WPP reports 7% rise in profits and reveals plans to move HQ back to UK

WPP has reported a 7% increase in pre-tax profits to £385 million in the first half and a 3.6% increase in like-for-like revenue to £4.97 billion.

Sir Martin Sorrell’s group also confirmed that a shareholder vote will be taken in December to approve the company’s move back to the UK.

However, the group has lowered its forecast for full-year revenue growth after a slowdown in June and July.

Overview:

• Billings up over 1% at £21.7 billion
• Reportable revenues up 5.5% to almost £5.0 billion
• Constant currency revenue up almost 7%
• Like-for-like revenue up 3.6%
• Operating margin of 11.5% up 0.5 margin points and 0.7 margin points like-for-like
• Headline profit before interest and tax £570 million up over 10% and over 13% in constant currency
• Headline profit before tax £467 million up almost 12% and over 17% in constant currency
• Profit before tax £358 million up 7% reflecting higher re-measurement gains in previous year and up over 13% in constant currency
• Headline diluted earnings per share of 25.8p up over 13% and over 18% in constant currency
• Dividends per share of 8.80p up 18%
• Return to the UK subject to share owner approval in December

First-half and Q2 highlights:

• Billings increased by 1.2% to £21.651 billion
• Revenue growth of 5.5%, with like-for-like growth of 3.6%, 3.2% growth from acquisitions and -1.3% from currency. Q2 slightly softer than Q1
• Growth in all regions and business segments with Q2 improvement in the UK and the faster growing markets offset by slower growth in the mature markets of the USA and Western Continental Europe. Continuing double-digit growth from South East Asia, Latin America and Africa
• Like-for-like gross margin growth lower than revenue growth by 0.3 percentage points at 3.3%, partly due to stronger comparatives and changes in technology and increased pricing pressure, particularly in consumer insight
• Average net debt increased by £307 million (+12%) to £2.898 billion compared to last year, but continuing to reflect an improvement of approximately £200 million in working capital since the beginning of the year

Current trading and outlook

Revenue growth was more than 3% in July. WPP has revised its full year forecast from 4% to 3.5%.

Sorrell has confirmed plans to move WPP’s headquarters back to London now that the government has promised to introduce new rules to clarify the taxation of foreign profits earned by multinationals.

WPP’s North American business, which accounts for almost 38% of total revenues, went into reverse in the second quarter with like-for-like revenues down 0.6% to £884 million.

Growth in western continental Europe also slowed in the second quarter to just 0.8% like-for-like revenue increase to £624 million.

However, the rest of the world, which accounts for 29% of WPP’s total revenues, enjoyed growth with like-for-like revenues up 9.8% to £765 million in the second quarter.

The UK operation, which accounts for almost 12% of total revenues, saw like-for-like revenue growth of 3.5% in the second quarter to £307 million thanks to its Hogarth and Ogilvy group of agencies.

“2012 started reasonably well with a strong first quarter and slightly slower second quarter,” Sorrell said. “There has been some slowing of revenues during the second quarter in the US and certain markets in Western Continental Europe affected by the continuing Eurozone crisis.

“On the other hand, the UK, Asia Pacific, Latin America and Africa and the Middle East continue to grow strongly. As a consequence, our operating companies are hiring cautiously and responding to any geographic, functional and client shifts in revenues.”