Report to share owners
The Board of WPP announces its unaudited interim results for the six months ended 30 June 2011. Despite recent uncertainties, these results continue the post-Lehman bounce-back seen in 2010 and the Group has now achieved levels of pro-forma revenues and profitability beyond 2008.
Billings were up 5.2% at £21.392 billion.
Reportable revenue was up 6.1% at £4.713 billion. Revenue on a constant currency basis was up 8.1% compared with last year, chiefly reflecting the comparative strength of the pound sterling against the US dollar. As a number of our competitors report in US dollars and the euro and inter-currency comparisons are difficult, the Unaudited condensed consolidated interim income statement: Reportable US dollar illustration and Unaudited condensed consolidated interim income statement: Reportable Euro illustration show WPP’s interim results in reportable US dollars and euros respectively. This shows that US dollar reportable revenues were up 12.8% to $7.622 billion, which compares with the $6.639 billion of our closest worldwide competitor and that euro reportable revenues were up 6.0% at €5.424 billion, which compares to €2.699 billion of our nearest European-based competitor. Headline earnings before interest, taxation, depreciation and amortisation ('Headline EBITDA') were $1.005 billion compared to $944 million for our nearest competitor, with our profitability being more skewed to the second half.
On a like-for-like basis, which excludes the impact of acquisitions and currency, revenues were up 6.1% in the first half, with gross margin up 6.8%. In the second quarter, like-for-like revenues were up 5.6%, less than the first quarter 6.7%, with gross margin up 6.4%, following 7.3% growth in the first quarter. This reflects increased client advertising and promotional ('A' & 'P') spending ('A' probably increasing more than 'P'), across most of the Group’s major geographic markets and functional sectors despite tougher comparatives, although clients understandably continue to demand increased effectiveness and efficiency.
Headline EBITDA was up 10.5% to £619.5 million and up 12.7% in constant currencies. Headline operating profit was up 13.7% to £517.9 million from £455.3 million and up 15.9% in constant currencies, over half a billion pounds sterling for the first time in the first half.
Headline operating margins were up 0.7 margin points to 11.0% compared to 10.3% in the first half of last year. On a like-for-like basis operating margins were up 0.6 margin points. Headline gross margin margins were up 0.7 margin points to 11.9%. Given the significance of consumer insight revenues to the Group, gross margin is probably a more meaningful measure of comparative, competitive revenue growth and margin performance. These are 'clean' margin increases without the benefit of one-off provisions to cover expenses, as seen elsewhere in the industry.
On a reported basis, operating margins, before short and long-term incentives and the cost of share-based incentives, were 13.9%, up 0.8 margin points, compared with 13.1% last year. The Group’s staff cost to revenue ratio, including incentives, increased by 0.3 margin points to 60.7% compared with 60.4% in the first half of 2010, as the Group increased its investment in talent as like-for-like revenues and gross margin increased significantly. On the same basis, the Group’s staff cost to revenue ratio, excluding incentives, increased by 0.1 margin points to 57.7% from 57.6%. Short and long-term incentives and the cost of share-based incentives amounted to £139.3 million or 22.0% (around maximum performance), of operating profits before bonus and taxes, compared to £127.4 million last year, or 22.8%, up £11.9 million or 9.3%.
On a like-for-like basis, the average number of people in the Group, excluding associates, was 107,239 in the first half of the year, compared to 102,651 in 2010, an increase of 4.5%. On the same basis, the total number of people in the Group, excluding associates, at 30 June 2011 was 110,357 compared to 105,371 at 30 June 2010, an increase of 4,986 or 4.7%. On the same basis revenues increased 6.1% and gross margin 6.8%. As at 30 June 2011, the number of people in the Group increased by 2,634 or 2.4% compared to the pro-forma figure at 31 December 2010, reflecting net hiring, particularly in the United Kingdom and the faster growing markets of Asia Pacific and Latin America, which accounted for almost 85% of the new hires and where like-for-like revenue and gross margin growth is particularly strong.
Net finance costs (excluding the revaluation of financial instruments) were up slightly at £100.9 million, compared with £99.1 million in 2010, an increase of £1.8 million, reflecting higher funding costs mainly offset by lower levels of average net debt.
Headline profit before tax was up 17.1% to £417.0 million from £356.2 million, or up 19.6% in constant currencies.
Reported profit before tax rose by 37.1% to £334.3 million from £243.9 million. In constant currencies, reported profit before tax rose by 41.7%.
The tax rate on headline profit before tax was 22.0%, down 1.9 percentage points on the first half rate in 2010 of 23.9% and in line with the 2010 full year tax rate of 22.0%.
Profits attributable to share owners rose by 53.0% to £230.7 million from £150.8 million.
Diluted headline earnings per share rose by 19.4% to 22.8p from 19.1p. In constant currencies, earnings per share on the same basis rose by 22.8%. Diluted reported earnings per share were up 50.8% to 18.1p and up 58.4% in constant currencies.
In line with the statement made in the Group’s 2010 Preliminary Results Announcement, concerning increasing the dividend payout ratio, the Board declares an increase of 25% in the first interim ordinary dividend to 7.46p per share. The record date for this first interim dividend is 14 October 2011, payable on 14 November 2011.
Further details of WPP’s financial performance are provided in the Unaudited condensed consolidated interim income statement: UK Sterling, Unaudited condensed consolidated interim income statement: reportable US Dollar illustration and Unaudited condensed consolidated interim income statement: reportable Euro illustration.