First half on track; progress on
simplification and de-leveraging; full year guidance
reiterated
WPP (NYSE: WPP) today reported its 2019 Interim Results.
First half and Q2 financial highlights
- Reported revenue up 1.6%, constant currency revenue flat, LFL
revenue down 0.6% (Q2 up 0.1%)
- H1 LFL revenue less pass-through costs -2.0%; Q2 -1.4% (Q1
-2.8%)
- Q2 LFL revenue less pass-through costs improvements in key
markets: USA -5.4%, UK +1.3%
- H1 headline operating margin 11.9%, down 1.2 margin points LFL,
reflecting revenue less pass-through costs trend; IFRS 16: Leases
benefit on reported headline margin 0.5 margin points
- Reported profit before tax down 44% driven primarily by a
significant H1 2018 exceptional gain that has not been repeated
(£117 million impact) and a charge on the revaluation of financial
instruments versus a credit in 2018 (£138 million impact)
- Average net debt £4.384 billion, down £709 million in constant
currency compared with first half of 2018 supported by disposal
programme
- 2019 guidance reiterated: LFL revenue less pass-through costs
down 1.5% to 2.0%; headline operating margin to revenue less
pass-through costs down around 1.0 margin point on a constant
currency basis (excluding the impact of IFRS 16)
Strategic highlights
- New strategy delivering solid new business performance and
strong client retention
- Agreement in July to sell 60% of Kantar: c.$1.9 billion for
de-leverage and c.$1.2 billion to be returned to shareholders
- 44 disposals over the last 15 months, further simplifying WPP
and positioning it for future growth
- Ongoing programme of investment in new leadership and creative
firepower, with focus on the US
Key figures
£ million
H1 2019
∆ reported1
∆ constant2
∆ LFL3
H1 2018
Billings
26,533
-0.5
%
-2.0
%
26,656
Revenue
7,616
1.6
%
0.0
%
-0.6
%
7,493
Revenue less pass-through costs
6,149
0.0
%
-1.6
%
-2.0
%
6,149
Headline EBITDA4
875
-7.7
%
-8.9
%
948
Headline operating profit5
730
-6.8
%
-8.0
%
783
Headline operating margin5
11.9
%
-0.86
-0.86
-1.26
12.7
%
Profit before tax
478
-43.5
%
-44.1
%
846
Profit after tax
349
-50.5
%
-51.2
%
705
Headline diluted EPS5
34.2p
-19.7
%
-20.9
%
42.6p
Diluted EPS5
24.8p
-53.6
%
-54.3
%
53.4p
Dividends per share
22.7p
-
-
22.7p
Mark Read, Chief Executive Officer of WPP, said:
“WPP’s performance in the second quarter was slightly ahead of
our internal expectations but in line with our full-year guidance
and three-year strategic targets. Clients are responding well to
our new offer, as evidenced by recent wins and expanded assignments
including from eBay, Instagram and L’Oréal. An encouraging number
of our businesses and markets are achieving good growth.
“That said, we are still in the early stages of our three-year
turnaround plan, and we remain focused on returning the company to
sustainable growth over that period. Our guidance for the full year
is unchanged.
“We continue to simplify WPP, with a more integrated offer for
our clients, better, more collaborative working environments for
our people, and less complicated management structures.
“When the Kantar transaction completes, our disposal programme
will have generated proceeds of c.£3.6bn, allowing us to return
significant amounts to shareholders and reduce our leverage to the
low end of the target range.
“The progress we have made and the positive new business
momentum are reasons for optimism. As a creative transformation
company with stronger, more tech-enabled agencies, we are well
placed for the future as clients look for modern partners to help
them navigate an increasingly complex and challenging marketing
landscape.”
To access WPP's 2019 interim results financial tables, please
visit: www.wpp.com/investors
This announcement is being distributed to all owners of Ordinary
shares and American Depository Receipts. Copies are available to
the public at the Company’s registered office.
The following cautionary statement is included for safe harbour
purposes in connection with the Private Securities Litigation
Reform Act of 1995 introduced in the United States of America. This
announcement may contain forward-looking statements within the
meaning of the US federal securities laws. These statements are
subject to risks and uncertainties that could cause actual results
to differ materially including adjustments arising from the annual
audit by management and the Company’s independent auditors. For
further information on factors which could impact the Company and
the statements contained herein, please refer to public filings by
the Company with the Securities and Exchange Commission. The
statements in this announcement should be considered in light of
these risks and uncertainties.
In this press release not all of the figures and ratios used are
readily available from the unaudited interim results included in
Appendix 1. These non-GAAP measures, including constant currency
and like-for-like growth, revenue less pass-through costs and
headline profit measures, management believes 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 the
Appendix.
Overview and strategic progress
In December 2018, WPP announced the results of a strategic
review, setting out a new plan to return the business to
sustainable growth. We are repositioning WPP as a creative
transformation company. Our offer already extends beyond
communications, into large-scale and higher-growth markets in
experience, commerce and technology, reflecting the broadening
needs of our clients to reach and engage with customers across
multiple platforms. Our progress against the four pillars of this
strategy – creativity, data and technology, a simpler structure and
our own culture – is set out below.
Creativity
In our strategic review, we made a renewed commitment to
creativity, our most important competitive advantage, including a
plan to invest an incremental £15 million a year for the next three
years in creative leadership, with a particular focus on the United
States.
We are proud of the creative campaigns we have developed for
clients in the first six months. Highlights include the Super Bowl,
the most important advertising event in the United States
television calendar, which featured six spots for WPP clients. We
also achieved a number of significant new creative business wins,
including Instagram (Ogilvy), Duracell (Wunderman Thompson) and
VodafoneZiggo (an integrated WPP team in the Netherlands).
Our creativity and the impact of our clients’ campaigns continue
to be recognised in awards. At this year’s Cannes Lions
International Festival of Creativity in June, WPP agencies won a
total of 187 Lions including five Grand Prix, Mindshare was named
media network of the year and VMLY&R was named “Reach” agency
of the year for work in social media and creative data. In
addition, WPP was named the Most Effective Agency Holding Group at
the Effies earlier in the year, for the eighth year in a row.
Data and technology
In 2018, we started the process of defining WPP’s future
technology strategy, based on our own specialised capabilities in
marketing and advertising technology and our existing strong
technology partnerships.
At the time of the Kantar transaction announcement in July we
presented our data strategy in more detail. We are building an open
data platform to support decision-making that integrates WPP data
sources, client customer data and third party data from a wide
range of sources, including the major players in social media,
content and eCommerce. Our focus is more on helping our clients
develop capabilities to resolve identity and manage customer data
effectively than it is on outright data ownership.
Our technology strategy is making good progress. Our cloud
migration project across key agency products is progressing
according to schedule, and we are making increasing use of
artificial intelligence, which is now helping to optimise campaigns
and creative outputs for a growing number of our major clients. Our
global technology partnerships continue to deepen, as evidenced by
the first-to-market partnership with Waze to give clients access to
in-car advertising and location data.
Simpler structure
We are creating a simpler structure for WPP, to make it easier
for clients to access our skills and resources, and the company
more straightforward to manage. The new organisation is based on
three principles: an absolute focus on the needs of our clients in
everything we do; fewer, stronger WPP companies, each positioned to
grow; and more closely integrated operations at the country level
to facilitate collaboration and leverage our collective
strengths.
Clients – we are increasing our commitment to bringing the best
of WPP to our largest clients, through investment in our network of
global client leaders. In the first half, our top 30 clients
accounted for 27% of our revenue less pass-through costs. We saw
strong growth from clients in the technology sector, a varied
performance in consumer packaged goods, with some improvements, and
some weakness in healthcare. The majority of our revenue declines
were concentrated in a small number of clients which underwent
account reviews in 2018, or which significantly reduced their
spending in 2019. The Group won new assignments from Ferring,
Merck, Pfizer, Walgreens and Walmart in the second quarter.
Countries – through the role of country managers and the
introduction of our campus strategy, we are developing more closely
integrated operations at the country level. During the first half,
our top 20 countries accounted for 87% of revenue less pass-through
costs. We performed strongly in faster growing economies, with
Brazil up over 10% and India up over 12%. Our performance in China
was -2.8% in H1 with a split of +6.6% in Q1 and -10.1% in Q2
reflecting timing differences and a +9.0% comparative in Q2 2018.
The UK returned to growth after a better second quarter. While we
saw improving trends in Q2, the USA remained in decline. In the
past 12 months, we have put new leadership into most of our major
US companies, tackled structural challenges and invested in new
creative talent and in marketing and new business.
Companies – the top 10 companies within WPP accounted for 87% of
revenue less pass-through costs in the first half. GroupM achieved
good growth as a result of new account wins and continued spending
by existing clients, but those WPP companies with the greatest
exposure to US creative continued to decline. The mergers to form
two new integrated networks in VMLY&R and Wunderman Thompson
are making good progress, enabling the delivery of a true
end-to-end offer to their clients and repositioning the combined
companies to succeed in the long-term.
We have made excellent progress towards simplifying WPP in the
last six months, building on the strong start made in 2018. As part
of the restructuring plan we outlined in the Investor Day
presentation in December 2018, we have exceeded our target of 100
office mergers, with 102 completed or in progress; 68 offices have
been closed or are in the process of closing against a target of
80; and approximately 3,100 of the 3,500 planned redundancies have
been implemented. The anticipated gross savings remain in line with
the £160 million estimate in December 2018. As we outlined in the
Investor Day, a proportion of these gross savings will be
reinvested in talent and technology development.
Our disposal programme is substantially complete, but we will
continue to review our portfolio to maximise value for our
shareholders. In July we announced that we had reached agreement to
sell a 60% stake in Kantar to Bain Capital Private Equity to form a
strong partnership to accelerate Kantar’s development. In addition
to the potential in our remaining 40% investment in Kantar, the net
cash proceeds of approximately $3.1 billion will allow us to reduce
our debt significantly while also returning approximately $1.2
billion to WPP shareholders. Other disposals in the first half,
including our investments in The Farm, Chime and freehold property
in New York realised £304 million. Including Kantar, the total
proceeds from all disposals in the last 18 months amount to
approximately £3.6 billion.
Culture
To continue to attract and keep the best people in our business,
our workplaces must be open, inclusive, respectful, collaborative
and diverse in every sense. We have appointed Jacqui Canney as our
Global Chief People Officer, to help ensure this culture exists
throughout WPP, as part of her wider responsibility for the
company’s people strategy.
One important factor in creating a strong and positive WPP
culture is the development of campuses in major cities around the
world. We have a goal to co-locate over half of our workforce by
2023. As at June 2019 we had launched campuses in 18 cities,
completing New York, Amsterdam and Madrid in the first half of the
year. These campuses are attractive working environments that
facilitate collaboration and present the best of WPP to clients in
one place. They are also driving efficiency through shared overhead
and the removal of duplication.
We also want to instil a growth culture and to that end we have
redesigned bonus incentives to align with our strategy for growth.
This year, financial targets have been weighted 50% to net sales
targets, whereas the focus in recent years has been exclusively on
profit growth and margin improvement.
Financial results
Reported billings were down 0.5% at £26.533 billion, and down
2.0% in constant currency. Estimated net new business billings of
$2.934 billion were won in the first half of the year, a return to
a strong performance.
Reported revenue was up 1.6% at £7.616 billion. Revenue on a
constant currency basis was flat compared with last year, the
difference to the reported number reflecting the weakening of the
pound sterling in the first half, primarily against the US dollar
and euro. On a like-for-like basis, which excludes the impact of
acquisitions and currency, revenue was up 0.1% in the second
quarter, a significant improvement compared with the first quarter
of -1.3%, giving -0.6% for the first half.
Revenue less pass-through costs was down 1.0% in the second
quarter on a constant currency basis, and down 1.4% like-for-like,
as with revenue, a significant improvement on the first quarter of
-2.3% and -2.8% respectively. In the first half like-for-like
revenue less pass-through costs was down 2.0%.
Operating profitability
Headline EBITDA7 was down 7.7% to £875 million, down 8.9% in
constant currency. Headline operating profit was £730 million, down
6.8%, down 8.0% in constant currency. Headline PBIT was down 8.5%
to £751 million from £821 million, down 9.6% in constant
currency.
Headline operating margin, which includes the impact of IFRS 16
of +0.5 margin points in the first half, was down 0.8 margin points
at 11.9%, down 0.8 margin points in constant currency, and down 1.2
margin points on a like-for-like basis.
Exceptional items
In the first half of 2019, the Group generated a net exceptional
loss of £3 million. This net loss comprises gains of £65 million,
primarily relating to the gains on disposal of investments and
subsidiaries and the gain on sale of freehold property in New York,
offset by the Group’s share of associate company exceptional losses
of £13 million and restructuring and transformation costs of £55
million, the majority of which comprise severance costs arising
from the continuing structural review of parts of the Group’s
operations. This compares with net exceptional gains in the first
half of 2018 of £114 million.
Interest and taxes
Net finance costs (excluding the revaluation of financial
instruments) were £146 million compared to £86 million in the first
half of 2018, an increase of £60 million, or 69.5%. This reflects
additional interest expense related to lease liabilities of £52
million following the adoption of IFRS 16. Underlying finance costs
increased by £8 million or 9.3%, reflecting approximately £10
million of one-off charges (mainly relating to the write-off of
unamortised fees and discount upon issue on bonds repaid early) and
£4 million of higher interest costs on US dollar swaps, which more
than offset the lower interest costs on approximately £700 million
of lower average debt.
The headline tax rate rose slightly by 0.3% to 22.8% (2018:
22.5%), reflecting the levels and mix of profits in the countries
in which the Group operates. The tax rate on the reported profit
before tax was 26.9% (2018: 16.7%), higher than the headline tax
rate, due to the revaluation of financial instruments and certain
restructuring costs not being tax deductible.
Earnings and dividend
Headline profit before tax was down 17.6% to £605 million from
£735 million and down 18.4% in constant currency.
Reported profit before tax was down 43.5% to £478 million from
£846 million, and down 44.1% in constant currency. This was driven
primarily by a significant H1 2018 exceptional gain that has not
been repeated (£117 million impact) and a charge on the revaluation
of financial instruments versus a credit in 2018 (£138 million
impact). Reported profits attributable to shareholders fell by
53.5% to £312 million from £672 million, again reflecting the
impact of exceptional items in 2018 and the change on the
revaluation of financial instruments noted above. In constant
currency, profits attributable to share owners fell by 54.3%.
Diluted headline earnings per share fell by 19.7% to 34.2p
(including 0.8p reduction due to IFRS 16) from 42.6p. In constant
currency, diluted headline earnings per share fell by 20.9%.
Diluted reported earnings per share fell by 53.6% to 24.8p from
53.4p and by 54.3% in constant currency, primarily as a result of
the net exceptional loss in the first half of 2019 compared with
the net exceptional gain in the first half of 2018.
Given the first half results, your Board considers it
appropriate to declare an interim dividend of 22.7p per share, the
same as last year, a pay-out ratio of 66%. The record date for the
interim dividend is 4 October 2019, payable on 4 November 2019.
Further details of WPP’s financial performance are provided in
Appendix 1.
The tables that follow show revenue and revenue less
pass-through costs for the second quarter and first half on a
geographic and sector basis.
Revenue analysis
£ million
2019
∆ reported
∆ constant8
∆ LFL9
acquisitions
2018
First quarter
3,588
0.9
%
-0.6
%
-1.3
%
0.7
%
3,555
Second quarter
4,028
2.3
%
0.6
%
0.1
%
0.5
%
3,938
First half
7,616
1.6
%
0.0
%
-0.6
%
0.6
%
7,493
Revenue less pass-through costs
analysis
£ million
2019
∆ reported
∆ constant
∆ LFL
acquisitions
2018
First quarter
2,926
-0.7
%
-2.3
%
-2.8
%
0.5
%
2,948
Second quarter
3,223
0.7
%
-1.0
%
-1.4
%
0.4
%
3,201
First half
6,149
0.0
%
-1.6
%
-2.0
%
0.4
%
6,149
Regional review
Revenue analysis
Second quarter
£ million
Q2 2019
∆ reported
∆ constant
∆ LFL
% group
Q2 2018
% group
N. America
1,351
0.4
%
-5.0
%
-6.2
%
33.5
%
1,346
34.2
%
United Kingdom
576
2.9
%
2.9
%
3.3
%
14.3
%
560
14.2
%
W. Cont. Europe
859
1.2
%
1.8
%
0.9
%
21.3
%
850
21.6
%
AP, LA, AME, CEE1
1,242
5.1
%
5.2
%
5.6
%
30.9
%
1,182
30.0
%
Total Group
4,028
2.3
%
0.6
%
0.1
%
100.0
%
3,938
100.0
%
First half
£ million
H1 2019
∆ reported
∆ constant
∆ LFL
% group
H1 2018
% group
N. America
2,592
-0.2
%
-6.0
%
-7.2
%
34.1
%
2,598
34.7
%
United Kingdom
1,104
1.1
%
1.1
%
1.2
%
14.5
%
1,092
14.6
%
W. Cont. Europe
1,625
0.9
%
2.2
%
1.1
%
21.3
%
1,610
21.5
%
AP, LA, AME, CEE
2,295
4.6
%
5.3
%
5.7
%
30.1
%
2,193
29.2
%
Total Group
7,616
1.6
%
0.0
%
-0.6
%
100.0
%
7,493
100.0
%
Revenue less pass-through costs analysis
Second quarter
£ million
Q2 2019
∆ reported
∆ constant
∆ LFL
% group
Q2 2018
% group
N. America
1,114
1.3
%
-4.1
%
-5.3
%
34.6
%
1,100
34.4
%
United Kingdom
431
0.7
%
0.7
%
1.3
%
13.4
%
428
13.4
%
W. Cont. Europe
690
-0.4
%
0.1
%
0.0
%
21.4
%
693
21.6
%
AP, LA, AME, CEE
988
0.8
%
1.2
%
1.2
%
30.6
%
980
30.6
%
Total Group
3,223
0.7
%
-1.0
%
-1.4
%
100.0
%
3,201
100.0
%
First half
£ million
H1 2019
∆ reported
∆ constant
∆ LFL
% group
H1 2018
% group
N. America
2,157
0.1
%
-5.7
%
-6.9
%
35.1
%
2,155
35.0
%
United Kingdom
831
-0.2
%
-0.2
%
0.2
%
13.5
%
833
13.5
%
W. Cont. Europe
1,306
-1.0
%
0.2
%
-0.1
%
21.2
%
1,319
21.5
%
AP, LA, AME, CEE
1,855
0.7
%
1.6
%
1.7
%
30.2
%
1,842
30.0
%
Total Group
6,149
0.0
%
-1.6
%
-2.0
%
100.0
%
6,149
100.0
%
As shown in the tables above like-for-like growth in revenue
less pass-through costs improved in the second quarter to -1.4%
compared with -2.8% in the first quarter, with an improvement in
North America and the United Kingdom, partly offset by lower growth
in Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe.
North America improved significantly in the second
quarter, although still down compared with last year and remains
the weakest-performing region. The impact of assignment losses
among automotive, pharmaceutical and FMCG clients in 2018
continues, but at a slower rate than the first quarter. This
performance, whilst disappointing, is in line with our budgets. In
the second quarter, like-for-like revenue less pass-through costs
was down 5.3%, compared with -8.5% in the first quarter, with all
sectors, particularly the Group’s global integrated agencies and
data investment management, improving compared with the first
quarter.
United Kingdom like-for-like revenue less pass-through
costs was up 1.3% in the second quarter, a significant improvement
on the -0.9% in the first quarter, with improvement in the Group’s
global integrated agencies, partly offset by data investment
management and some of the Group specialist agencies.
Western Continental Europe improved slightly in the
second quarter, with like-for-like revenue less pass-through costs
flat, compared with -0.3% in the first quarter. Belgium, France,
Italy and Turkey performed particularly well, partly offset by
Germany which was slower.
In Asia Pacific, Latin America, Africa & the Middle East
and Central & Eastern Europe, like-for-like revenue less
pass-through costs was up 1.2% in the second quarter compared with
2.3% in the first quarter, with improvement in Latin America,
Africa & the Middle East and Central & Eastern Europe,
offset by slower growth in Asia Pacific. In Asia Pacific, India and
Singapore showed continued improvement offset by mainland China. On
the same basis, growth in Latin America remained strong, well above
the first quarter, with like-for-like revenue less pass-through
costs up over 9%. Africa & the Middle East improved
significantly with like-for-like revenue less pass-through costs
almost flat compared with the first quarter of almost -5%.
Business sector review
As outlined in the Group’s RNS statement on 5 August and
following a review of the appropriateness of the existing sector
reporting, this has been changed to bring them into line with the
various structural changes that have taken place over the last year
and the simplification of the Group’s structure. The tables below
reflect these changes, which do not impact the overall Group
financial statements or the geographic reporting shown above. The
figures for 2018 have been restated to reflect these changes.
Revenue analysis
Second quarter
£ million
Q2 2019
∆ reported
∆ constant11
∆ LFL12
% group
Q2 2018
% group
GIA3
2,628
4.3
%
2.4
%
1.5
%
65.2
%
2,521
64.0
%
Data Inv. Mgt.4
653
2.9
%
2.1
%
2.0
%
16.2
%
635
16.1
%
PR5
243
2.7
%
-0.4
%
-2.0
%
6.1
%
237
6.0
%
SA 6
504
-7.5
%
-9.1
%
-7.8
%
12.5
%
545
13.9
%
Total Group
4,028
2.3
%
0.6
%
0.1
%
100.0
%
3,938
100.0
%
First half
£ million
H1 2019
∆ reported
∆ constant
∆ LFL
% group
H1 2018
% group
GIA
4,873
2.5
%
0.7
%
0.1
%
64.0
%
4,756
63.5
%
Data Inv. Mgt.
1,248
1.8
%
1.3
%
1.2
%
16.4
%
1,226
16.4
%
PR
472
3.9
%
0.8
%
-1.1
%
6.2
%
454
6.0
%
SA
1,023
-3.2
%
-4.9
%
-5.3
%
13.4
%
1,057
14.1
%
Total Group
7,616
1.6
%
0.0
%
-0.6
%
100.0
%
7,493
100.0
%
Revenue less pass-through costs
analysis
Second quarter
£ million
Q2 2019
∆ reported
∆ constant
∆ LFL
% group
Q2 2018
% group
GIA
2,051
1.8
%
0.1
%
-0.3
%
63.6
%
2,013
62.9
%
Data Inv. Mgt.
495
1.4
%
0.7
%
0.5
%
15.4
%
488
15.2
%
PR
228
2.0
%
-0.9
%
-2.6
%
7.1
%
224
7.0
%
SA
449
-5.5
%
-7.3
%
-7.1
%
13.9
%
476
14.9
%
Total Group
3,223
0.7
%
-1.0
%
-1.4
%
100.0
%
3,201
100.0
%
First half
£ million
H1 2019
∆ reported
∆ constant
∆ LFL
% group
H1 2018
% group
GIA
3,858
0.4
%
-1.4
%
-1.8
%
62.8
%
3,844
62.5
%
Data Inv. Mgt.
949
1.0
%
0.6
%
0.4
%
15.4
%
940
15.3
%
PR
442
2.8
%
-0.1
%
-1.5
%
7.2
%
430
7.0
%
SA
900
-3.8
%
-5.5
%
-5.7
%
14.6
%
935
15.2
%
Total Group
6,149
0.0
%
-1.6
%
-2.0
%
100.0
%
6,149
100.0
%
In the second quarter of 2019, like-for-like revenue less
pass-through costs in the Group’s global integrated agencies was
-0.3%, a significant improvement on the -3.4% in the first quarter.
All of the agencies within this segment improved over the first
quarter, particularly at VMLY&R, Ogilvy, Grey and GroupM.
Data investment management showed some improvement in the second
quarter, with like-for-like revenue less pass-through costs up 0.5%
compared with 0.2% in the first quarter, with Insights showing the
biggest improvement. North America and Western Continental Europe
improved with the United Kingdom and Asia Pacific slower.
Public relations slowed in the second quarter with like-for-like
revenue less pass-through costs down 2.6%, compared with -0.4% in
the first quarter. This was driven by weaker performance in the
Group’s financial public relations businesses in the United Kingdom
and Germany, partly the result of strong comparatives in the second
quarter of 2018.
In the Group’s specialist agencies, like-for-like revenue less
pass-through costs was down 7.1%, compared with -4.3% in the first
quarter. The Group’s specialist agencies includes the specialist
global Ford agency, GTB, and reflects the loss of the omni-channel
work in the second half of last year.
Cash flow highlights
In the first half of 2019, operating profit was £673 million,
depreciation, amortisation and goodwill impairment £360 million,
earnout payments £58 million, non-cash share-based incentive
charges £33 million, working capital and provisions outflow £779
million, net interest paid £75 million, tax paid £261 million,
lease liabilities (including interest) paid £156 million, capital
expenditure £167 million and other net cash outflows £83 million.
Free cash flow available was, therefore, an outflow of £513
million, consistent with our usual seasonal pattern of outflow in
the first half of the year.
This free cash flow outflow was offset by £278 million in net
cash acquisition payments and disposal proceeds (of which £111
million of net acquisition proceeds and £167 million proceeds from
disposal of property). As a result, total net cash outflow amounted
to £235 million.
A summary of the Group’s unaudited cash flow statement and notes
as at 30 June 2019 is provided in Appendix 1.
Balance sheet highlights
Average net debt in the first six months of 2019 was £4.384
billion, compared to £5.093 billion in 2018, at 2019 exchange
rates, a decrease of £709 million. This improvement is largely
explained by the disposal of various non-core associates and
subsidiaries in 2018 and the first half of 2019 (together with one
of the Group’s freehold properties in New York), which in aggregate
realised £986 million. No shares were repurchased in the first half
of 2019.
Net debt at 30 June 2019 was £4.271 billion, compared to £4.742
billion on 30 June 2018, at 2019 exchange rates, a decrease of £471
million. The decrease in the net debt figure at 30 June 2019
reflects £304 million proceeds in relation to disposal of the
Group’s interest in certain associates and investments, together
with property in New York, offset by lower profitability.
The average net debt to EBITDA ratio in the 12 months to 30 June
2019 is 2.1x, which excludes the impact of IFRS 16. As outlined at
the Investor Day in December 2018, the Group reduced the target
range of the average net debt/EBITDA ratio from 1.5-2.0x to
1.5-1.75x, to be achieved by 2021. The cash disposal proceeds of
£986 million, received over the last 15 months, together with our
planned return to top-line growth, will help in achieving the
revised target ratio.
A summary of the Group’s unaudited balance sheet and notes as at
30 June 2019 is provided in Appendix 1.
Financial guidance
Our financial guidance for 2019 remains unchanged, as
follows:
- Like-for-like revenue less pass-through costs down 1.5% to
2.0%
- Headline operating margin to revenue less pass-through costs
down around 1.0 margin point on a constant currency basis
(excluding the impact of IFRS 16)
Medium-term financial targets
As outlined at the Investor Day in December 2018, our
medium-term financial targets, to be achieved by the end of 2021,
are:
- Organic growth (defined as like-for-like revenue less
pass-through costs growth) in line with peers
- Headline operating margin (excluding the impact of IFRS 16) of
at least 15%
- Free cash flow conversion of 80%-90%
1
Percentage change in reported sterling
2
Percentage change at constant currency
rates
3
Like-for-like growth at constant currency
exchange rates and excluding the effects of acquisitions and
disposals
4
Headline EBITDA (including depreciation of
right-of-use assets)
5
Headline measures and diluted EPS are
defined in Appendix 1
6
Margin points
7
Headline earnings before interest, tax,
depreciation (excluding depreciation of right-of-use assets) and
amortisation
8
Percentage change at constant currency
exchange rates
9
Like-for-like growth at constant currency
exchange rates and excluding the effects of acquisitions and
disposals
10
Asia Pacific, Latin America, Africa &
Middle East and Central & Eastern Europe
11
Percentage change at constant currency
rates
12
Like-for-like growth at constant currency
exchange rates and excluding the effects of acquisitions and
disposals
13
Global Integrated Agencies
14
Data Investment Management
15
Public Relations
16
Specialist Agencies
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version on businesswire.com: https://www.businesswire.com/news/home/20190809005128/en/
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