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WPP 2019 Interim Results
[August 09, 2019]

WPP 2019 Interim Results


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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