first half and net sales by 7.7%. Constant currency net sales margins for this sector as a whole were down 0.6 margin points, reflecting pressure in branding and identity and higher severances.

Associates, Investments, People, Countries, Clients, Horizontality

Including 100% of associates and investments, the Group has annual revenues of over $24 billion and over 179,000 full-time people in over 3,000 offices in 110 countries. The Group, therefore, has access to an unparalleled breadth and depth of marketing communications resources. It services 342 of the Fortune Global 500 companies, all 30 of the Dow Jones 30, 68 of the NASDAQ 100 and 716 national or multi-national clients in three or more disciplines. 451 clients are served in four disciplines and these clients account for almost 53% of Group revenues. This reflects the increasing opportunities for co-ordination between activities, both nationally and internationally. The Group also works with 371 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, or making sure our people in different disciplines work together, 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 2014, operating profit was £531 million, depreciation, amortisation and impairment £185 million, non-cash share-based incentive charges £54 million, net interest paid £125 million, tax paid £134 million, capital expenditure £95 million and other net cash outflows £3 million. Free cash flow available for working capital requirements, debt repayment, acquisitions, share re-purchases and dividends was, therefore, £413 million.

This free cash flow was absorbed by £222 million in net cash acquisition payments and investments (of which £15 million was for earnout payments with the balance of £207 million for investments and new acquisitions payments) and £390 million in share re-purchases, a total outflow of £612 million. This resulted in a net cash outflow of £199 million, before any changes in working capital and also reflects our strategic objectives of investing £300-£400 million annually in acquisitions and investments and increasing share buy-backs from 1-2% of the issued share capital to 2-3%.

A summary of the Group’s unaudited cash flow statement and notes as at 30 June 2014 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 36 transactions in the first half; 20 acquisitions and investments were in new markets and 29 in quantitative and digital. Of these, 13 were in both new markets and quantitative and digital.

Specifically, in the first six months of 2014, acquisitions and increased equity stakes have been completed in advertising and media investment management in Canada, the United Kingdom, France, the Netherlands, Poland, Russia, Turkey, the Middle East, South Africa, Peru, Australia, China, India and Vietnam; in data investment management in Italy, the Netherlands, Romania, Spain, the Kingdom of Saudi Arabia and the United Arab Emirates; in public relations and public affairs in China; in direct, digital and interactive in the United States, the United Kingdom, China and Vietnam.

A further five acquisitions and investments were made in July and so far in August, with two in advertising and media investment management in Africa and India; two in data investment management in the United Kingdom; and one in direct, digital and interactive in the United States. Two further acquisitions will be announced today, the first in media investment management in France and the second in the United States in data investment management.

Balance sheet highlights

Average net debt in the first six months of 2014 was £2.765 billion, compared to £3.113 billion in 2013, at 2014 exchange rates. This represents a decrease of £348 million, continuing to reflect improvements in the levels of working capital in the second half of 2013 and also the benefit of converting the £450 million Convertible Bond in mid-2013. On 30 June 2014 net debt was £2.957 billion, against £2.717 billion on 30 June 2013, an increase of £240 million. The increased net debt figure reflects significant incremental net acquisition spend of £116 million and incremental share re-purchases of £257 million, more than offsetting the relative improvement in working capital.

In July, the Group increased the size and extended the maturity of its Revolving Credit Facilities from $1.2 billion and £475 million due November 2016 to $2.5 billion due July 2019.

Your Board continues to examine the allocation of its EBITDA of £1.9 billion or over $3.0 billion, for the preceding twelve months and substantial free cash flow of over £1.2 billion, or approximately $2.0 billion per annum, also for the previous twelve months, to enhance share owner value. The Group’s current market value of £16.4 billion implies an EBITDA multiple of 8.7 times, on the basis of the trailing 12 months EBITDA to 30 June 2014. Including net debt at 30 June of £2.957 billion, the Group’s enterprise value to EBITDA multiple is 10.3 times. The Group’s free cash flow multiple is 13.2 times for the same period.

A summary of the Group’s unaudited balance sheet and notes as at 30 June 2014 is provided in Appendix 1.

Return of funds to share owners

Following the decision in June 2013 to increase the dividend pay-out ratio of approximately 40% to 45% over the next two years and this year’s strong first-half results, your Board raised the interim dividend by 10%, a pay-out ratio in the first half of 40%. This reflects the relative absolute size and weighting of the final dividend.

During the first six months of 2014, 31.3 million shares, or 2.3% of the issued share capital, were purchased at a cost of £390 million and an average price of £12.49 per share.

Current trading

July net sales were up 2.8% like-for-like, against a strong comparative growth rate in July 2013 of 4.1%. All regions and sectors were positive, and showed a similar pattern to the first half, albeit slightly slower. Cumulative like-for-like net sales growth for the first seven months of 2014 is now 4.0%. 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 net sales growth of over 3%, similar to the quarter 1 revised forecast and with a stronger first half and similar second half.

Outlook

Macroeconomic and industry context

Following the Group’s record year in 2013, 2014 has started stronger with a similar pattern to the final quarter of 2013, and with all geographies and sectors growing revenues and net sales on both a constant currency and like-for-like basis. Like-for-like net sales were up 4.1% in the first half compared with 3.8% in the first quarter of 2014 and 4.3% in the fourth quarter of last year, which together with quarter three were the strongest quarters of last year. Our operating companies are still hiring cautiously and responding to any geographic, functional and client changes in revenues and net sales – positive or negative. On a constant currency basis, operating profit is above budget and well ahead of last year and the increase in the net sales margin is in line with the Group’s full year target of a 0.3 margin point improvement.

Concerns still remain globally over the four, largely geo-political, “grey swans” (known unknowns), with perhaps even six now in the case of the United Kingdom. They include the continuing fragility of the Eurozone, for example, with the recently disappointing GDP growth, or lack of growth from Italy and France; the prospects for the Middle East, now considerably worse than a year ago; a Chinese or BRICs hard or soft landing, with most, if not all suffering a slowdown in 2013, and which continued into the first half of 2014; and, probably still most importantly, dealing with the US deficit and a record $16 trillion of debt, together with tapering, in the most effective way. In addition, although more parochially, the political decisions in the United Kingdom on Scottish devolution and Britain’s membership of the European Union, add further uncertainty to the United Kingdom economy. Very recently, all these concerns have been heightened by the emergence of three, again largely geo-political, “black swans” (unknown unknowns). First, during the World Economic Forum last January, the re-emergence of Sino/Japanese tensions over the Diaoyu/Senkaku Islands; secondly, the crisis in the Ukraine and the consequential Russian sanctions; and, thirdly, the most recent terrible conflicts in Iraq and Gaza. All in all, whilst clients may be more confident than they were in September 2008, they broadly remain unwilling to take further risks, particularly given so many political flash points. They remain focussed on a strategy of adding capacity and brand building in both fast growth geographic and functional markets, like digital and containing or reducing capacity, perhaps with brand building to maintain or increase market share, in the mature, slow growth markets. In addition, in a sub-pre-Lehman trend world, they understandably, but perhaps inadvisedly, remain focussed, on achieving their profitability objectives by cutting costs, rather than by growing the top-line. The recent surge of merger and acquisition activity, although to some extent driven by tax considerations, may reflect a concern that cost reduction opportunities may be close to being exhausted and that growth by acquisition may need to be tapped.

The pattern for 2014 looks very similar to 2013, perhaps with slightly increased client confidence, enhanced by slightly stronger global GDP growth forecasts. These forecasts reflect the mini-quadrennial events of the Winter Olympics at Sochi, the FIFA World Cup in Brazil (which did position perceptions of Brazil and Latin America, overall positively, just as the Beijing Olympics did for China, the World Cup did for South Africa and London 2012 did for the United Kingdom) and the mid-term Congressional elections in the United States. Forecasts of worldwide real GDP growth still hover around 2.7%, with inflation of 2.3% giving nominal GDP growth of around 5.0% for 2014, a percent or so increase on 2013, although they have been reduced recently and may be reduced further in due course. 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 grow at least at a similar rate as GDP, buoyed by incremental branding investments in the under-branded faster growing markets. Although both consumers and corporates seem to be increasingly cautious and risk averse, they should continue to purchase or invest in brands in both fast and slow growth markets to stimulate top line sales growth. Merger and acquisition activity may be regarded as an alternative way of doing this, particularly funded by cheap long-term debt and for tax inversion reasons, but we believe clients may ultimately regard this as a more risky way than investing in marketing and brand and hence growing market share, particularly given the variability or flexibility of marketing spend.

All in all, however, on a reportable basis, 2014 looks likely to be another demanding year, as a strong United Kingdom pound and weak faster growth market currencies continue to take their toll on our reported results. But, if budgets and quarter two revised forecasts are met, 2014 will be another strong year, as the first half results demonstrate. Current nominal worldwide GDP forecasts for 2015 indicate a similar growth rate at around 5.4%. This suggests that 2015 should be another good year for our industry, despite the absence of any mini- or maxi-quadrennial events.

In addition, it is particularly pleasing to report continuing progress for the Group’s creative and effectiveness excellence with the award of the Cannes Lion to WPP for the most creative Holding Company for the fourth successive year since the award’s inception and another to Ogilvy & Mather Worldwide for the third consecutive year as the most creative agency network. In another rare occurrence in our industry, Grey was named Global Agency of the Year 2013 by both US trade magazines Ad Age and Adweek. For the third consecutive year, WPP was also awarded the EFFIE as the most effective Holding Company.

Financial guidance

For 2014, reflecting the first half net sales growth and quarter 2 revised forecasts:

• Like-for-like net sales growth of over 3.0%
• Target operating margin to net sales improvement of 0.3 margin points on a constant currency basis in line with full year margin target

In 2014, our prime focus will remain on growing revenues and net sales faster than the industry average, driven by our leading position in the new markets, in new media, in data investment management, 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 cost flexibility, in order to adapt our cost structure in case of significant market changes. 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 6.5% of revenues or 7.4% of net sales and continue to position the Group extremely well should current market conditions deteriorate.

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. We have, in addition, decided that a significant proportion of operating company incentive pools will be funded and allocated on the basis of Group-wide performance this year and over the coming years. This will stimulate co-operative behaviour even more. Horizontality has been accelerated through the appointment of 40 global client leaders for our major clients, accounting for over one third of total revenues in 2013 of $17 billion and of 16 country and sub-regional managers already covering 50 of 110 countries in a growing number of test markets and sub-regions. Emphasis has been laid on the areas of media investment management, healthcare, sustainability, government, new technologies, new markets, retailing, sport, 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 very successful in the recent wave of consolidation in the pharmaceutical and shopper marketing industries and the resulting "team" pitches and a number of others, which combined creative and media assignments.

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

• Revenue and net sales growth greater than the industry average
• Improvement in net sales margin of 0.3 margin points or more, excluding the impact of currency, depending on net sales growth and staff cost to net sales ratio improvement of 0.2 margin points or more
• Annual headline diluted EPS growth of 10% to 15% per annum delivered through revenue growth, margin expansion, acquisitions and share buy-backs

To access WPP's 2014 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.

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 Headline profit before interest and tax, as a percentage of net sales 6 Margin points 7 Diluted earnings per share based on headline earnings 8 Diluted earnings per share based on reported earnings 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 Short and long-term incentives and the cost of share-based incentives 12 Excludes direct costs, goodwill impairment, amortisation and impairment of acquired intangibles, investment gains and write-downs, gains on re-measurement of equity interests on acquisition of controlling interest and restructuring cost s 13 Percentage change at constant currency rates 14 Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals 15 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe 16 Brazil, Russia, India and China (accounting for over $1.3 billion revenues, including associates, in the first half) 17 Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria, Pakistan, Philippines, Vietnam and Turkey - the Group has no operations in Iran (accounting for over $430 million revenues, including associates, in the first half) 18 Mexico, Indonesia, South Korea and Turkey (accounting for over $325 million revenues, including associates, in the first half) 19 Advertising, Media Investment Management 20 Data Investment Management 21 Public Relations & Public Affairs 22 Branding and Identity, Healthcare and Specialist Communications  

WPPSir Martin Sorrell, Paul Richardson, Chris Sweetland, Feona McEwan, Chris Wade+44 20 7408 2204orKevin McCormack, Fran Butera+1-212-632-2235orBelinda Rabano, +86 1360 1078 488www.wppinvestor.com