TIDMWPP
RNS Number : 6276H
WPP PLC
05 August 2021
WPP PLC ("WPP")
2021 Interim Results
Strong first half across the business: returned to 2019 levels a
year ahead of plan; full-year guidance raised; good progress on
transformation; GBP350 million buyback planned for H2
Key figures - continuing operations
+/(-) % +/(-) %
GBP million H1 2021 reported[1] LFL[2] H1 2020[3]
=========================== ======== ============= ======== ===========
Revenue 6,133 9.8 16.1 5,583
=========================== ======== ============= ======== ===========
Revenue less pass-through
costs 4,899 5.0 11.0 4,668
=========================== ======== ============= ======== ===========
Reported:
=========================== ======== ============= ======== ===========
Operating profit/(loss) 484 n/m[4] - (2,751)
=========================== ======== ============= ======== ===========
Profit/(loss) before
tax 394 n/m - (3,177)
=========================== ======== ============= ======== ===========
Diluted EPS (p) 20.6 n/m - (262.0)
=========================== ======== ============= ======== ===========
Dividends per share
(p) 12.5 25.0 - 10.0
=========================== ======== ============= ======== ===========
Headline[5]:
=========================== ======== ============= ======== ===========
Operating profit 590 54.4 - 382
=========================== ======== ============= ======== ===========
Operating profit margin 12.1% 3.9pt* - 8.2%
=========================== ======== ============= ======== ===========
Profit before tax 502 81.9 - 276
=========================== ======== ============= ======== ===========
Diluted EPS (p) 28.7 86.4 - 15.4
* Margin points
H1 and Q2 financial highlights
n H1 reported revenue 9.8%, LFL revenue 16.1% (Q2 26.4%)
n H1 revenue less pass-through costs 5.0%, LFL revenue less
pass-through costs 11.0% (up 0.5% on H1 2019)
n Q2 LFL revenue less pass-through costs 19.3%: US 12.6%, UK
31.8%, Germany 20.3%, Greater China 1.4%, Australia 8.4%, India
30.0%
n Q2 LFL revenue less pass-through costs on 2019 1.3%: US 1.8%,
UK 1.1%, Germany 6.3%, Greater China -1.7%, Australia -13.6%, India
-2.6%
n Strong new business performance: $2.9 billion net new billings
in H1
n H1 headline operating margin 12.1%, up 3.9 pt on prior year
with strong top-line growth supporting significant reinvestment in
incentives
n H1 headline operating margin pre incentives up 7.8 pt to
17.0%
n Net debt at 30 June 2021 GBP1.5 billion, down GBP1.2 billion
year-on-year reflecting good working capital management
Strategic progress, shareholder returns and outlook
n Shifting business mix: growth areas of experience, commerce
and technology represented 26% of revenue less pass-through costs
in H1
n Launch of Choreograph, future-ready data and analytics
company
n M&A to simplify and grow: buy-in of WPP AUNZ minorities;
technology acquisitions in Brazil and UK; Kantar agreed to acquire
Numerator
n Continued recognition of creativity and effectiveness: most
creative company at Cannes, collecting 190 Lions including 12 Grand
Prix, 1 Titanium, 28 Gold, 57 Silver and 92 Bronze
n Industry-leading commitment to net zero carbon emissions
across entire supply chain by 2030
n GBP248m share buyback in H1, GBP350m planned for H2; 12.5p
2021 interim dividend declared, +25%
n Full year 2021 LFL revenue less pass-through costs growth now
expected to be 9-10%; headline operating margin towards the upper
end of the 13.5-14.0% range
Mark Read, Chief Executive Officer, WPP:
"I'm delighted with our performance in the first six months of
the year, at a time when COVID continues to take a toll on many
countries. The like-for-like revenue less pass-through costs growth
rate of 19.3% in the second quarter is our highest on record, as
clients reinvest in marketing, particularly in digital media,
ecommerce and marketing technology. We have returned to 2019 levels
in 2021, a year ahead of our plan, with good momentum into
2022.
"We've also made very good strategic progress. Our recognition
as the most awarded company at the 2021 Cannes Lions Festival
reflects our investment in creative talent and the strength of our
creative work over the past two years. Our focus on data, commerce
and technology, through strategic acquisitions, organic investments
and the launch of Choreograph, has supported a strong new business
performance. Key assignment wins include AstraZeneca, Bumble, JP
Morgan Chase and Pernod Ricard.
"In procurement, property and shared services, we are making
strong progress as part of our overall transformation programme. We
have significantly increased our incentive pools in the first half,
to reflect the tremendous contribution of our people in these
challenging times, and in line with our intention to reinvest in
talent announced at our Capital Markets Day in December 2020.
"We expect our strategy to translate into benefits for all of
our stakeholders: a powerful, modern offer to support our clients'
growth; a great place for our people to work; a positive
contribution to communities and the environment; and good financial
returns for shareholders, with the interim dividend raised 25% and
GBP600 million of share buybacks planned in 2021."
For further information:
Investors and analysts
Peregrine Riviere } +44 7909 907193
Caitlin Holt } +44 7392 280178
Fran Butera (US) } +1 914 484 1198
Media
Chris Wade } +44 20 7282 4600
Richard Oldworth, +44 7710 130 634
Buchanan Communications +44 20 7466 5000
wpp.com/investors
First half overview
Market environment
The market recovery in the first half of the year has been much
faster than expected. Successful vaccination programmes in our
major markets have accelerated the easing of restrictions,
stimulating economic activity. As the global recovery gathered
pace, GroupM made a significant upward revision of its advertising
forecasts, predicting that the global advertising economy will grow
by 19% in 2021 (excluding US political advertising).
Much of this growth is expected to be captured by digital media,
as the underlying trends accelerated by the pandemic, such as the
shift to ecommerce and digitisation of media, have continued in the
first half of 2021. GroupM forecasts show digital media spend
increasing by 26% in 2021, a major uplift from the 15% estimated in
December 2020. Spend on television advertising is expected to grow
by 9%, as marketers continue to rely on the medium's reach
advantage to reinforce the strength of their brands. Most other
advertising channels are expected to stabilise or grow during 2021,
aside from magazines and newspapers where spend is expected to
decline.
The recovery has been broad-based across all major markets as
economies have begun to stabilise, supported by government stimulus
and vaccination roll-outs. Based on GroupM forecasts, advertising
spend in the UK will grow by 24% in 2021 driven by the economic
recovery. Better than 20% growth in advertising spend is also
forecast in Brazil and China. The US advertising market is expected
to grow by 17% in 2021, or 22% excluding political spend.
Performance and progress
Revenue in the first half was GBP6.1 billion, up 9.8% from
GBP5.6 billion in the first half of 2020, and up 16.1%
like-for-like. Revenue less pass-through costs was GBP4.9 billion,
up 5.0% from GBP4.7 billion in the first half of 2020, and up 11.0%
like-for-like.
We have seen a strong recovery in the first half of the year,
with LFL growth in revenue less pass-through costs across all
sectors and most major markets. On a two-year basis we are 0.5%
ahead of 2019 performance for the first half in terms of LFL
revenue less pass-through costs, having been slightly below 2019
levels in the first quarter of the year.
The nature of our work for clients has continued to evolve. We
have seen very strong demand from clients for commerce services.
GroupM commerce billings increased 61% year-on-year in the first
half. Our expertise in commerce was recognised in March, when
Forrester named WPP a Leader among commerce services providers in
the Forrester Wave(TM): Commerce Services, Q1 2021 report. Further
highlighting our pivot to digital, GroupM's proportion of digital
billings has increased from 41% in 2020 to 43% in the first half of
2021.
Our PR business has performed strongly (LFL revenue less
pass-through costs +7.4%), as WPP agencies remain a critical
partner and advisor to our clients. We have seen high demand for
purpose-related communications, as our clients have sought advice
on how to engage with their own stakeholders on sustainability
issues, and we see this as a significant opportunity for
growth.
In terms of client sector performance, we have seen a sustained
strong performance from our clients in the consumer packaged goods,
technology and healthcare & pharma sectors, which together
represent around 54% of our revenue less pass-through costs for
designated clients. In the first half these sectors saw LFL revenue
less pass-through costs growth of 11.3%, 14.5% and 13.4%
respectively. Compared to 2019, their growth rates were 7.2%, 12.7%
and 10.8%.
We have had a good performance in terms of new business, with
$2.9 billion of net new business billings won in the first half.
The performance of our integrated agencies, the strength and scale
of our global footprint and the collaboration between agencies have
continued to attract and retain clients. Key assignment wins
include AstraZeneca, Bumble, Hyatt, JP Morgan Chase, L'Oréal,
Pernod Ricard and Sam's Club, and key retentions include the US
Navy.
During the period, we continued to invest in strategically
important areas. We announced the acquisitions of DTI, a digital
innovation and software engineering business in Brazil, and NN4M, a
leading mobile commerce partner for global brands. In addition, our
40% associate Kantar agreed to acquire Numerator, a
technology-driven consumer and market intelligence company.
Our commitment to creativity is now being reflected more widely
in our work and awards. WPP was named the most creative company of
the year at the Cannes Lions International Festival of Creativity
in June, reflecting the investments we have made in creativity and
the strength of our talent. Our agencies collected a total of 190
Lions, including a Titanium Lion and 12 Grand Prix, with winners
representing 38 different countries. We announced the appointment
of Rob Reilly as Global Chief Creative Officer in January 2021,
reinforcing our commitment to drive creativity across WPP.
We are making good progress on our transformation programme, as
we lay the foundations for realising structural efficiencies in a
number of areas. In property, where our campus strategy is
well-advanced, we are on track to occupy 32 campuses by the end of
2021, with new cities this year including Detroit, Jakarta and
Milan. The adoption of more hybrid working practices will further
amplify the benefits of our campuses, and total establishment costs
are expected to be below 6% of revenue less pass-through costs this
year. In shared services, we are establishing global and regional
hubs, and have already deployed units from four markets into these
locations. In Enterprise IT, our benchmarking work has identified
significant opportunities as we develop plans to reduce the gap
between our cost of IT and the industry benchmark. In procurement,
we are pursuing an extensive programme to consolidate our supplier
base and re-tender existing supply arrangements to tackle the
significant opportunities within our GBP2 billion of annual
indirect spend.
We have also made further structural and organisational changes
which simplify WPP and improve the way we go to market and serve
clients. We have established Choreograph, a new global data
company, bringing together the specialist data units of GroupM and
Wunderman Thompson into a single company with global reach,
accessible to all WPP clients and companies, and recently announced
the appointment of Brendan Moorcroft as CEO. In addition, we have
combined separate operations into a single brand research and
analytics platform under BAV, creating the leading source of brand
analytics on over 60,000 brands worldwide. This will enable us to
better integrate brand data into our data analytics offer across
WPP companies. Finally, we completed the transaction to take 100%
ownership of WPP AUNZ, further simplifying the group structure.
Purpose and ESG
Environmental, social and governance issues are an increasingly
important topic for all our stakeholders, particularly our clients
and our people. WPP is at the heart of many of the pressing issues
that we face as a society and the actions and judgements we make as
a business are critically important.
WPP's purpose is to use the power of creativity to build better
futures for our people, our planet, our clients and our
communities. In June, we hosted an ESG event for stakeholders, to
set out our commitments and highlight the progress we have made
across the four pillars of our purpose statement.
Putting purpose at the heart of our business makes WPP a more
attractive employer for our people. In order to attract, retain and
grow top talent we have continued to invest in our people strategy
to ensure WPP is an employer of choice for all. This year we
launched our first quarterly Pulse survey, an employee listening
tool designed to better understand the sentiment of our people and
highlight the areas we need to focus on. WPP is committed to real
progress on diversity, equity and inclusion, and this year for the
first time we have incorporated diversity and sustainability
metrics into the compensation schemes for senior leaders. We have
also increased our incentive pools, as part of our plan to reinvest
savings in attracting and retaining talent.
Earlier this year, we announced our new commitments to reduce
carbon emissions from our own operations to net zero by 2025 and
across our supply chain by 2030. Our net zero pledges are backed by
equally ambitious science-based reduction targets, which have been
verified by the Science-Based Targets initiative. We have committed
to reducing our absolute Scope 1 and 2 emissions by at least 84% by
2025 and reduce Scope 3 emissions by at least 50% by 2030, both
from a 2019 base year.
Many of our clients are making great progress on reducing their
own emissions and we will continue to support them to reach their
targets. We have been recognised for our creativity in ESG-related
work at the Cannes Lions International Festival of Creativity
including a Titanium Grand Prix for Telenor work by Ogilvy in the
mobile category, using technology to alleviate inequalities in
Pakistan. In addition we won two design Grand Prix for AKQA's work
with H&M pioneering an in-store recycling system and
Superunion's work with Notpla, designing a sustainable alternative
to plastic packaging.
WPP's global scale and reach puts us in a unique position to
build global partnerships and make a positive contribution to the
communities in which we operate. This year, through the WPP India
Foundation we set up a COVID relief fund, providing ambulances on
call, organising oxygen concentrators, and supporting a vaccination
drive for all our people and their families across India.
2021 guidance
Performance in the first half of 2021 has been strong, and we
are confident of further good growth in the second half. As a
result, we are raising our guidance for 2021 as follows:
n Organic growth (defined as like-for-like revenue less
pass-through costs growth) of 9-10% (previously mid-single-digits
%), returning to 2019 levels a year ahead of plan
n Headline operating margin towards the upper end of the range
of 13.5-14.0%
n Capex GBP450-500 million
In addition, our current projections for foreign exchange
movements imply 4-5 percentage point drag to reported revenue less
pass-through costs from the strength of sterling year-on-year. We
also anticipate a net working capital outflow for 2021 of
GBP200-300 million, reflecting some normalisation from the very
strong position at the end of 2020.
Medium-term guidance
At our Capital Markets Day in December 2020, we set out our new
medium-term financial targets that will allow us to invest in
talent, incentives and technology, improve our competitive position
and deliver sustainable long-term growth. These were:
n Recovery to 2019 revenue less pass-through costs levels by
2022
n 3-4% annual growth in revenue less pass-through costs from
2023, including M&A benefit of 0.5-1.0% annually
n 15.5-16.0% headline operating margin in 2023
n Dividend: intention to grow annually with a pay-out ratio
around 40% of headline diluted EPS
n Average net debt/EBITDA maintained in the range 1.5-1.75x
We now expect to recover to 2019 levels of revenue less
pass-through costs on a like-for-like basis in the current year.
The rest of these targets remain unchanged.
Financial results
Unaudited headline income statement:
Six months ended (GBP million) 30 June 2021 30 June 2020 +/(-) % reported +/(-) % LFL
------------------------------------- --------------- --------------- ----------------- ------------
Continuing operations
------------------------------------- --------------- --------------- ----------------- ------------
Revenue 6,133 5,583 9.8 16.1
------------------------------------- --------------- --------------- ----------------- ------------
Revenue less pass-through costs 4,899 4,668 5.0 11.0
------------------------------------- --------------- --------------- ----------------- ------------
Operating profit 590 382 54.4
------------------------------------- --------------- --------------- ----------------- ------------
Operating margin % 12.1% 8.2% 3.9pt
------------------------------------- --------------- --------------- ----------------- ------------
Income from associates 29 - -
------------------------------------- --------------- --------------- ----------------- ------------
PBIT 619 382 62.0
------------------------------------- --------------- --------------- ----------------- ------------
Net finance costs (117) (106) (10.4)
------------------------------------- --------------- --------------- ----------------- ------------
Profit before tax 502 276 81.9
------------------------------------- --------------- --------------- ----------------- ------------
Tax (115) (64) (78.9)
------------------------------------- --------------- --------------- ----------------- ------------
Profit after tax 387 212 82.8
------------------------------------- --------------- --------------- ----------------- ------------
Non-controlling interests (34) (21) (64.0)
------------------------------------- --------------- --------------- ----------------- ------------
Profit attributable to shareholders 353 191 85.0
------------------------------------- --------------- --------------- ----------------- ------------
Diluted EPS 28.7p 15.4p 86.4
------------------------------------- --------------- --------------- ----------------- ------------
Reconciliation of operating profit/(loss) to headline operating
profit:
Six months ended (GBP million) 30 June 2021 30 June 2020[6]
============================================================ ============= ================
Continuing operations
============================================================ ============= ================
Operating profit/(loss) 484 (2,751)
============================================================ ============= ================
Amortisation and impairment of acquired intangible assets 30 53
============================================================ ============= ================
Goodwill impairment - 2,813
============================================================ ============= ================
Losses/(gains) on disposal of investments and subsidiaries 1 (16)
============================================================ ============= ================
Investment and other write-downs - 226
============================================================ ============= ================
Litigation settlement 22 -
============================================================ ============= ================
Restructuring and transformation costs 34 18
============================================================ ============= ================
Restructuring costs in relation to COVID-19 19 39
============================================================ ============= ================
Headline operating profit 590 382
============================================================ ============= ================
Reported billings were GBP23.4 billion, up 12.2%, and up 19.3%
like-for-like.
Reported revenue from continuing operations was up 9.8% at
GBP6.1 billion. Revenue on a constant currency basis was up 15.8%
compared with last year. Net changes from acquisitions and
disposals had a negative impact of 0.3% on growth, leading to a
like-for-like performance, excluding the impact of currency and
acquisitions, of 16.1%.
Reported revenue less pass-through costs was up 5.0%, and up
10.8% on a constant currency basis. Excluding the impact of
acquisitions and disposals, like-for-like growth was 11.0%. In the
second quarter, like-for-like revenue less pass-through costs was
up 19.3%.
Regional review
Revenue analysis
Q2 H1
================ ============================= =============================
GBPm +/(-) +/(-) GBPm +/(-) +/(-)
% reported % LFL % reported % LFL
================ ====== ============ ======= ====== ============ =======
N. America 1,121 4.2 16.7 2,184 0.3 10.2
================ ====== ============ ======= ====== ============ =======
United Kingdom 493 42.2 40.5 927 22.4 21.7
================ ====== ============ ======= ====== ============ =======
W Cont. Europe 728 37.1 41.1 1,341 22.7 23.5
================ ====== ============ ======= ====== ============ =======
AP, LA, AME,
CEE[7] 893 14.2 22.7 1,681 8.1 16.0
================ ====== ============ ======= ====== ============ =======
Total Group 3,235 18.3 26.4 6,133 9.8 16.1
Revenue less pass-through costs analysis
Q2 H1
================ ============================= =============================
GBPm +/(-) +/(-) GBPm +/(-) +/(-)
% reported % LFL % reported % LFL
================ ====== ============ ======= ====== ============ =======
N. America 931 1.5 13.7 1,817 (2.1) 7.5
================ ====== ============ ======= ====== ============ =======
United Kingdom 359 31.7 31.8 680 16.1 16.9
================ ====== ============ ======= ====== ============ =======
W Cont. Europe 559 23.4 27.1 1,050 14.2 15.0
================ ====== ============ ======= ====== ============ =======
AP, LA, AME,
CEE 716 8.8 16.1 1,352 3.5 10.5
================ ====== ============ ======= ====== ============ =======
Total Group 2,565 11.5 19.3 4,899 5.0 11.0
Headline operating profit analysis
GBP million 2021 % margin* 2020 % margin*
---------------- ----- ---------- ----- ----------
N. America 271 14.9% 215 11.6%
---------------- ----- ---------- ----- ----------
United Kingdom 83 12.3% 35 6.0%
---------------- ----- ---------- ----- ----------
W Cont. Europe 104 9.9% 44 4.8%
---------------- ----- ---------- ----- ----------
AP, LA, AME,
CEE 132 9.7% 88 6.7%
---------------- ----- ---------- ----- ----------
Total Group 590 12.1% 382 8.2%
* Headline operating profit as a percentage of revenue less
pass-through costs
North America like-for-like revenue less pass-through costs was
up 7.5% in the first half and up 13.7% in the second quarter. On a
two-year basis, North America was up 0.9% like-for-like for the
first half, with an improving trend in the second quarter.
VMLY&R was consistently strong throughout the first half, and
GroupM and Ogilvy led the recovery in the second quarter.
United Kingdom like-for-like revenue less pass-through costs was
up 16.9% in the first half and up 31.8% in the second quarter. On a
two-year basis, the UK was up 0.3% like-for-like for the first
half, returning to growth in the second quarter. Of our major
agencies, GroupM and AKQA Group showed the biggest improvements in
the two-year trend in the second quarter.
Western Continental Europe like-for-like revenue less
pass-through costs was up 15.0% in the first half and up 27.1% in
the second quarter. We saw a strong performance in Germany, and
Italy returned to two-year growth in the second quarter, but France
and Spain are yet to recover to 2019 levels.
In Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe , like-for-like revenue less
pass-through costs was up 10.5% in the first half and up 16.1% in
the second quarter. All regions grew strongly, with Latin America
the best-performing, followed by Central & Eastern Europe.
Business sector review
Revenue analysis[8]
Q2 H1
====================== ============================= =============================
GBPm +/(-) +/(-) GBPm +/(-) +/(-)
% reported % LFL % reported % LFL
====================== ====== ============ ======= ====== ============ =======
Global Int. Agencies 2,734 17.6 26.4 5,170 9.4 16.0
====================== ====== ============ ======= ====== ============ =======
Public Relations 236 5.4 14.1 450 0.7 7.5
====================== ====== ============ ======= ====== ============ =======
Specialist Agencies 265 42.1 40.6 513 24.9 25.8
====================== ====== ============ ======= ====== ============ =======
Total Group 3,235 18.3 26.4 6,133 9.8 16.1
Revenue less pass-through costs analysis
Q2 H1
====================== ============================= =================================
GBPm +/(-) +/(-) GBPm +/(-) +/(-)
% reported % LFL % reported % LFL
====================== ====== ============ ======= ========== ============ =======
Global Int. Agencies 2,135 10.8 19.2 4,069 4.4 10.9
====================== ====== ============ ======= ====== ============ =======
Public Relations 224 4.3 12.9 429 0.7 7.4
====================== ====== ============ ======= ========== ============ =======
Specialist Agencies 206 28.6 27.8 401 16.1 17.1
====================== ====== ============ ======= ========== ============ =======
Total Group 2,565 11.5 19.3 4,899 5.0 11.0
Headline operating profit analysis
GBP million 2021 % margin* 2020 % margin*
---------------------- ----- ---------- ----- ----------
Global Int. Agencies 483 11.9% 282 7.2%
---------------------- ----- ---------- ----- ----------
Public Relations 63 14.8% 72 16.9%
---------------------- ----- ---------- ----- ----------
Specialist Agencies 44 11.0% 28 8.1%
---------------------- ----- ---------- ----- ----------
Total Group 590 12.1% 382 8.2%
* Headline operating profit as a percentage of revenue less
pass-through costs
Global Integrated Agencies like-for-like revenue less
pass-through costs was up 10.9% in the first half and up 19.2% in
the second quarter. GroupM, representing 36% of revenue less
pass-through costs, was the strongest performer, up 17.0%
like-for-like in the half and up 28.6% in the second quarter.
VMLY&R also recorded double-digit growth for the first half,
and both businesses recorded encouraging two-year growth. Wunderman
Thompson, Ogilvy and AKQA Group all showed a strong recovery in the
second quarter.
Public Relations like-for-like revenue less pass-through costs
was up 7.4% in the first half and up 12.9% in the second quarter.
All parts of the business grew double-digits like-for-like in the
second quarter, with Finsbury Glover Hering being the strongest
performer.
Specialist Agencies like-for-like revenue less pass-through
costs was up 17.1% in the first half and up 27.8% in the second
quarter. We saw a very strong recovery in all our brand consulting
businesses, with resurgent demand for our services. CMI, our
specialist healthcare media business, also continued to perform
well.
Operating profitability
Reported profit before tax was GBP394 million, compared to a
loss of GBP3,177 million in the prior period, principally
reflecting the GBP2.8 billion of impairment charges and GBP57
million of restructuring and transformation costs in the prior
period (see table on page 8).
Reported profit after tax was GBP287 million compared to a loss
last year of GBP3,188 million.
Headline EBITDA (including IFRS 16 depreciation) for the first
half was up 45.8% to GBP699 million, and up 57.6% in constant
currency. Headline operating profit was up 54.4% to GBP590 million.
The strong improvement in profitability year-on-year reflects the
recovery in revenue less pass-through costs after the significant
impact of COVID-19 in the comparable period.
Headline operating margin was up 390 basis points to 12.1%.
Total operating costs were up 0.5% to GBP4.3 billion. Staff costs,
excluding incentives, were down 1.6% year-on-year to GBP3.2
billion, reflecting lower headcount. Establishment costs were down
15.8% at GBP265 million as we continued to benefit from our campus
roll-out. IT costs were up 1.1% at GBP277 million and other
operating expenses were down 13.4% at GBP242 million. Personal
costs fell 40.7% to GBP52 million, reflecting very low travel
costs. Excluding incentive payments as outlined below, operating
costs were down 4.1% year-on-year.
The Group's headline operating margin is after charging GBP15
million of severance costs, compared with GBP19 million in the
first half of 2020 and GBP244 million of incentive payments,
compared to GBP48 million in the first half of 2020. Excluding
incentive payments, headline operating margin improved by 780 basis
points to 17.0%.
On a like-for-like basis, the average number of people in the
Group in the first half was 102,000 compared to 105,000 in the
first half of 2020. The total number of people as at 30 June 2021
was 104,000 compared to 102,000 as at 30 June 2020.
Exceptional items
The Group incurred exceptional items of GBP107 million in the
first half of 2021, mainly relating to restructuring and
transformation costs and the amortisation and impairment of
acquired intangibles, partially offset by the Group's share of
gains in relation to a disposal made by Kantar. This compares with
a net exceptional loss in the first half of 2020 of GBP3.1 billion,
which included impairments of GBP2.8 billion.
Interest and taxes
Net finance costs (excluding the revaluation of financial
instruments) were GBP117 million, an increase of GBP11 million
year-on-year, with the full impact of the coupons on the bonds
issued in May 2020 offset by lower average net debt and foreign
exchange movements.
The headline tax rate (excluding associate income) was 24.1%
(2020: 23.1%) and on reported profit before tax was 27.2% (2020:
-0.3%), with the difference in the reported tax rate in 2021
principally due to impairments in 2020. 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 up 81.9% to GBP502 million.
Profits attributable to share owners were GBP253 million,
compared to a loss of GBP3.2 billion in the prior period.
Headline diluted earnings per share from continuing operations
rose by 86.4% to 28.7p. Reported diluted earnings per share, on the
same basis, was 20.6p, compared to a loss per share of 262.0p in
the prior period.
For 2021, the Board is declaring an interim dividend of 12.5p,
an increase of 25% year-on-year. The record date
for the interim dividend is 15 October 2021, and the dividend will be payable on 1 November 2021.
Further details of WPP's financial performance are provided in
Appendix 1.
Cash flow highlights
Six months ended (GBP million) 30 June 2021 30 June 2020[9]
======================================== ============== ================
Operating profit/(loss) of continuing
and discontinued operations 484 (2,740)
========================================= ============= ================
Depreciation and amortisation 250 306
========================================= ============= ================
Impairments and investment write-downs 8 3,039
========================================= ============= ================
Lease payments (inc interest) (202) (203)
========================================= ============= ================
Non-cash compensation 44 31
========================================= ============= ================
Net interest paid (65) (32)
========================================= ============= ================
Tax paid (163) (201)
========================================= ============= ================
Capex (138) (141)
========================================= ============= ================
Earnout payments (14) (88)
========================================= ============= ================
Other (44) (45)
========================================= ============= ================
Trade working capital (464) (456)
========================================= ============= ================
Other receivables, payables
and provisions (41) (295)
========================================= ============= ================
Free cash flow (345) (825)
========================================= ============= ================
Disposal proceeds 43 207
========================================= ============= ================
Net initial acquisition payments (252) (46)
========================================= ============= ================
Share purchases (298) (286)
========================================= ============= ================
Net cash flow (852) (950)
Net cash outflow for the first half was GBP 852 million,
compared to GBP950 million in the first half of 2020. The main
drivers of the cash flow performance year-on-year were the higher
operating profit and the improved working capital performance
year-on-year, offset by higher consideration for acquisitions
(relating mainly to the buy-in of the WPP AUNZ minorities and the
equity contribution to Kantar's acquisition of Numerator), lower
net disposal proceeds and the GBP298 million of share purchases in
the first half. A summary of the Group's unaudited cash flow
statement and notes for the six months to 30 June 2021 is provided
in Appendix 1.
Balance sheet highlights
As at 30 June 2021 we had cash of GBP3.3 billion and total
liquidity, including undrawn credit facilities, of GBP5.2 billion.
Average net debt in the first half was GBP1.5 billion, compared to
GBP2.5 billion in the prior period, at 2021 exchange rates. On 30
June 2021 net debt was GBP1.5 billion, against GBP2.7 billion on 30
June 2020, a reduction of GBP1.2 billion, or a reduction of GBP1.1
billion at 2021 exchange rates.
During the period, we converted the majority of our cash pool
arrangements to zero-balancing cash pools, whereby the cash and
overdrafts within these cash pools are physically swept to the
header accounts on a daily basis, resulting in a reduction of the
large gross cash and overdraft positions at 31 December 2020.
We spent GBP298 million on share purchases in the first half of
the year, of which GBP248 million related to share buybacks.
Our bond portfolio at 30 June 2021 had an average maturity of
6.9 years. In June 2021 we served notice to repay the $500 million
3.625% September 2022 bond in July 2021. There are no further
maturities until 2022.
The average net debt to EBITDA ratio in the 12 months to 30 June
2021 is 1.07x, which excludes the impact of IFRS 16. We also expect
to end the year below 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 2021 is provided in Appendix 1.
Appendix 1: Interim results for the six months ended 30 June
2021
Unaudited condensed consolidated interim income statement for
the six months ended 30 June 2021
Six months ended
30 June Six months ended
GBP million Notes 2021 30 June 2020(1)
================================================================ ====== ================= =================
Continuing operations
================================================================ ====== ================= =================
Revenue 7 6,132.5 5,582.7
================================================================ ====== ================= =================
Costs of services 4 (5,196.1) (4,804.7)
================================================================ ====== ================= =================
Gross profit 936.4 778.0
================================================================ ====== ================= =================
General and administrative costs 4 (452.8) (3,528.6)
================================================================ ====== ================= =================
Operating profit/(loss) 483.6 (2,750.6)
================================================================ ====== ================= =================
Share of results of associates 5 40.0 (51.9)
================================================================ ====== ================= =================
Profit/(loss) before interest and taxation 523.6 (2,802.5)
================================================================ ====== ================= =================
Finance and investment income 6 30.1 51.2
================================================================ ====== ================= =================
Finance costs 6 (147.2) (157.3)
================================================================ ====== ================= =================
Revaluation and retranslation of financial instruments 6 (12.1) (268.6)
================================================================ ====== ================= =================
Profit/(loss) before taxation 394.4 (3,177.2)
================================================================ ====== ================= =================
Taxation 8 (107.1) (10.9)
---------------------------------------------------------------- ------ ----------------- -----------------
Profit/(loss) for the period from continuing operations 287.3 (3,188.1)
---------------------------------------------------------------- ------ ----------------- -----------------
Discontinued operations
================================================================ ====== ================= =================
Profit for the period from discontinued operations - 3.1
---------------------------------------------------------------- ------ ----------------- -----------------
Profit/(loss) for the period 287.3 (3,185.0)
================================================================ ====== ================= =================
Attributable to:
================================================================ ====== ================= =================
Equity holders of the parent
================================================================ ====== ================= =================
Continuing operations 252.7 (3,209.2)
================================================================ ====== ================= =================
Discontinued operations - (6.8)
---------------------------------------------------------------- ------ ----------------- -----------------
252.7 (3,216.0)
================================================================ ====== ================= =================
Non-controlling interests
================================================================ ====== ================= =================
Continuing operations 34.6 21.1
================================================================ ====== ================= =================
Discontinued operations - 9.9
---------------------------------------------------------------- ------ ----------------- -----------------
34.6 31.0
---------------------------------------------------------------- ------ ----------------- -----------------
287.3 (3,185.0)
================================================================ ====== ================= =================
Earnings per share from continuing and discontinued operations
================================================================ ====== ================= =================
Basic earnings per ordinary share 10 20.9p (262.5p)
================================================================ ====== ================= =================
Diluted earnings per ordinary share 10 20.6p (262.5p)
================================================================ ====== ================= =================
Earnings per share from continuing operations
================================================================ ====== ================= =================
Basic earnings per ordinary share 10 20.9p (262.0p)
================================================================ ====== ================= =================
Diluted earnings per ordinary share 10 20.6p (262.0p)
================================================================ ====== ================= =================
The accompanying notes form an integral part of this unaudited
condensed consolidated interim income statement.
(1) Figures have been restated as described in note 2.
Unaudited condensed consolidated interim statement of
comprehensive income for the six months ended 30 June 2021
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020(1)
================================================== =========== ===========
Profit/(loss) for the period 287.3 (3,185.0)
=================================================== =========== ===========
Items that may be reclassified subsequently
to profit or loss:
=================================================== =========== ===========
Exchange adjustments on foreign currency
net investments (101.5) 412.3
=================================================== =========== ===========
Exchange adjustments recycled to the income
statement on disposal of discontinued
operations - (15.4)
=================================================== =========== ===========
(101.5) 396.9
-------------------------------------------------- ----------- -----------
Items that will not be reclassified subsequently
to profit or loss:
=================================================== =========== ===========
Movements on equity investments held at
fair value through other comprehensive
income 27.2 (102.4)
--------------------------------------------------- ----------- -----------
27.2 (102.4)
-------------------------------------------------- ----------- -----------
Other comprehensive (loss)/income for
the period (74.3) 294.5
=================================================== =========== ===========
Total comprehensive income/(loss) for
the period 213.0 (2,890.5)
=================================================== =========== ===========
Attributable to:
================================================== =========== ===========
Equity holders of the parent
================================================== =========== ===========
Continuing operations 183.9 (2,918.5)
=================================================== =========== ===========
Discontinued operations - (21.1)
--------------------------------------------------- ----------- -----------
183.9 (2,939.6)
================================================== =========== ===========
Non-controlling interests
================================================== =========== ===========
Continuing operations 29.1 39.0
=================================================== =========== ===========
Discontinued operations - 10.1
=================================================== =========== ===========
29.1 49.1
================================================== =========== ===========
213.0 (2,890.5)
================================================== =========== ===========
The accompanying notes form an integral part of this unaudited
condensed consolidated statement of comprehensive income.
(1) Figures have been restated as described in note 2.
Unaudited condensed consolidated interim cash flow statement for
the six months ended 30 June 2021
Six months ended Six months ended
30 June 30 June
GBP million Notes 2021 2020
======================================================================= ====== ================== =================
Net cash inflow/(outflow) from operating activities 11 39.2 (401.9)
======================================================================= ====== ================== =================
Investing activities
======================================================================= ====== ================== =================
Acquisitions 11 (148.5) (96.8)
======================================================================= ====== ================== =================
Disposal of investments and subsidiaries 11 1.3 203.9
======================================================================= ====== ================== =================
Purchase of property, plant and equipment (111.6) (121.3)
======================================================================= ====== ================== =================
Purchase of other intangible assets (including capitalised computer
software) (26.7) (19.2)
======================================================================= ====== ================== =================
Proceeds on disposal of property, plant and equipment 3.4 3.1
======================================================================= ====== ================== =================
Net cash outflow from investing activities (282.1) (30.3)
======================================================================= ====== ================== =================
Financing activities
======================================================================= ====== ================== =================
Repayment of lease liabilities (157.4) (154.5)
======================================================================= ====== ================== =================
Cash consideration received from non-controlling interests 11 38.7 -
======================================================================= ====== ================== =================
Cash consideration for purchase of non-controlling interests 11 (117.7) (37.8)
======================================================================= ====== ================== =================
Share repurchases and buybacks 11 (297.6) (285.5)
======================================================================= ====== ================== =================
Proceeds from borrowings 11 - 922.9
======================================================================= ====== ================== =================
Repayment of borrowings 11 (35.9) (223.1)
======================================================================= ====== ================== =================
Financing and share issue costs (0.3) (6.8)
======================================================================= ====== ================== =================
Dividends paid to non-controlling interests in subsidiary undertakings (74.5) (40.1)
======================================================================= ====== ================== =================
Net cash (outflow)/inflow from financing activities (644.7) 175.1
======================================================================= ====== ================== =================
Net decrease in cash and cash equivalents (887.6) (257.1)
======================================================================= ====== ================== =================
Translation of cash and cash equivalents (102.6) 7.1
======================================================================= ====== ================== =================
Cash and cash equivalents at beginning of period 4,337.1 2,799.6
======================================================================= ====== ================== =================
Cash and cash equivalents including cash held in disposal group at end
of period 3,346.9 2,549.6
======================================================================= ====== ================== =================
Cash and cash equivalents held in disposal group presented as held for
sale - (13.5)
======================================================================= ====== ================== =================
Cash and cash equivalents at end of period 12 3,346.9 2,536.1
======================================================================= ====== ================== =================
Reconciliation of net cash flow to movement in net debt:
======================================================================= ====== ================== =================
Net decrease in cash and cash equivalents (887.6) (257.1)
======================================================================= ====== ================== =================
Cash outflow/(inflow) from decrease/(increase) in debt financing 36.2 (693.0)
======================================================================= ====== ================== =================
Other movements (45.7) (1.9)
======================================================================= ====== ================== =================
Translation differences 49.0 (286.7)
======================================================================= ====== ================== =================
Movement of net debt in the period (848.1) (1,238.7)
======================================================================= ====== ================== =================
Net debt at beginning of period (695.6) (1,473.3)
----------------------------------------------------------------------- ------ ------------------ -----------------
Net debt including net cash in disposal group at end of period (1,543.7) (2,712.0)
======================================================================= ====== ================== =================
Net cash in disposal group - (13.5)
======================================================================= ====== ================== =================
Net debt at end of period 12 (1,543.7) (2,725.5)
======================================================================= ====== ================== =================
The accompanying notes form an integral part of this unaudited
condensed consolidated interim cash flow statement.
Unaudited condensed consolidated interim balance sheet as at 30
June 2021
30 June
GBP million Notes 2021 31 December 2020
============================================ ====== =========== =================
Non-current assets
============================================ ====== =========== =================
Intangible assets:
============================================ ====== =========== =================
Goodwill 13 7,325.1 7,388.8
============================================ ====== =========== =================
Other 1,364.5 1,389.3
============================================ ====== =========== =================
Property, plant and equipment 820.8 790.9
============================================ ====== =========== =================
Right-of-use assets 1,445.0 1,504.5
============================================ ====== =========== =================
Interests in associates and joint ventures 424.4 330.7
============================================ ====== =========== =================
Other investments 448.7 387.3
============================================ ====== =========== =================
Deferred tax assets 264.8 212.9
============================================ ====== =========== =================
Corporate income tax recoverable 44.0 24.8
Trade and other receivables 14 177.5 156.2
12,314.8 12,185.4
============================================ ====== =========== =================
Current assets
============================================ ====== =========== =================
Corporate income tax recoverable 141.3 133.1
============================================ ====== =========== =================
Trade and other receivables 14 10,224.5 10,972.3
============================================ ====== =========== =================
Cash and short-term deposits 3,546.1 12,899.1
13,911.9 24,004.5
============================================ ====== =========== =================
Current liabilities
============================================ ====== =========== =================
Trade and other payables 15 (12,714.8) (13,859.7)
============================================ ====== =========== =================
Corporate income tax payable (312.2) (330.9)
============================================ ====== =========== =================
Short-term lease liabilities (267.5) (323.8)
Bank overdrafts, bonds and bank loans (803.3) (8,619.2)
(14,097.8) (23,133.6)
Net current (liabilities)/assets (185.9) 870.9
Total assets less current liabilities 12,128.9 13,056.3
Non-current liabilities
============================================ ====== =========== =================
Bonds and bank loans (4,286.5) (4,975.5)
============================================ ====== =========== =================
Trade and other payables 16 (431.9) (313.5)
============================================ ====== =========== =================
Corporate income tax payable - (1.3)
============================================ ====== =========== =================
Deferred tax liabilities (329.9) (304.1)
============================================ ====== =========== =================
Provisions for post-employment benefits (151.6) (156.7)
============================================ ====== =========== =================
Provisions for liabilities and charges (316.6) (306.3)
Long-term lease liabilities (1,809.8) (1,832.5)
(7,326.3) (7,889.9)
============================================ ====== =========== =================
Net assets 4,802.6 5,166.4
============================================ ====== =========== =================
Equity
============================================ ====== =========== =================
Called-up share capital 127.0 129.6
============================================ ====== =========== =================
Share premium account 570.3 570.3
============================================ ====== =========== =================
Other reserves (43.4) 196.0
============================================ ====== =========== =================
Own shares (1,114.8) (1,118.3)
============================================ ====== =========== =================
Retained earnings 4,952.1 5,070.7
============================================ ====== =========== =================
Equity shareholders' funds 4,491.2 4,848.3
============================================ ====== =========== =================
Non-controlling interests 311.4 318.1
============================================ ====== =========== =================
Total equity 4,802.6 5,166.4
============================================ ====== =========== =================
The accompanying notes form an integral part of this unaudited
condensed consolidated interim balance sheet.
Unaudited condensed consolidated interim statement of changes in
equity for the six months ended 30 June 2021
Total
Called-up Share equity
share premium Other Own Retained shareholders' Non-controlling
GBP million capital account reserves shares earnings funds interests Total
========================== ========= ======= ======== ========= ======== ============= =============== ================
Balance at 1 January
2021 129.6 570.3 196.0 (1,118.3) 5,070.7 4,848.3 318.1 5,166.4
========================== ========= ======= ======== ========= ======== ============= =============== ================
Share cancellations (2.6) - 2.6 - (248.1) (248.1) - (248.1)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Treasury share allocations - - - 3.7 (3.7) - - -
-------------------------- --------- ------- -------- --------- -------- ------------- --------------- ----------------
Profit for the period - - - - 252.7 252.7 34.6 287.3
========================== ========= ======= ======== ========= ======== ============= =============== ================
Exchange adjustments
on foreign currency
net investments - - (96.0) - - (96.0) (5.5) (101.5)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Movements on equity
investments held
at fair value through
other comprehensive
income - - - - 27.2 27.2 - 27.2
-------------------------- --------- ------- -------- --------- -------- ------------- --------------- ----------------
Other comprehensive
(loss)/income - - (96.0) - 27.2 (68.8) (5.5) (74.3)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Total comprehensive
(loss)/income - - (96.0) - 279.9 183.9 29.1 213.0
-------------------------- --------- ------- -------- --------- -------- ------------- --------------- ----------------
Dividends paid - - - - - - (74.5) (74.5)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Non-cash share-based
incentive plans
(including
share options) - - - - 43.9 43.9 - 43.9
========================== ========= ======= ======== ========= ======== ============= =============== ================
Tax adjustments on
share-based payments - - - - (4.6) (4.6) - (4.6)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Net movement in own
shares held
by ESOP Trusts - - - (0.2) (49.3) (49.5) - (49.5)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Recognition/remeasurement
of financial instruments - - (146.0) - (0.2) (146.2) - (146.2)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Acquisition and disposal
of subsidiaries(1) - - - - (136.5) (136.5) 38.7 (97.8)
========================== ========= ======= ======== ========= ======== ============= =============== ================
Balance at 30 June
2021 127.0 570.3 (43.4) (1,114.8) 4,952.1 4,491.2 311.4 4,802.6
========================== ========= ======= ======== ========= ======== ============= =============== ================
The accompanying notes form an integral part of this unaudited
condensed consolidated interim statement of changes in equity.
(1) Acquisitions and disposals of subsidiaries represents
movements in retained earnings and non-controlling interests
arising from changes in ownership of existing subsidiaries and
recognition of non-controlling interests on new acquisitions.
Unaudited condensed consolidated interim statement of changes in
equity for the six months ended 30 June 2021 (continued)
Called-up Share Total equity
share premium Other Own Retained shareholders' Non-controlling
GBP million capital account reserves shares earnings funds interests Total
========================== ========= ======= ======== ========= ========= ============= =============== =========
Balance at 1 January
2020 132.8 570.3 (169.9) (1,178.7) 8,689.9 8,044.4 371.4 8,415.8
========================== ========= ======= ======== ========= ========= ============= =============== =========
Share cancellations (3.2) - 3.2 - (281.2) (281.2) - (281.2)
========================== ========= ======= ======== ========= ========= ============= =============== =========
Treasury share allocations - - - 0.5 (0.5) - - -
-------------------------- --------- ------- -------- --------- --------- ------------- --------------- ---------
(Loss)/profit for the
period(1) - - - - (3,216.0) (3,216.0) 31.0 (3,185.0)
========================== ========= ======= ======== ========= ========= ============= =============== =========
Exchange adjustments
on foreign currency
net investments(1) - - 394.2 - - 394.2 18.1 412.3
========================== ========= ======= ======== ========= ========= ============= =============== =========
Exchange adjustments
recycled to the income
statement on disposal
of discontinued
operations - - (15.4) - - (15.4) - (15.4)
========================== ========= ======= ======== ========= ========= ============= =============== =========
Movements on equity
investments held at
fair value through
other comprehensive
income - - - - (102.4) (102.4) - (102.4)
-------------------------- --------- ------- -------- --------- --------- ------------- --------------- ---------
Other comprehensive
income/(loss)(1) - - 378.8 - (102.4) 276.4 18.1 294.5
========================== ========= ======= ======== ========= ========= ============= =============== =========
Total comprehensive
income/(loss)(1) - - 378.8 - (3,318.4) (2,939.6) 49.1 (2,890.5)
-------------------------- --------- ------- -------- --------- --------- ------------- --------------- ---------
Dividends paid - - - - - - (40.1) (40.1)
========================== ========= ======= ======== ========= ========= ============= =============== =========
Non-cash share-based
incentive plans
(including
share options) - - - - 30.6 30.6 - 30.6
========================== ========= ======= ======== ========= ========= ============= =============== =========
Tax adjustments on
share-based payments - - - - 2.6 2.6 - 2.6
========================== ========= ======= ======== ========= ========= ============= =============== =========
Net movement in own
shares held
by ESOP Trusts - - - 53.9 (54.3) (0.4) - (0.4)
========================== ========= ======= ======== ========= ========= ============= =============== =========
Recognition/remeasurement
of financial
instruments(1) - - 67.9 - (32.8) 35.1 - 35.1
========================== ========= ======= ======== ========= ========= ============= =============== =========
Share purchases - close
period commitments(2) - - 252.3 - - 252.3 - 252.3
========================== ========= ======= ======== ========= ========= ============= =============== =========
Acquisition of
subsidiaries(3) - - - - (52.7) (52.7) (12.0) (64.7)
-------------------------- --------- ------- -------- --------- --------- ------------- --------------- ---------
Restated balance at
30 June 2020 129.6 570.3 532.3 (1,124.3) 4,983.2 5,091.1 368.4 5,459.5
-------------------------- --------- ------- -------- --------- --------- ------------- --------------- ---------
(1) Figures have been restated as described in note 2.
(2) During 2019, the Company entered into an arrangement with a
third party to conduct share buybacks on its behalf in the close
period commencing on 2 January 2020 and ending on 27 February 2020,
in accordance with UK listing rules. The commitment resulting from
this agreement constituted a liability at 31 December 2019 and was
recognised as a movement in other reserves in the year ended 31
December 2019. As the close period ended on 27 February 2020 the
movement in other reserves has been reversed in the year ended 31
December 2020.
(3) Acquisition of subsidiaries represents movements in retained
earnings and non-controlling interests arising from changes in
ownership of existing subsidiaries and recognition of
non-controlling interests on new acquisitions.
Notes to the unaudited condensed consolidated interim financial
statements
1. Basis of accounting
The unaudited condensed consolidated interim financial
statements are prepared under the historical cost convention,
except for the revaluation of certain financial instruments as
disclosed in our accounting policies.
2. Accounting policies
The unaudited condensed consolidated interim financial
statements comply with IAS 34: Interim Financial Reporting and with
the accounting policies of the Group which were set out on pages
158 - 164 of the 2020 Annual Report and Accounts. No changes have
been made to the Group's accounting policies in the period ended 30
June 2021.
In April 2021, an IFRIC agenda decision was issued in relation
to the accounting treatment for configuration and customisation
costs in a cloud computing arrangement. This guidance clarified
that in order for an intangible asset to be capitalised in relation
to customisation and configuration costs in a software-as-a-service
(SaaS) arrangement, it is necessary for there to be control of the
underlying software asset or for there to be a separate intangible
asset which meets the definition in IAS 38 Intangible Assets. The
Group's existing policy is to capitalise such customisation and
configuration costs.
In 2020, as part of our Group transformation plan, the Group
commenced a multiyear implementation of a cloud-based ERP and human
capital management tool. We are currently in the process of
assessing the financial reporting impact of this agenda decision on
this implementation and we expect to change our accounting policy
in the financial statements for the year ending 31 December 2021
when the impact is determined. The Group has deemed this to be a
reasonable timeframe to implement this clarified guidance given the
complexities involved in this implementation as permitted by the
Due Process Handbook of the IFRS Foundation. As at 30 June 2021,
the Group has capitalised GBP29.8 million of costs associated with
this implementation (year ended 31 December 2020: GBP14.0 million).
This agenda decision will result in some, or all, of these costs
and any further implementation costs being expensed. We are
assessing whether any other previously capitalised software costs
will require to be expensed as a result of the agenda decision but
currently do not expect the amounts to be significant.
Restatement
After the unaudited condensed consolidated interim financial
statements for the period ended 30 June 2020 were issued, it was
determined that they did not comply with certain aspects of the
application of IAS 32 Financial Instruments: Presentation and IAS
39 Financial Instruments: Recognition and Measurement, resulting in
the inappropriate deferral of foreign exchange movements in the
Company's translation reserve due to the inappropriate application
of hedge accounting in respect of non-derivative financial
instruments and the inappropriate discount rate being applied in
the calculation of the fair value of liabilities in respect of put
option agreements and payments due to vendors (earnout
agreements).
Net investment hedging was inappropriately applied against
certain foreign exchange exposures, where the relationship was
either an ineligible hedging relationship under IFRS or
insufficiently documented, such that the criteria to apply hedge
accounting under IAS 39 Financial Instruments: Recognition and
Measurement were not met. Therefore, there has been a restatement
of the period ended 30 June 2020, resulting in the reclassification
of exchange adjustments on foreign currency net investments within
the consolidated statement of comprehensive income to be reported
in the consolidated income statement as revaluation and
retranslation of financial instruments (note 6). The impact of this
change is a GBP301.1 million loss for the period ended 30 June 2020
being recognised in revaluation and retranslation of financial
instruments. This change also reduced the opening retained earnings
balance as at 1 January 2020 by GBP271.7 million with a
corresponding increase in other reserves.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
2. Accounting policies (continued)
The fair value of liabilities in respect of put option
agreements and payments due to vendors (earnout agreements) are
recorded at the present value of the expected cash outflows of the
obligation. The discount rate historically used in this calculation
represented the Company's cost of debt. To fully reflect the risk
in the cash flows, the Company has changed the discount rate used
in this calculation, and restated the period ended 30 June 2020 to
reflect the change, which resulted in the following
adjustments:
-- A credit of GBP2.5 million in the period ended 30 June 2020
recognised in the consolidated income statement within the
revaluation and retranslation of financial instruments (note
6);
-- The goodwill impairment charge decreased by GBP36.1 million
in the period ended 30 June 2020, as a result of the above
adjustments that decreased goodwill and payments due to vendors
(earnout agreements) on the consolidated balance sheet;
-- These changes also reduced the opening retained earnings
balance as at 1 January 2020 by GBP87.3 million and increased
opening other reserves by GBP59.6 million.
In addition there has been an adjustment to appropriately
reflect the working capital cash flow assumptions in the impairment
model, which resulted in the following adjustments:
-- The goodwill impairment charge increased by GBP328.2 million
for the period ended 30 June 2020;
-- Impairment of right-of-use and other assets increased by
GBP5.1 million for the period ended 30 June 2020;
-- This resulted in a related increase in the deferred tax
credit of GBP13.1 million and a corresponding decrease in deferred
tax liabilities.
The table below reflects the impact of these adjustments on key
income statement line items.
Six months ended 30 June 2020
As previously
GBP million reported Adjusted
----------------------------------------------- ------------- ----------
Continuing operations
=============================================== ============= ==========
General and administrative costs 3,231.4 3,528.6
=============================================== ============= ==========
Operating loss (2,453.4) (2,750.6)
=============================================== ============= ==========
Loss before interest and taxation (2,505.3) (2,802.5)
=============================================== ============= ==========
Loss before taxation (2,581.4) (3,177.2)
=============================================== ============= ==========
Loss for the period from continuing operations (2,605.4) (3,188.1)
=============================================== ============= ==========
Loss for the period (2,602.3) (3,185.0)
=============================================== ============= ==========
Headline operating profit 382.3 382.3
=============================================== ============= ==========
Loss for the period attributable to equity
holders of the parent (2,626.5) (3,209.2)
=============================================== ============= ==========
Weighted average shares used in basic EPS
calculation (million) 1,224.7 1,224.7
=============================================== ============= ==========
Reported basic earnings per share (214.5p) (262.0p)
----------------------------------------------- ------------- ----------
There was no impact on basic or diluted headline earnings per
share.
Statutory Information and Independent Review
The unaudited condensed consolidated interim financial
statements for the six months to 30 June 2021 and 30 June 2020 do
not constitute statutory accounts. The financial information for
the year ended 31 December 2020 does not constitute statutory
accounts. The statutory accounts for the year ended 31 December
2020 have been delivered to the Jersey Registrar and received an
unqualified auditors' report. The interim financial statements are
unaudited but have been reviewed by the auditors and their report
is set out on page 42.
The announcement of the interim results was approved by the
Board of Directors on 5 August 2021.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
3. Currency conversion
The presentation currency of the Group is pounds sterling and
the unaudited condensed consolidated interim financial statements
have been prepared on this basis. The period ended 30 June 2021
unaudited condensed consolidated interim income statement is
prepared using, among other currencies, average exchange rates of
US$1.39 to the pound (period ended 30 June 2020: US$1.26) and
EUR1.15 to the pound (period ended 30 June 2020: EUR1.14). The
unaudited condensed consolidated interim balance sheet as at 30
June 2021 has been prepared using the exchange rates on that day of
US$1.38 to the pound (31 December 2020: US$1.37) and EUR1.16 to the
pound (31 December 2020: EUR1.12).
4. Costs of services and general and administrative costs
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020(1)
================================== =========== ===========
Continuing operations
================================== =========== ===========
Costs of services 5,196.1 4,804.7
================================== =========== ===========
General and administrative costs 452.8 3,528.6
================================== =========== ===========
5,648.9 8,333.3
================================== =========== ===========
Costs of services and general and administrative costs
include:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020(1)
======================================================== =========== ===========
Continuing operations
======================================================== =========== ===========
Staff costs 3,473.3 3,330.0
======================================================== =========== ===========
Establishment costs 264.8 314.4
======================================================== =========== ===========
Media pass-through costs 857.0 613.7
======================================================== =========== ===========
Other costs of services and general and administrative
costs(2) 1,053.8 4,075.2
======================================================== =========== ===========
5,648.9 8,333.3
======================================================== =========== ===========
Staff costs include:
Six months ended
30 June Six months ended
GBP million 2021 30 June 2020
============================= ================= =================
Continuing operations
============================= ================= =================
Wages and salaries 2,329.8 2,417.5
============================== ================= =================
Cash-based incentive plans 200.2 17.2
============================== ================= =================
Share-based incentive plans 43.9 30.6
============================== ================= =================
Severance 14.5 18.8
============================== ================= =================
Other staff costs 884.9 845.9
------------------------------ ----------------- -----------------
3,473.3 3,330.0
----------------------------- ----------------- -----------------
(1) Figures have been restated as described in note 2.
(2) Other costs of services and general and administrative costs
include GBP376.3 million (period ended 30 June 2020: GBP301.3
million) of other pass-through costs.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
4. Costs of services and general and administrative costs (continued)
Other costs of services and general and administrative costs
include:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020(1)
============================================= =========== ===========
Continuing operations
============================================= =========== ===========
Amortisation and impairment of acquired
intangible assets 30.1 53.1
============================================== =========== ===========
Goodwill impairment - 2,812.9
============================================== =========== ===========
Losses/(gains) on disposal of investments
and subsidiaries 1.0 (16.0)
============================================== =========== ===========
Investment and other write-downs - 225.7
============================================== =========== ===========
Restructuring and transformation costs 34.3 17.9
============================================== =========== ===========
Restructuring costs in relation to COVID-19 19.7 39.3
============================================== =========== ===========
Litigation settlement 21.7 -
---------------------------------------------- ----------- -----------
Amortisation and impairment of acquired intangibles in the
period ended 30 June 2021 includes an impairment charge of GBP3.9
million (2020: GBP17.1 million) in regard to certain brand names
and customer relationships for entities which have closed.
The goodwill impairment charge of GBP2,812.9 million in 2020
largely reflects the adverse impacts of COVID-19 on a number of
businesses in the Group at that time. This has been restated as
described in note 2. Details of the Group's goodwill impairment
review are included in the 2020 annual report and accounts.
Restructuring costs in relation to COVID-19 of GBP19.7 million
(2020: GBP39.3 million) primarily relates to property costs which
the Group undertook in response to the COVID-19 pandemic. As
management continues to assess the impact of COVID-19 on long-term
working practices and the Group's real estate portfolio, further
impairments may occur in the future.
Restructuring and transformation costs of GBP34.3 million (2020:
GBP17.9 million) include GBP26.2 million of restructuring costs in
relation to the continuing restructuring plan, first outlined on
the Investor Day in December 2018. As part of that plan,
restructuring actions have been taken to right-size
under-performing businesses, address high cost severance markets
and simplify operational structures. The remaining GBP8.1 million
relates to the Group's IT transformation programme. Further
restructuring and transformation costs will be incurred in the
second half of 2021.
In the period ended 30 June 2021, a provision of GBP21.7 million
(2020: GBPnil) was made for potential litigation settlements.
5. Share of results of associates
Share of results of associates include:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020
================================================= =========== ===========
Continuing operations
================================================= =========== ===========
Share of profit before interest and taxation 85.9 46.2
================================================== =========== ===========
Share of exceptional gains/(losses) 11.7 (51.4)
================================================== =========== ===========
Share of interest and non-controlling interests (39.1) (40.4)
================================================== =========== ===========
Share of taxation (18.5) (6.3)
================================================== =========== ===========
40.0 (51.9)
================================================= =========== ===========
Share of exceptional gains in the period ended 30 June 2021 of
GBP11.7 million primarily comprise the gain on disposal of certain
Kantar businesses partially offset by amortisation of acquired
intangible assets with Kantar. In 2020, share of exceptional losses
of GBP51.4 million primarily comprised amortisation and impairment
of acquired intangible assets as well as restructuring and
transaction costs within Kantar.
(1) Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
6. Finance and investment income, finance costs and revaluation
and retranslation of financial instruments
Finance and investment income includes:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020
================================ =========== ===========
Continuing operations
================================ =========== ===========
Income from equity investments 5.0 6.8
================================= =========== ===========
Interest income 25.1 44.4
================================= =========== ===========
30.1 51.2
================================ =========== ===========
Finance costs include:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020
=============================================== =========== ===========
Continuing operations
=============================================== =========== ===========
Interest expense and similar charges 101.5 107.1
================================================ =========== ===========
Interest expense related to lease liabilities 45.7 50.2
================================================ =========== ===========
147.2 157.3
=============================================== =========== ===========
Revaluation and retranslation of financial instruments
include:
Six months ended
30 June Six months ended
GBP million 2021 30 June 2020(1)
====================================================================== ================= =================
Continuing operations
====================================================================== ================= =================
Movements in fair value of treasury instruments 4.7 (2.0)
======================================================================= ================= =================
Premium on the early repayment of bonds (13.1) -
====================================================================== ================= =================
Revaluation of investments held at fair value through profit or loss 30.5 1.7
======================================================================= ================= =================
Revaluation of put options over non-controlling interests (44.4) 25.4
======================================================================= ================= =================
Revaluation of payments due to vendors (earnout agreements) (9.4) 7.4
======================================================================= ================= =================
Retranslation of financial instruments 19.6 (301.1)
----------------------------------------------------------------------- ----------------- -----------------
(12.1) (268.6)
====================================================================== ================= =================
(1) Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
7. Segmental analysis
Reported contributions by operating sector were as follows:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020(1)
==================================== =========== ===========
Continuing operations
==================================== =========== ===========
Revenue
==================================== =========== ===========
Global Integrated Agencies 5,169.7 4,725.1
===================================== =========== ===========
Public Relations 449.9 446.8
===================================== =========== ===========
Specialist Agencies 512.9 410.8
===================================== =========== ===========
6,132.5 5,582.7
==================================== =========== ===========
Revenue less pass-through costs(2)
==================================== =========== ===========
Global Integrated Agencies 4,068.9 3,896.2
===================================== =========== ===========
Public Relations 429.4 426.3
===================================== =========== ===========
Specialist Agencies 400.9 345.2
------------------------------------- ----------- -----------
4,899.2 4,667.7
==================================== =========== ===========
Headline operating profit(3)
==================================== =========== ===========
Global Integrated Agencies 482.9 282.3
===================================== =========== ===========
Public Relations 63.5 71.9
===================================== =========== ===========
Specialist Agencies 44.0 28.1
===================================== =========== ===========
590.4 382.3
==================================== =========== ===========
Reported contributions by geographical area were as follows:
Six months Six months
ended ended
30 June 30 June
GBP million 2021 2020
============================================== =========== ===========
Continuing operations
============================================== =========== ===========
Revenue
============================================== =========== ===========
North America(4) 2,183.7 2,177.1
=============================================== =========== ===========
United Kingdom 927.0 757.6
=============================================== =========== ===========
Western Continental Europe 1,340.6 1,092.9
=============================================== =========== ===========
Asia Pacific, Latin America, Africa & Middle
East and Central & Eastern Europe 1,681.2 1,555.1
=============================================== =========== ===========
6,132.5 5,582.7
============================================== =========== ===========
Revenue less pass-through costs(2)
============================================== =========== ===========
North America(4) 1,817.6 1,856.1
=============================================== =========== ===========
United Kingdom 679.7 585.6
=============================================== =========== ===========
Western Continental Europe 1,050.0 919.5
=============================================== =========== ===========
Asia Pacific, Latin America, Africa & Middle
East and Central & Eastern Europe 1,351.9 1,306.5
----------------------------------------------- ----------- -----------
4,899.2 4,667.7
============================================== =========== ===========
Headline operating profit(3)
============================================== =========== ===========
North America(4) 271.4 215.4
=============================================== =========== ===========
United Kingdom 83.5 35.4
=============================================== =========== ===========
Western Continental Europe 103.7 43.8
=============================================== =========== ===========
Asia Pacific, Latin America, Africa & Middle
East and Central & Eastern Europe 131.8 87.7
=============================================== =========== ===========
590.4 382.3
============================================== =========== ===========
(1) During 2020, the Group announced the intention to combine
Grey and AKQA into AKQA Group, and to bring Geometry and GTB into
VMLY&R, and International Healthcare into VMLY&R and
Ogilvy. As a result AKQA, Geometry, GTB and International
Healthcare are now reported within Global Integrated Agencies,
having previously been reported within Specialist Agencies. Prior
year figures have been re-presented to reflect these changes with
figures for the year ended 31 December 2020 also included in
Appendix 3.
(2) Revenue less pass-through costs is defined in Appendix
2.
(3) Headline operating profit is defined in Appendix 2.
(4) North America includes the US with revenue of GBP2,046.9
million (2020: GBP2,065.2 million), revenue less pass-through costs
of GBP1,695.9 million (2020: GBP1,757.5 million) and headline
operating profit of GBP254.1 million (2020: GBP207.1 million).
Notes to the unaudited condensed consolidated interim financial
statements (continued)
8. Taxation
The tax charge for the Group is calculated in accordance with
IAS 34, by applying management's best estimate of the effective tax
rate (excluding discrete items) expected to apply to total annual
earnings to the profit for the six month period ended 30 June 2021.
This is then adjusted for certain discrete items which occurred in
the interim period.
The headline tax rate (excluding associate income) was 24.1%
(2020: 23.1%) and on reported profit before tax was 27.2% (2020:
-0.3%(1) ), with the difference in the reported tax rate
principally due to impairments in 2020. 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.
In the UK Budget on 3 March 2021, the Chancellor of the
Exchequer announced an increase in the UK corporation tax rate from
19% to 25%, which is due to be effective from 1 April 2023. The
change was enacted at the balance sheet date, and the Group has
remeasured UK deferred tax balances accordingly and recognised a
tax credit of GBP27.0 million in current period tax expense.
The tax charge may be affected by the impact of acquisitions,
disposals and other corporate restructurings, the resolution of
open tax issues, and the ability to use brought forward tax losses.
Changes in local or international tax rules, for example, as a
consequence of the financial support programmes implemented by
governments during the COVID-19 pandemic, changes arising from the
application of existing rules or challenges by tax or competition
authorities, may expose the Group to additional tax liabilities or
impact the carrying value of deferred tax assets, which could
affect the future tax charge.
Liabilities relating to open and judgemental matters are based
upon an assessment of whether the tax authorities will accept the
position taken, after taking into account external advice where
appropriate. Where the final tax outcome of these matters is
different from the amounts which were initially recorded, such
differences will impact the current and deferred income tax assets
and liabilities in the period in which such determination is made.
The Group does not currently consider that judgements made in
assessing tax liabilities have a significant risk of resulting in
any material additional charges or credits in respect of these
matters, within the next financial year, beyond the amounts already
provided.
9. Ordinary dividends
The Board has recommended an interim dividend of 12.5p (2020:
10.0p) per ordinary share. This is expected to be paid on 1
November 2021 to shareholders on the register at 15 October 2021.
The Board recommended a final dividend of 14.0p per ordinary share
in respect of 2020. This was paid on 9 July 2021.
(1) Figures have been restated as described in note 2.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
10. Earnings per share
Basic EPS
The calculation of basic EPS is as follows:
Continuing operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
================================================================= ================= =================
Reported earnings(2) (GBP million) 252.7 (3,209.2)
================================================================== ================= =================
Headline earnings(3) (GBP million) 352.7 190.7
================================================================== ================= =================
Weighted average shares used in basic EPS calculation (million) 1,211.9 1,224.7
================================================================== ================= =================
Reported EPS 20.9p (262.0p)
================================================================== ================= =================
Headline EPS 29.1p 15.6p
------------------------------------------------------------------ ----------------- -----------------
Discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020
================================================================= ================== =================
Reported earnings(2) (GBP million) - (6.8)
================================================================== ================= =================
Weighted average shares used in basic EPS calculation (million) - 1,224.7
================================================================== ================= =================
Reported EPS - (0.5p)
------------------------------------------------------------------ ----------------- -----------------
Continuing and discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
================================================================= ================= =================
Reported earnings(2) (GBP million) 252.7 (3,216.0)
================================================================== ================= =================
Weighted average shares used in basic EPS calculation (million) 1,211.9 1,224.7
================================================================== ================= =================
Reported EPS 20.9p (262.5p)
------------------------------------------------------------------ ----------------- -----------------
(1) Figures have been restated as described in note 2.
(2) Reported earnings is equivalent to profit/(loss) for the
period attributable to equity holders of the parent.
(3) Headline earnings is defined in Appendix 2.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
10. Earnings per share (continued)
Diluted EPS
The calculation of diluted EPS is as follows:
Continuing operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
============================================================================= ================= =================
Diluted reported earnings (GBP million) 252.7 (3,209.2)
============================================================================== ================= =================
Diluted headline earnings (GBP million) 352.7 190.7
============================================================================== ================= =================
Weighted average shares used in reported diluted EPS calculation (million)(2) 1,229.0 1,224.7
============================================================================== ================= =================
Weighted average shares used in headline diluted EPS calculation (million) 1,229.0 1,237.0
============================================================================== ================= =================
Diluted reported EPS 20.6p (262.0p)
============================================================================== ================= =================
Diluted headline EPS 28.7p 15.4p
------------------------------------------------------------------------------ ----------------- -----------------
Discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020
====================================================================== ================== =================
Diluted reported earnings (GBP million) - (6.8)
======================================================================= ================= =================
Weighted average shares used in diluted EPS calculation (million)(2) - 1,224.7
======================================================================= ================= =================
Diluted reported EPS - (0.5p)
----------------------------------------------------------------------- ----------------- -----------------
Continuing and discontinued operations:
Six months ended Six months ended
30 June 30 June
2021 2020(1)
====================================================================== ================= =================
Diluted reported earnings (GBP million) 252.7 (3,216.0)
======================================================================= ================= =================
Weighted average shares used in diluted EPS calculation (million)(2) 1,229.0 1,224.7
======================================================================= ================= =================
Diluted reported EPS 20.6p (262.5p)
----------------------------------------------------------------------- ----------------- -----------------
A reconciliation between the shares used in calculating basic
and diluted EPS is as follows:
Six months ended Six months ended
30 June 30 June
million 2021 2020
========================================================= ================= =================
Weighted average shares used in basic EPS calculation 1,211.9 1,224.7
========================================================= ================= =================
Dilutive share options outstanding 0.8 -
========================================================= ================= =================
Other potentially issuable shares 16.3 12.3
========================================================= ================= =================
Weighted average shares used in diluted EPS calculation 1,229.0 1,237.0
========================================================= ================= =================
At 30 June 2021 there were 1,270,102,274 (30 June 2020:
1,296,079,242) ordinary shares in issue, including treasury shares
of 70,489,953 (30 June 2020: 70,750,170).
(1) Figures have been restated as described in note 2.
(2) In 2020, t he weighted average shares used in the basic EPS
calculation has also been used for reported diluted EPS due to the
anti-dilutive effect of the weighted average shares calculated for
the reported diluted EPS calculation.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
11. Analysis of cash flows
The following tables analyse the items included within the main
cash flow headings on page 16:
Net cash flow from operating activities:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020(1)
======================================================================== ================= =====================
Profit/(loss) for the period 287.3 (3,185.0)
========================================================================= ================= =====================
Taxation 107.1 13.0
========================================================================= ================= =====================
Revaluation and retranslation of financial instruments 12.1 268.6
========================================================================= ================= =====================
Finance costs 147.2 157.6
========================================================================= ================= =====================
Finance and investment income (30.1) (51.4)
========================================================================= ================= =====================
Share of results of associates (40.0) 51.9
========================================================================= ================= =====================
Loss on sale of discontinued operations - 3.3
========================================================================= ================= =====================
Attributable tax expense on sale of discontinued operations - 1.9
========================================================================= ================= =====================
Operating profit/(loss) of continuing and discontinued operations 483.6 (2,740.1)
========================================================================= ================= =====================
Adjustments for:
======================================================================== ================= =====================
Non-cash share-based incentive plans (including share options) 43.9 30.6
========================================================================= ================= =====================
Depreciation of property, plant and equipment 71.2 88.2
========================================================================= ================= =====================
Depreciation of right-of-use assets 139.3 155.4
========================================================================= ================= =====================
Impairment charges included within restructuring costs 7.9 -
======================================================================== ================= =====================
Impairment of goodwill - 2,812.9
========================================================================= ================= =====================
Amortisation and impairment of acquired intangible assets 30.1 53.1
========================================================================= ================= =====================
Amortisation of other intangible assets 9.4 9.6
========================================================================= ================= =====================
Investment and other write-downs - 225.7
========================================================================= ================= =====================
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
========================================================================= ================= =====================
Gain on sale of property, plant and equipment (1.2) (0.1)
========================================================================= ================= =====================
Operating cash flow before movements in working capital and provisions 785.2 619.3
========================================================================= ================= =====================
Movements in trade working capital(2,3) (464.1) (456.0)
========================================================================= ================= =====================
Movements in other working capital and provisions (41.2) (294.7)
========================================================================= ================= =====================
Cash generated by/(used in) operations 279.9 (131.4)
========================================================================= ================= =====================
Corporation and overseas tax paid (162.7) (201.2)
========================================================================= ================= =====================
Interest and similar charges paid (90.1) (77.4)
========================================================================= ================= =====================
Interest paid on lease liabilities (44.7) (48.6)
========================================================================= ================= =====================
Interest received 25.1 45.2
========================================================================= ================= =====================
Investment income 5.0 6.8
========================================================================= ================= =====================
Dividends received from associates 26.7 4.7
========================================================================= ================= =====================
Net cash inflow/(outflow) from operating activities 39.2 (401.9)
========================================================================= ================= =====================
(1) Figures have been restated as described in note 2.
(2) The Group typically experiences an outflow of working
capital in the first half of the financial year and an inflow in
the second half. This is primarily due to the seasonal nature of
working capital flows associated with its media buying activities
on behalf of clients.
(3) Trade working capital represents trade receivables, work in
progress, accrued income, trade payables, and deferred income.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
11. Analysis of cash flows (continued)
Acquisitions and disposals:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
============================================================== ================= =================
Initial cash consideration (41.2) (5.9)
=============================================================== ================= =================
Cash and cash equivalents acquired 4.0 -
============================================================== ================= =================
Earnout payments (14.1) (88.5)
=============================================================== ================= =================
Purchase of other investments (including associates)(1) (97.2) (2.4)
--------------------------------------------------------------- ----------------- -----------------
Acquisitions (148.5) (96.8)
=============================================================== ================= =================
Proceeds on disposal of investments and subsidiaries 3.1 228.4
=============================================================== ================= =================
Cash and cash equivalents disposed (1.8) (24.5)
=============================================================== ================= =================
Disposals of investments and subsidiaries 1.3 203.9
=============================================================== ================= =================
Cash consideration received from non-controlling interests 38.7 -
============================================================== ================= =================
Cash consideration for purchase of non-controlling interests (117.7) (37.8)
=============================================================== ================= =================
Cash consideration for non-controlling interests (79.0) (37.8)
=============================================================== ================= =================
Net acquisition payments and disposal proceeds (226.2) 69.3
=============================================================== ================= =================
Share repurchases and buybacks:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
======================================= ================= =================
Purchase of own shares by ESOP Trusts (49.5) (0.4)
======================================= ================= =================
Shares purchased into treasury (248.1) (285.1)
======================================= ================= =================
(297.6) (285.5)
======================================= ================= =================
Proceeds from borrowings:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
============================================= ================== =================
Net increase in drawings on bank loans - 7.4
============================================== ================= =================
Proceeds from issue of EUR750 million bonds - 665.5
============================================== ================= =================
Proceeds from issue of GBP250 million bonds - 250.0
============================================== ================= =================
- 922.9
================================================================ =================
Repayment of borrowings:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
======================================== ================= =================
Net decrease in drawings on bank loans (35.9) -
======================================== ================= =================
Repayment of EUR250 million bonds - (223.1)
========================================= ================= =================
(35.9) (223.1)
======================================== ================= =================
(1) In June 2021, the Group invested a further GBP92.9 million
in Kantar to fund its share of Kantar's acquisition of Numerator,
which completed in July 2021.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
12. Cash and cash equivalents and net debt
30 June 31 December
GBP million 2021 2020
=========================== ========== ============
Cash at bank and in hand 1,704.1 10,075.0
============================ ========== ============
Short-term bank deposits 1,842.0 2,824.1
============================ ========== ============
Overdrafts(1) (199.2) (8,562.0)
============================ ========== ============
Cash and cash equivalents 3,346.9 4,337.1
============================ ========== ============
Bonds due within one year (589.0) -
=========================== ========== ============
Loans due within one year (15.1) (57.2)
============================ ========== ============
Bonds due after one year (4,258.5) (4,975.5)
============================ ========== ============
Loans due after one year (28.0) -
--------------------------- ---------- ------------
Net debt (1,543.7) (695.6)
============================ ========== ============
During the period, the Group converted the majority of its
notional cash pool arrangements to zero-balance accounts, whereby
the cash and overdrafts within these cash pools are physically
swept to the header accounts on a daily basis, resulting in a
reduction of the large gross cash and overdraft positions at 31
December 2020.
The Group estimates that the fair value of corporate bonds is
GBP5,282.5 million at 30 June 2021 (31 December 2020: GBP5,509.1
million). The Group considers that the carrying amount of bank
loans approximates their fair value.
The following table is an analysis of future anticipated cash
flows in relation to the Group's debt, on an undiscounted basis
which, therefore, differs from the carrying value:
30 June 31 December
GBP million 2021 2020
------------------------------------------------ ---------- ------------
Within one year (711.5) (182.2)
================================================= ========== ============
Between one and two years (117.0) (725.6)
================================================= ========== ============
Between two and three years (749.6) (795.7)
================================================= ========== ============
Between three and four years (1,052.4) (649.1)
================================================= ========== ============
Between four and five years (71.4) (528.2)
================================================= ========== ============
Over five years (3,227.9) (3,387.1)
------------------------------------------------- ---------- ------------
Debt financing (including interest) under
the Revolving Credit Facility and in relation
to unsecured loan notes (5,929.8) (6,267.9)
================================================= ========== ============
Short-term overdrafts - within one year (199.2) (8,562.0)
------------------------------------------------- ---------- ------------
Future anticipated cash flows (6,129.0) (14,829.9)
================================================= ========== ============
Effect of discounting/financing rates 1,039.2 1,235.2
================================================= ========== ============
Debt financing (5,089.8) (13,594.7)
================================================= ========== ============
Cash and short-term deposits 3,546.1 12,899.1
================================================= ========== ============
Net debt (1,543.7) (695.6)
================================================= ========== ============
(1) Bank overdrafts are included in cash and cash equivalents
because they form an integral part of the Group's cash
management.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
13. Goodwill and acquisitions
The contribution to revenue and operating profit of acquisitions
completed in the period was not material. There were no material
acquisitions completed during the period or between 30 June 2021
and the date the interim financial statements were approved.
There were no indicators of impairment identified in the six
months ended 30 June 2021.
Impairments in the six months ended 30 June 2020
During the period ended 30 June 2020, the Group recorded a
GBP2,812.9 million impairment charge. Figures have been restated as
described in note 2. The impairments related to historical
acquisitions whose carrying values were reassessed in light of the
impact of COVID-19. The impairments were 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, as further
described below.
Due to a significant number of CGUs, the impairment test was
performed in two steps. In the first step, the recoverable amount
was calculated for each CGU using the latest available forecasts
for 2020, nil growth rate thereafter and a conservative pre-tax
discount rate of 13.5%. The pre-tax discount rate of 13.5% was
above the rate calculated for the global networks of 12.5%. For
smaller CGUs that operate primarily in a particular region subject
to higher risk, the higher of 13.5% or 100 basis points above the
regional discount rate was used in the first step.
The recoverable amount was then compared to the carrying amount.
CGUs where the recoverable amount exceeded the carrying amount were
not considered to be impaired. Those CGUs where the recoverable
amount did not exceed the carrying amount were then further
reviewed in the second step.
In the second step, the CGUs were retested for impairment using
more refined assumptions. If the recoverable amount using the more
specific assumptions did not exceed the carrying value of a CGU, an
impairment charge was recorded. Assumptions used in the impairment
test were as follows:
-- Pre-tax discount rate used for CGUs with global operations of 12.5%
-- Pre-tax discount rate for CGUs with more regional specific operations of 10.8% to 19.3%
-- Long-term growth rate of 2.0%
In developing the expected cash flows as at 30 June 2020, we
considered the impact of the COVID-19 pandemic to our businesses
and adjusted projected revenue less pass-through costs and
operating margins in 2020 accordingly. For the remaining years in
the projection period, we assessed when the cash flows would
recover to 2019 levels as representative of pre-COVID-19 revenue
less pass-through costs and operating margins.
Our approach in determining the recoverable amount utilised a
discounted cash flow methodology, which necessarily involves making
numerous estimates and assumptions regarding revenue less
pass-through costs growth, operating margins, appropriate discount
rates and working capital requirements. The key assumptions used
for estimating cash flow projections in the Group's impairment
testing are those relating to revenue less pass-through costs
growth and operating margins. The key assumptions take account of
the businesses' expectations for the projection period. These
expectations consider the macroeconomic environment, industry and
market conditions, the CGU's historical performance and any other
circumstances particular to the unit, such as business strategy and
client mix .
These estimates will likely differ from future actual results of
operations and cash flows, and it is possible that these
differences could be material. In addition, judgements are applied
in determining the level of CGU identified for impairment testing
and the criteria used to determine which assets should be
aggregated. A difference in testing levels could affect whether an
impairment is recorded and the extent of impairment loss.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
13. Goodwill and acquisitions (continued)
The goodwill impairment charge of GBP2,812.9 million largely
reflected the adverse impacts of COVID-19 to a number of businesses
in the Group at 30 June 2020. The impact of these global economic
conditions and trading circumstances was sufficiently severe to
indicate impairment to the carrying value of goodwill. By operating
sector, GBP1,820.1 million of the impairment charge related to
Global Integrated Agencies, GBP157.1 million related to Public
Relations and GBP835.7 million related to Specialist Agencies.
The CGUs with significant impairments of goodwill as at 30 June
2020 are set out in the below table.
As reported As adjusted
------------------------------------- -------------------------------------
Goodwill Goodwill
impairment charge impairment charge
for the period for the period
CGU Recoverable amount ended 30 June Recoverable amount ended 30 June
GBP million Operating Sector as at 30 June 2020 2020 as at 30 June 2020 2020
------------------- ------------------- ------------------ ----------------- ------------------ -----------------
Global Integrated
Wunderman Thompson Agencies 1,932.2 1,071.4 1,759.5 1,207.5
=================== =================== ================== ================= ================== =================
Global Integrated
VMLY&R Agencies 918.3 472.0 871.0 516.9
=================== =================== ================== ================= ================== =================
Burson Cohn & Wolfe Public Relations 859.8 129.1 845.9 140.3
=================== =================== ================== ================= ================== =================
Geometry Global Specialist Agencies 205.9 232.9 128.4 305.8
=================== =================== ================== ================= ================== =================
Landor & FITCH Specialist Agencies 197.5 158.3 169.5 185.4
=================== =================== ================== ================= ================== =================
Other 1,349.3 457.1 1,325.7 457.0
---------------------------------------- ------------------ ----------------- ------------------ -----------------
5,463.0 2,520.8 5,100.0 2,812.9
--------------------------------------- ------------------ ----------------- ------------------ -----------------
14. Trade and other receivables
Amounts falling due within one year:
30 June 31 December
GBP million 2021 2020
================================= ========= ============
Trade receivables 5,877.1 6,572.2
================================= ========= ============
Work in progress 279.1 264.1
================================= ========= ============
VAT and sales taxes recoverable 284.4 236.6
================================= ========= ============
Prepayments 265.6 248.1
================================= ========= ============
Accrued income 3,023.4 3,150.1
================================= ========= ============
Fair value of derivatives 1.8 0.2
================================= ========= ============
Other debtors 493.1 501.0
================================= ========= ============
10,224.5 10,972.3
================================= ========= ============
Amounts falling due after more than one year:
30 June 31 December
GBP million 2021 2020
=============================== ======== ============
Fair value of derivatives 14.4 9.6
=============================== ======== ============
Prepayments and other debtors 163.1 146.6
=============================== ======== ============
177.5 156.2
=============================== ======== ============
The Group considers that the carrying amount of trade and other
receivables approximates their fair value.
A credit to bad debt expense of GBP 10.6 million (period ended
30 June 2020: expense of GBP29.2 million; year ended 31 December
2020: expense of GBP40.8 million) on the Group's trade receivables
was recognised in the period as a result of the reduction in
expected credit losses since 31 December 2020. The allowance for
bad and doubtful debts is equivalent to 1.4 % (31 December 2020:
1.7%) of gross trade receivables.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
15. Trade and other payables: amounts falling due within one year
30 June 31 December
GBP million 2021 2020
============================================================== ========= ============
Trade payables 8,902.2 10,206.5
============================================================== ========= ============
Deferred income 1,164.3 1,153.7
============================================================== ========= ============
Payments due to vendors (earnout agreements) 83.7 57.8
============================================================== ========= ============
Liabilities in respect of put option agreements with vendors 35.4 9.3
============================================================== ========= ============
Fair value of derivatives 3.7 1.8
============================================================== ========= ============
Other creditors and accruals 2,525.5 2,430.6
============================================================== ========= ============
12,714.8 13,859.7
============================================================== ========= ============
The Group considers that the carrying amount of trade and other
payables approximates their fair value.
16. Trade and other payables: amounts falling due after more than one year
30 June 31 December
GBP million 2021 2020
============================================================== ========= ============
Payments due to vendors (earnout agreements) 69.5 56.5
============================================================== ========= ============
Liabilities in respect of put option agreements with vendors 245.9 101.4
============================================================== ========= ============
Fair value of derivatives 38.2 11.2
============================================================== ========= ============
Other creditors and accruals 78.3 144.4
============================================================== ========= ============
431.9 313.5
============================================================== ========= ============
The Group considers that the carrying amount of trade and other
payables approximates their fair value.
The following table sets out payments due to vendors, comprising
contingent consideration and the Directors' best estimates of
future earnout-related obligations:
30 June 31 December
GBP million 2021 2020
======================= ========= ============
Within one year 83.7 57.8
======================= ========= ============
Between 1 and 2 years 20.5 17.2
======================= ========= ============
Between 2 and 3 years 18.4 6.0
======================= ========= ============
Between 3 and 4 years 19.4 30.5
======================= ========= ============
Between 4 and 5 years 11.2 2.8
======================= ========= ============
153.2 114.3
======================= ========= ============
The Group's approach to payments due to vendors is outlined in
note 19 .
The Group does not consider there to be any material contingent
liabilities at 30 June 2021.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
17. Related party transactions
The Group enters into transactions with its associate
undertakings.
The Group has continuing transactions with Kantar, including
sales, purchases, the provision of IT services, subleases and
property related items.
In the period ended 30 June 2021, revenue of GBP93.5 million
(period ended 30 June 2020: GBP49.7 million) was reported in
relation to Compas, an associate in the USA. All other transactions
in the periods presented were immaterial.
The Group invested a further GBP92.9 million in Kantar on 29
June 2021 to fund its 40% share of the Numerator acquisition. This
investment would have been returned to the Group in the event the
Numerator acquisition did not complete. Kantar completed its
acquisition of Numerator on 2 July 2021.
The following amounts were outstanding at 30 June 2021:
30 June 31 December
GBP million 2021 2020
================================= ======== ============
Amounts owed by related parties
================================= ======== ============
Kantar 135.5 39.0
================================= ======== ============
Other 46.3 27.9
================================= ======== ============
181.8 66.9
================================= ======== ============
Amounts owed to related parties
================================= ======== ============
Kantar (6.3) (5.6)
================================= ======== ============
Other (62.3) (36.0)
================================= ======== ============
(68.6) (41.6)
================================= ======== ============
18. Going concern and liquidity risk
In considering going concern and liquidity risk, the Directors
have reviewed the Group's future cash requirements and earnings
projections. The Directors believe these forecasts have been
prepared on a prudent basis and have also considered the impact of
a range of potential changes to trading performance. The Company
modelled a range of revenue less pass-through costs compared with
the year ended 31 December 2020 and a number of mitigating cost
actions that are available to the Company. Considering the Group's
bank covenant and liquidity headroom and cost mitigation actions
which could be implemented, the Company and the Group would be able
to operate with appropriate liquidity and within its banking
covenants and be able to meet its liabilities as they fall due with
a decline in revenue less pass-through costs up to 29% in the
second half of 2021 and first half of 2022 compared to the
corresponding prior periods. The likelihood of such a decline is
considered remote. The Directors have concluded that the Group will
be able to operate within its current facilities and comply with
its banking covenants for the foreseeable future and therefore
believe it is appropriate to prepare the financial statements of
the Group on a going concern basis and that there are no material
uncertainties which gives rise to a significant going concern
risk.
Given its debt maturity profile and available facilities, the
Directors believe the Group has sufficient liquidity to match its
requirements for the foreseeable future.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
19. Financial instruments
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into levels 1 to 3 based on the degree to which
the fair value is observable, or based on observable inputs:
GBP million Level 1 Level 2 Level 3
======================================================= ========== ======== ========
30 June 2021
======================================================= ========== ======== ========
Derivatives in designated hedge relationships
======================================================= ========== ======== ========
Derivative assets - 12.2 -
======================================================= ========== ======== ========
Derivative liabilities - (38.2) -
------------------------------------------------------- ---------- -------- --------
Held at fair value through profit or loss
======================================================= ========== ======== ========
Other investments 0.2 - 296.7
======================================================= ========== ======== ========
Derivative assets - 4.0 -
======================================================= ========== ======== ========
Derivative liabilities - (3.7) -
======================================================= ========== ======== ========
Payments due to vendors (earnout agreements) - - (153.2)
======================================================= ========== ======== ========
Liabilities in respect of put options - - (281.3)
------------------------------------------------------- ---------- -------- --------
Held at fair value through other comprehensive income
======================================================= ========== ======== ========
Other investments 40.9 - 110.9
------------------------------------------------------- ---------- -------- --------
Reconciliation of level 3 fair value measurements:
Payments due to vendors Liabilities in respect of put
GBP million (earnout agreements) options Other investments
================================ =============================== =============================== ==================
1 January 2021 (114.3) (110.7) 366.6
================================ =============================== =============================== ==================
(Losses)/gains recognised in
the income statement (9.4) (44.4) 30.4
================================ =============================== =============================== ==================
Gains recognised in other
comprehensive income - - 6.9
================================ =============================== =============================== ==================
Exchange adjustments 1.6 1.9 -
================================ =============================== =============================== ==================
Additions (45.2) (129.5)(1) 4.3
================================ =============================== =============================== ==================
Disposals - - (0.6)
================================ =============================== =============================== ==================
Settlements 14.1 1.4 -
-------------------------------- ------------------------------- ------------------------------- ------------------
30 June 2021 (153.2) (281.3) 407.6
-------------------------------- ------------------------------- ------------------------------- ------------------
Payments due to vendors and liabilities in respect of put
options
Future anticipated payments due to vendors in respect of
contingent consideration (earnout agreements) are recorded at fair
value, which is the present value of the expected cash outflows of
the obligations. Liabilities in respect of put option agreements
are initially recorded at the present value of the redemption
amount in accordance with IAS 32 and subsequently measured at fair
value in accordance with IFRS 9. Both types of obligations are
dependent on the future financial performance of the entity and it
is assumed that future profits are in line with Directors'
estimates. The Directors derive their estimates from internal
business plans together with financial due diligence performed in
connection with the acquisition. At 30 June 2021, the weighted
average growth rate in estimating future financial performance was
14.6%, which reflects the prevalence of recent acquisitions in the
faster growing markets and new media sectors. The weighted average
risk adjusted discount rate applied to these obligations at 30 June
2021 was approximately 5.3%.
A one percentage point increase or decrease in the growth rate
in estimated future financial performance would increase or
decrease the combined liabilities due to earnout agreements and put
options by approximately GBP8.3 million and GBP13.1 million,
respectively. A 0.5 percentage point increase or decrease in the
risk adjusted discount rate would decrease or increase the combined
liabilities by approximately GBP6.1 million and GBP6.2 million,
respectively. An increase in the liability would result in a loss
in the revaluation and retranslation of financial instruments (note
6 ), while a decrease would result in a gain.
(1) During the period, the Group merged its subsidiaries
Finsbury, The Glover Park Group and Hering Schuppener to form a
leading global strategic communications advisory firm. As part of
this transaction, certain management acquired shares in the company
and a put option was granted which allows the equity partners to
require the Group to purchase these shares. This resulted in
additions to liabilities in respect of put options in the period of
GBP100.0 million.
Notes to the unaudited condensed consolidated interim financial
statements (continued)
19. Financial instruments (continued)
Other investments
The fair value of other investments included in level 1 are
based on quoted market prices. Other investments included in level
3 are unlisted securities, where market value is not readily
available. The Group has estimated relevant fair values on the
basis of publicly available information from outside sources.
Certain investments are valued using revenue multiples. An increase
or decrease in this multiple of 0.5 times revenue would result in
an increase or decrease in the value of investments of GBP24.5
million, which would result in a credit or charge to the income
statement of GBP1.6 million and equity of GBP22.9 million. The
sensitivity to changes in unobservable inputs for certain other
investments is specific to each individual investment.
Principal risks and uncertainties
The Board regularly reviews the principal and emerging risks and
uncertainties affecting the Group and these are summarised
below:
COVID-19 Pandemic
-- The extent of the continued impact of the COVID-19 pandemic
on our business will depend on numerous factors that we are not
able to accurately predict, including the duration and scope of the
pandemic, government actions to mitigate the effects of the
pandemic and the intermediate and long-term impact of the pandemic
on our clients' spending plans.
Strategic Risks
-- The Group updated its strategic plan in December 2020, to
return the business to growth and simplify the Group structure. A
failure or delay in implementing and fully realising the benefits
from the strategic plan, may have a material adverse effect on the
Group's market share and its business, revenues, results of
operations, financial condition, or prospects.
Operational Risks
Clients
-- The Group competes for clients in a highly competitive and
evolving industry which is undergoing structural change which has
been accelerated by the COVID-19 pandemic. Client loss or
consolidation or a reduction in marketing budgets due to
recessionary economic conditions, may have a material adverse
effect on the Group's market share and its business, revenues,
results of operations, financial condition or prospects.
-- The Group receives a significant portion of its revenues from
a limited number of large clients and the net loss of one or more
of these clients could have a material adverse effect on the
Group's prospects, business, financial condition and results of
operations.
People, Culture and Succession
-- The Group's performance could be adversely affected if we do
not react quickly enough to changes in our market and fail to
attract, develop and retain key and diverse creative, commercial
technology and management talent or are unable to retain and
incentivise key and diverse talent.
Cyber and Information Security
-- The Group is undertaking a series of IT transformation
programmes to support the Group's strategic plan and a failure or
delay in implanting the IT programmes may have a material adverse
effect on its business, revenues, results of operations, financial
conditions or prospects. The Group is reliant on third parties for
the performance of a significant part of its information technology
and operational functions. A failure to provide these functions
including as a result of a cyber event, could have an adverse
effect on the Group's business. A significant percentage of the
Group's people continue to work remotely as a consequence of the
COVID-19 pandemic which has the potential to increase the risk of
compromised data security and cyber-attacks.
Financial Risks
-- The Group is subject to credit risk through the default of a client or other counterparty.
Principal risks and uncertainties (continued)
Compliance Risks
-- The Group is subject to strict data protection and privacy
legislation in the jurisdictions in which we operate and rely
extensively on information technology systems. The Group stores,
transmits and relies on critical and sensitive data. Security of
this type of data is exposed to escalating external cyber threats
that are increasing in sophistication as well as internal
breaches.
-- The Group's performance could be adversely impacted if it
failed to ensure adequate internal control procedures are in place
generally and through the period of remote working as a consequence
of the COVID-19 pandemic.
Regulatory, Sanctions, Anti-Trust and Taxation
-- The Group may be subject to regulations restricting its
activities or effecting changes in taxation for example as a
consequence of the financial support programmes implemented by
governments during the COVID-19 pandemic.
-- The Group is subject to anti-corruption, anti-bribery and
anti-trust legislation and enforcement in the countries in which it
operates.
-- Civil liabilities or judgements against the Company or its
Directors or officers based on United States federal or state
securities laws may not be enforceable in the United States or in
England and Wales or in Jersey.
-- The Group is subject to the laws of the United States, EU and
other jurisdictions regulating and imposing sanctions on the supply
of services to certain countries. Failure to comply with these laws
could expose the Group to civil and criminal penalties.
Emerging Risks
-- The Group's operations could be disrupted by an increased frequency of extreme weather and climate-related natural disasters as a consequence of the physical impacts of climate change in the next 30 years.
-- The Group is subject to increased reputational risk
associated with working on environmentally detrimental client
briefs and/or misrepresenting environmental claims.
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to
be, "forward-looking statements". Forward-looking statements give
the Group's current expectations or forecasts of future events. An
investor can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words such
as 'anticipate', 'estimate', 'expect', 'intend', 'will', 'project',
'plan', 'believe', 'target' and other words and terms of similar
meaning in connection with any discussion of future operating or
financial performance.
These forward-looking statements may include, among other
things, plans, objectives, projections and anticipated future
economic performance based on assumptions and the like that are
subject to risks and uncertainties. As such, actual results or
outcomes may differ materially from those discussed in the
forward-looking statements. Important factors which may cause
actual results to differ include but are not limited to: the
unanticipated loss of a material client or key personnel, delays or
reductions in client advertising budgets, shifts in industry rates
of compensation, regulatory compliance costs or litigation, natural
disasters or acts of terrorism, the Company's exposure to changes
in the values of other major currencies (because a substantial
portion of its revenues are derived and costs incurred outside of
the UK) and the overall level of economic activity in the Company's
major markets (which varies depending on, among other things,
regional, national and international political and economic
conditions and government regulations in the world's advertising
markets). In addition, you should consider the risks described
under Item 3D 'Risk Factors' in the Group's Annual Report on Form
20-F for 2020 and any impacts of the COVID-19 pandemic which could
also cause actual results to differ from forward-looking
information. In light of these and other uncertainties, the
forward-looking statements included in this document should not be
regarded as a representation by the Company that the Company's
plans and objectives will be achieved. Other than in accordance
with its legal or regulatory obligations (including under the
Market Abuse Regulation, the UK Listing Rules and the Disclosure
Guidance and Transparency Rules of the Financial Conduct
Authority), the Group undertakes no obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise. The reader should, however, consult any
additional disclosures that the Group may make in any documents
which it publishes and/or files with the SEC. All readers, wherever
located, should take note of these disclosures. Accordingly, no
assurance can be given that any particular expectation will be met
and investors are cautioned not to place undue reliance on the
forward-looking statements.
Any forward looking statements made by or on behalf of the Group
speak only as of the date they are made and are based upon the
knowledge and information available to the Directors on the date of
this document.
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.4R;
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R; and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R.
The names and functions of the WPP plc Board can be found at:
wpp.com/about/our-leadership/the-wpp-board
This responsibility statement is approved by the Board of
Directors and is signed on its behalf by:
J Rogers
Chief Financial Officer
5 August 2021
Independent review report to WPP plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the condensed
consolidated interim income statement, statement of comprehensive
income, the cash flow statement, the balance sheet, the statement
of changes in equity and related notes 1 to 19. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in the accounting policies section, the annual
financial statements of the group are prepared in accordance with
IFRSs as adopted by the European Union. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting" as adopted by the
European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 August 2021
Appendix 2: Alternate performance measures for the six months
ended 30 June 2021
Management includes non-GAAP measures as they consider these
measures to be both useful and necessary. They are used by
management for internal performance analyses; the presentation of
these measures facilitates comparability with other companies,
although management's measures may not be calculated in the same
way as similarly titled measures reported by other companies; and
these measures are useful in connection with discussions with the
investment community.
Reconciliation of revenue to revenue less pass-through
costs:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
================================ ================ ================
Continuing operations
================================ ================ ================
Revenue 6,132.5 5,582.7
================================ ================ ================
Media pass-through costs (857.0) (613.7)
================================ ================ ================
Other pass-through costs (376.3) (301.3)
================================ ================ ================
Revenue less pass-through costs 4,899.2 4,667.7
================================ ================ ================
Pass-through costs comprise fees paid to external suppliers when
they are engaged to perform part or all of a specific project and
are charged directly to clients. This includes the cost of media
where the Group is buying digital media for its own account on a
transparent opt-in basis and, as a result, the subsequent media
pass-through costs have to be accounted for as revenue, as well as
billings. Therefore, management considers that revenue less
pass-through costs gives a helpful reflection of top-line
growth.
Reconciliation of operating profit/(loss) to headline operating
profit:
Six months ended
30 June Six months ended
GBP million 2021 30 June 2020(1)
========================================================================= ================= =================
Continuing operations
========================================================================= ================= =================
Operating profit/(loss) 483.6 (2,750.6)
========================================================================= ================= =================
Amortisation and impairment of acquired intangible assets 30.1 53.1
========================================================================= ================= =================
Goodwill impairment - 2,812.9
========================================================================= ================= =================
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
========================================================================= ================= =================
Investment and other write-downs - 225.7
========================================================================= ================= =================
Litigation settlement 21.7 -
========================================================================= ================= =================
Restructuring and transformation costs 34.3 17.9
========================================================================= ================= =================
Restructuring costs in relation to COVID-19 19.7 39.3
========================================================================= ================= =================
Headline operating profit 590.4 382.3
========================================================================= ================= =================
Finance and investment income 30.1 51.2
========================================================================= ================= =================
Finance costs (excluding interest expense related to lease liabilities) (101.5) (107.1)
========================================================================= ================= =================
(71.4) (55.9)
========================================================================= ================= =================
Interest cover(2) on headline operating profit 8.3 times 6.8 times
========================================================================= ================= =================
Headline operating profit is one of the metrics that management
uses to assess the performance of the business.
(1) Figures have been restated as described in note 2.
(2) Interest expense related to lease liabilities is excluded
from interest cover as lease liabilities are excluded from the
Group's key leverage metrics.
Headline operating profit margin before and after share of
results of associates:
Six months Six months
ended ended
30 June 30 June
GBP million Margin 2021 Margin 2020
======================================= ======= =========== ========= ===========
Continuing operations
======================================= ======= =========== ========= ===========
Revenue less pass-through costs 4,899.2 4,667.7
======================================== ======= =========== ========= ===========
Headline operating profit 12.1% 590.4 8.2% 382.3
======================================== ======= =========== ========= ===========
Share of results of associates
(excluding exceptional gains/losses) 28.3 (0.5)
======================================== ======= =========== ========= ===========
Headline PBIT 12.6% 618.7 8.2% 381.8
======================================== ======= =========== ========= ===========
Calculation of headline EBITDA:
Six months ended Six months ended
30 June 30 June
GBP million 2021 2020
================================================================= ================= =================
Continuing operations
================================================================= ================= =================
Headline PBIT (as above) 618.7 381.8
================================================================= ================= =================
Depreciation of property, plant and equipment 71.2 88.2
================================================================= ================= =================
Amortisation of other intangible assets 9.4 9.6
================================================================= ================= =================
Headline EBITDA (including depreciation of right-of-use assets) 699.3 479.6
================================================================= ================= =================
Depreciation of right-of-use assets 139.3 155.4
================================================================= ================= =================
Headline EBITDA 838.6 635.0
================================================================= ================= =================
Headline EBITDA is a key metric that private equity firms, for
example, use for valuing companies, and is one of the metrics that
management uses to assess the performance of the business. Headline
EBITDA (including depreciation of right-of-use assets) is used in
the Group's key leverage metric.
Reconciliation of profit/(loss) before taxation to headline PBT
and headline earnings:
Six months ended
30 June Six months ended
GBP million 2021 30 June 2020(1)
============================================================ ================= =================
Continuing operations
============================================================ ================= =================
Profit/(loss) before taxation 394.4 (3,177.2)
============================================================ ================= =================
Amortisation and impairment of acquired intangible assets 30.1 53.1
============================================================ ================= =================
Goodwill impairment - 2,812.9
============================================================ ================= =================
Losses/(gains) on disposal of investments and subsidiaries 1.0 (16.0)
============================================================ ================= =================
Investment and other write-downs - 225.7
============================================================ ================= =================
Restructuring and transformation costs 34.3 17.9
============================================================ ================= =================
Restructuring costs in relation to COVID-19 19.7 39.3
============================================================ ================= =================
Share of exceptional (gains)/losses of associates (11.7) 51.4
============================================================ ================= =================
Litigation settlement 21.7 -
============================================================ ================= =================
Revaluation and retranslation of financial instruments 12.1 268.6
============================================================ ================= =================
Headline PBT 501.6 275.7
============================================================ ================= =================
Headline tax charge (114.3) (63.9)
============================================================ ================= =================
Headline non-controlling interests (34.6) (21.1)
============================================================ ================= =================
Headline earnings 352.7 190.7
============================================================ ================= =================
Headline PBT and headline earnings are metrics that management
use to assess the performance of the business.
(1) Figures have been restated as described in note 2.
Calculation of headline taxation:
Six months ended
30 June Six months ended
GBP million 2021 30 June 2020(1)
================================================================================ ================= =================
Continuing operations
================================================================================ ================= =================
Headline PBT 501.6 275.7
================================================================================ ================= =================
Share of results of associates (excluding exceptional gains/losses) (28.3) 0.5
-------------------------------------------------------------------------------- ----------------- -----------------
Headline PBT excluding headline share of results of associates 473.3 276.2
-------------------------------------------------------------------------------- ----------------- -----------------
Tax charge 107.1 10.9
================================================================================ ================= =================
Tax charge relating to gains on disposal of investments and subsidiaries (3.8) (1.9)
================================================================================ ================= =================
Tax credit relating to litigation settlement 1.5 -
================================================================================ ================= =================
Deferred tax impact of the amortisation of acquired intangible assets and other
goodwill items (2.0) 37.5
================================================================================ ================= =================
Tax credit relating to restructuring and transformation costs and COVID-19 18.5 17.9
================================================================================ ================= =================
Deferred tax relating to gains on disposal of investments and subsidiaries (7.0) (0.5)
================================================================================ ================= =================
Headline tax charge 114.3 63.9
-------------------------------------------------------------------------------- ----------------- -----------------
Headline tax rate 24.1% 23.1%
-------------------------------------------------------------------------------- ----------------- -----------------
The headline tax rate on headline PBT excluding the share of
headline results of associates was 24.1% (2020: 23.1%).
Given the Group's geographic mix of profits and the changing
international tax environment, the headline tax rate is expected to
increase slightly over the next few years.
Reconciliation of free cash flow:
Six months ended
Six months ended 30 June
GBP million 30 June 2021 2020
=============================================================================== ================= =================
Cash generated by/(used in) operations 279.9 (131.4)
=============================================================================== ================= =================
Plus:
=============================================================================== ================= =================
Interest received 25.1 45.2
=============================================================================== ================= =================
Investment income 5.0 6.8
=============================================================================== ================= =================
Dividends received from associates 26.7 4.7
=============================================================================== ================= =================
Less:
=============================================================================== ================= =================
Earnout payments (14.1) (88.5)
=============================================================================== ================= =================
Interest and similar charges paid (90.1) (77.4)
=============================================================================== ================= =================
Purchase of property, plant and equipment (111.6) (121.3)
=============================================================================== ================= =================
Purchase of other intangible assets (including capitalised computer software) (26.7) (19.2)
=============================================================================== ================= =================
Repayment of lease liabilities (157.4) (154.5)
=============================================================================== ================= =================
Interest paid on lease liabilities (44.7) (48.6)
=============================================================================== ================= =================
Corporation and overseas tax paid (162.7) (201.2)
=============================================================================== ================= =================
Dividends paid to non-controlling interests in subsidiary undertakings (74.5) (40.1)
=============================================================================== ================= =================
Free cash flow (345.1) (825.5)
=============================================================================== ================= =================
The Group bases its internal cash flow objectives on free cash
flow. Management believes free cash flow is meaningful to investors
because it is the measure of the Group's funds available for
acquisition related payments, dividends to shareholders, share
repurchases and debt repayment. The purpose of presenting free cash
flow is to indicate the ongoing cash generation within the control
of the Group after taking account of the necessary cash
expenditures of maintaining the capital and operating structure of
the Group (in the form of payments of interest, corporate taxation
and capital expenditure).
(1) Figures have been restated as described in note 2.
Constant currency and pro forma ('like-for-like')
These consolidated financial statements are presented in pounds
sterling. However, the Group's significant international operations
give rise to fluctuations in foreign exchange rates. To neutralise
foreign exchange impact and illustrate the underlying change in
revenue and profit from one year to the next, the Group has adopted
the practice of discussing results in both reportable currency
(local currency results translated into pounds sterling at the
prevailing foreign exchange rate) and constant currency.
Management also believes that discussing pro forma or
like-for-like contributes to the understanding of the Group's
performance and trends because it allows for meaningful comparisons
of the current period to that of prior periods.
Further details of the constant currency and pro forma methods
are given in the glossary on page 48.
Appendix 3: Re-presented segmental analysis for the year ended
31 December 2020
During 2020, the Group announced the intention to combine Grey
and AKQA into AKQA Group, and to bring Geometry and GTB into
VMLY&R, and International Healthcare into VMLY&R and
Ogilvy. As a result AKQA, Geometry, GTB and International
Healthcare are now reported within Global Integrated Agencies,
having previously been reported within Specialist Agencies. For
information purposes, the restated reported contributions by
operating sector for the year ended 31 December 2020 are presented
below:
Year ended
31 December
GBP million 2020
==================================== =============
Continuing operations
==================================== =============
Revenue
==================================== =============
Global Integrated Agencies 10,265.5
===================================== =============
Public Relations 892.9
===================================== =============
Specialist Agencies 844.4
===================================== =============
12,002.8
==================================== =============
Revenue less pass-through costs(1)
==================================== =============
Global Integrated Agencies 8,194.2
===================================== =============
Public Relations 854.4
===================================== =============
Specialist Agencies 713.4
------------------------------------- -------------
9,762.0
==================================== =============
Headline operating profit(2)
==================================== =============
Global Integrated Agencies 1,059.9
===================================== =============
Public Relations 141.3
===================================== =============
Specialist Agencies 59.3
===================================== =============
1,260.5
==================================== =============
(1) Revenue less pass-through costs is defined in Appendix
2.
(2) Headline operating profit is defined in Appendix 2.
Glossary and basis of preparation
Average net debt and net debt
Average net debt is calculated as the average daily net
borrowings of the Group. Net debt at a period end is calculated as
the sum of the net borrowings of the Group, derived from the cash
ledgers and accounts in the balance sheet. Net debt excludes lease
liabilities.
Billings and estimated net new billings
Billings comprise the gross amounts billed to clients in respect
of commission-based/fee-based income together with the total of
other fees earned. Net new billings represent the estimated
annualised impact on billings of new business gained from both
existing and new clients, net of existing client business lost. The
estimated impact is based upon initial assessments of the clients'
marketing budgets, which may not necessarily result in actual
billings of the same amount.
Constant currency
The Group uses US dollar-based, constant currency models to
measure performance. These are calculated by applying budgeted 2021
exchange rates to local currency reported results for the current
and prior year, which excludes any variances attributable to
foreign exchange rate movements.
Exceptional gains/losses
Exceptional gains/losses include gains/losses on disposal of
investments and subsidiaries, investment and other write-downs,
litigation settlement, restructuring and transformation costs,
restructuring costs in relation to COVID-19 and share of
exceptional gains/losses of associates.
Free cash flow
Free cash flow is calculated as cash generated by operations
plus dividends received from associates, interest received,
investment income received, and proceeds from the issue of shares,
less corporation and overseas tax paid, interest and similar
charges paid, dividends paid to non-controlling interests in
subsidiary undertakings, repayment of lease liabilities (including
interest), earnout payments and purchases of property, plant and
equipment and purchases of other intangible assets.
General and administrative costs
General and administrative costs include marketing costs,
certain professional fees and an allocation of other costs,
including staff and establishment costs, based on the function of
employees within the Group.
Headline earnings
Headline PBT less headline tax charge and non-controlling
interests.
Headline EBITDA
Profit before finance income/costs and revaluation and
retranslation of financial instruments, taxation, gains/losses on
disposal of investments and subsidiaries, investment and other
write-downs, goodwill impairment and other goodwill write-downs,
amortisation and impairment of acquired intangible assets,
amortisation of other intangibles, depreciation of property, plant
and equipment, depreciation of right-of-use assets, restructuring
and transformation costs, restructuring costs in relation to
COVID-19, litigation settlement and share of exceptional
gains/losses of associates.
Headline operating profit
Operating profit before gains/losses on disposal of investments
and subsidiaries, investment and other write-downs, goodwill
impairment and other goodwill write-downs, amortisation and
impairment of acquired intangible assets, restructuring and
transformation costs, restructuring costs in relation to COVID-19
and litigation settlement.
Headline PBIT
Profit before finance income/costs and revaluation and
retranslation of financial instruments, taxation, gains/losses on
disposal of investments and subsidiaries, investment and other
write-downs, goodwill impairment and other goodwill write-downs,
amortisation and impairment of acquired intangible assets,
restructuring and transformation costs, restructuring costs in
relation to COVID-19, litigation settlement and share of
exceptional gains/losses of associates.
Headline operating profit margin
Headline operating profit margin is calculated as headline
operating profit as a percentage of revenue less pass-through
costs.
Headline PBT
Profit before taxation, gains/losses on disposal of investments
and subsidiaries, investment and other write-downs, goodwill
impairment and other goodwill write-downs, amortisation and
impairment of acquired intangible assets, restructuring and
transformation costs, restructuring costs in relation to COVID-19,
litigation settlement, share of exceptional gains/losses of
associates and gains/losses arising from the revaluation and
retranslation of financial instruments.
Headline tax charge
Taxation excluding tax/deferred tax relating to gains on
disposal of investments and subsidiaries, tax credit relating to
litigation settlement, deferred tax impact of the amortisation of
acquired intangible assets and other goodwill items and tax credit
relating to restructuring and transformation costs and
COVID-19.
Net working capital
The movement in net working capital consists of movements in
trade working capital and movements in other working capital and
provisions per the analysis of cash flows note.
Pass-through costs
Pass-through costs comprise fees paid to external suppliers
where they are engaged to perform part or all of a specific project
and are charged directly to clients, predominantly media costs.
Pro forma ('like-for-like')
Pro forma comparisons are calculated as follows: current year,
constant currency actual results (which include acquisitions from
the relevant date of completion) are compared with prior year,
constant currency actual results, adjusted to include the results
of acquisitions and disposals for the commensurate period in the
prior year. The Group uses the terms 'pro forma' and
'like-for-like' interchangeably.
Revenue less pass-through costs
Revenue less pass-through costs is revenue less media and other
pass-through costs.
[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 restated as described in note 2 of Appendix 1.
[4] Not meaningful.
[5] 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.
[6] Prior year figures have been restated as described in note 2 of Appendix 1.
[7] Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.
[8] AKQA, Geometry, GTB and International Healthcare have been
reassigned from Specialist Agencies to Global
Integrated Agencies from Q1 2021. 2020 figures have been restated to reflect this change.
[9] Prior year figures have been restated as described in note 2 of Appendix 1.
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END
IR GZGGRMDMGMZZ
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