WPP Third Quarter Trading Update 2016

31 Oct 2016

• Third quarter reported revenue up 23.4% at £3.611 billion, up 4.6% at $4.741 billion, up 4.2% at €4.248 billion and down 12.3% at ¥485.4 billion
• Third quarter constant currency revenue up 7.6%, like-for-like revenue up 3.2%
• Third quarter constant currency net sales up 7.8%, like-for-like net sales up 2.8%
• Nine months reported revenue up 15.8% at £10.147 billion, up 5.0% at $14.108 billion, up 4.7% at €12.632 billion and down 6.0% at ¥1.528 trillion
• Nine months constant currency revenue up 8.5%, like-for-like revenue up 3.9%
• Nine months constant currency net sales up 8.0%, like-for-like net sales up 3.4%
• Nine months operating margin up 0.3 margin points in constant currency, 0.4 margin points in reported and targeted to be up 0.3 margin points in constant currency for full year in line with objective
• Preliminary quarter 3 revised forecast indicates like-for-like revenue and net sales growth over 3%
• Average constant currency net debt up by £434 million for the first nine months of 2016 to £4.206 billion, reflecting continued significant acquisition activity and share buy-backs, with point-to-point net debt only up £74 million, on the same basis, improving significantly through working capital reduction
• Net new business of £3.467 billion ($5.374 billion) in first nine months compared to £3.212 billion ($4.979 billion) in the same period last year
• Share buy-backs of £342 million in the first nine months, down from £588 million in the same period last year, representing 1.6% of the issued share capital, against a full year target of 2.0-3.0%

Revenue analysis

£ million	2016	∆ reported	∆ constant1	∆ LFL2	Acquisitions	2015
First quarter	3,076	10.5%	9.0%	5.1%	3.9%	2,783
Second quarter	3,460	13.2%	8.8%	3.5%	5.3%	3,056
First half	6,536	11.9%	8.9%	4.3%	4.6%	5,839
Third quarter	3,611	23.4%	7.6%	3.2%	4.4%	2,927
First nine months	10,147	15.8%	8.5%	3.9%	4.6%	8,766

Net Sales analysis

£ million	2016	∆ reported	∆ constant1	∆ LFL2	Acquisitions	2015
First quarter	2,616	8.1%	6.7%	3.2%	3.5%	2,419
Second quarter	2,978	13.6%	9.4%	4.3%	5.1%	2,622
First half	5,594	11.0%	8.1%	3.8%	4.3%	5,041
Third quarter	3,114	23.6%	7.8%	2.8%	5.0%	2,518
First nine months	8,708	15.2%	8.0%	3.4%	4.6%	7,559

_{1 Percentage change at constant currency exchange rates
2 Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals}


Quarter 3 and first nine months highlights

• Reported quarter 3 revenue growth of 23.4% in sterling, with constant currency growth of 7.6%, 4.4% growth from acquisitions and 15.8% from currency. The latter reflects the continuing weakness of the pound sterling against most currencies, especially during the third quarter, following the United Kingdom vote to exit the European Union
• Reported quarter 3 net sales growth of 23.6% in sterling, with constant currency growth of 7.8%, 5.0% growth from acquisitions and 15.8% from currency
• Constant currency revenue growth in quarter 3 in all regions and business sectors, except data investment management, with particularly strong growth geographically in Western Continental Europe and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, the latter partly the result of acquisition activity. Functionally, advertising and media investment management, public relations and public affairs and branding & identity, healthcare and specialist communications (including direct, digital and interactive), also grew strongly, the latter again, partly, as a result of acquisitions
• Like-for-like net sales growth in quarter 3 of 2.8%, compared with 3.8% in the first half, partly the result of stronger comparatives in the third quarter of last year, with the gap compared to revenue growth in the third quarter the same as the first half, but narrower than last year, as the Group’s investment in technology continued to enhance the growth of advertising and media investment management net sales and as data investment management direct costs have been reduced
• Operating profits and operating margins in the first nine months in line with the targeted 0.3 margin points improvement, on a constant currency basis, with an above target reportable operating margin improvement of 0.4 margin points, as the impact of the weakness in sterling, particularly in the third quarter, had a positive impact on reportable margins
• Average net debt for the first nine months increased by £434 million to £4.206 billion compared to last year, at 2016 constant rates, continuing to reflect significant net acquisition spend and share repurchases of £846 million in the twelve months to 30 September 2016, compared with the previous twelve months, more than offsetting significant improvements in working capital over the same period
• Net new business of $2.382 billion in the third quarter and $5.374 billion in the first nine months, with continued strong net new business gains, particularly recently, overcoming one or two bumps
• Following Brexit, accelerated implementation of growth strategy continues with revenue ratios for fast growth markets and new media raised from 35-40% to 40-45% over the next four to five years. Quantitative revenue target of 50% already achieved. Also, increased emphasis on expansion in the four EU markets in the Group’s top 10 markets - Germany, France, Italy and Spain, along with Brussels

Current trading and outlook

• FY 2016 quarter 3 revised forecast | remains to be formally reviewed first two weeks in November, but indicates like-for-like revenue and net sales growth of over 3%, with the gap between revenue and net sales growth narrowing further, and despite the characteristic caution in the fourth quarter forecast, in comparison to the budget and quarter 1 and quarter 2 revised forecasts. Headline net sales operating margin improvement, as targeted, of 0.3 margin points in constant currency, with reportable margins likely to be even stronger
• Dual focus in 2016 | 1. Stronger than competitor revenue and net sales growth (although competitors do not provide the latter metric) due to leading position in both faster growing geographic markets and digital, premier parent company creative position, new business, horizontality and strategically targeted acquisitions; 2. Continued emphasis on balancing revenue and net sales growth with headcount increases and improvement in staff costs to net sales ratio to enhance operating margins
• Long-term targets | Above industry revenue and net sales growth due to geographically superior position in new markets and functional strength in new media, in data investment management, including data analytics and the application of new technology, creativity, effectiveness and horizontality; improvement in staff cost to net sales ratio of 0.2 or more depending on net sales growth; net sales operating margin expansion of 0.3 margin points or more on a constant currency basis, with an ultimate goal of almost 20%; and headline diluted EPS growth of 10% to 15% p.a. from revenue and net sales growth, margin expansion, strategically targeted small and medium-sized acquisitions and share buy-backs

For further information:
Sir Martin Sorrell }
Paul Richardson }
Lisa Hau }              +44 20 7408 2204
Feona McEwan }
Chris Wade }

Kevin McCormack  }
Fran Butera          } +1 212 632 2235

Juliana Yeh            +852 2280 3790

_{This announcement has been filed at the Company Announcements Office of the London Stock Exchange and 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.}

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