WPP | Third Quarter Trading Update

WPP (NASDAQ: WPPGY) today reported its 2012 Third Quarter Trading Update.

Revenue analysis
£ million					2012					∆ reported					∆ constant 1					∆ LFL 2					acquisitions					2011
First half					4,972					5.5%					6.8%					3.6%					3.2%					4,713
Third quarter					2,496					1.6%					4.8%					1.9%					2.9%					2,457
First nine months					7,468					4.2%					6.1%					3.0%					3.1%					7,170

Quarter 3 and first nine months highlights

• Revenue growth of 1.6%, with like-for-like growth of 1.9%, 2.9% growth from acquisitions and -3.2% from currency. Q3 slower than Q2, particularly in September and in North America and Continental Europe and functionally in advertising and media investment management and public relations and public affairs
• However, constant currency growth achieved in all regions and business sectors, maintaining strong growth geographically in Asia Pacific, Latin America and the Middle East and Africa and functionally in advertising and media investment management and specialist communications
• Operating profits and operating margins in the first nine months in line with budget and ahead of last year
• Average net debt increased by £329m (-12%) to £3.105 billion compared to last year, but continuing to reflect an improvement on the 2011 comparative year end position of over £200 million
• Net new business of $1.415 billion in the third quarter, compared to $2.289 billion in the third quarter last year and $5.375 billion in the first nine months compared to $4.211 billion in the same period last year, again ranking first in all net new business tables

Current trading and outlook

• FY 2012 quarter 3 preliminary revised forecasts | Continued softness currently forecast in quarter four, particularly in North America, but Asia Pacific improving, with overall like-for-like full year revenue growth of 2.5% - 3.0%; headline operating margin target remains 14.8%, up 0.5 margin points in a more challenging environment
• Dual focus in 2012 | 1. Increased emphasis on balancing revenue growth with headcount and staff cost increases to achieve target operating margin in 2012; 2. Ensuring headcount and staff costs run rates are in line with anticipated revenue growth for 2013
• Long-term targets reaffirmed | Above industry revenue growth due to geographically superior position in new markets and functional position in new media and consumer insight, including data analytics and application of new technology; small and medium-sized strategically targeted acquisitions to add 0% - 5% revenues p.a.; improvement in staff cost/revenue ratio of 0.3 - 0.6 points p.a. depending on revenue and gross margin growth; operating margin expansion of 0.5 margin points or more; and PBIT growth of 10% - 15% p.a. from margin expansion and acquisitions

Review of quarter three and first nine months

Revenues

As shown in the table below, in the third quarter of 2012, reported revenues were up 1.6% at £2.496 billion. Revenues in constant currency were up 4.8%, continuing to reflect the strength of the pound sterling against the euro and against certain BRIC ³ and Next 11 ³ currencies, partly offset by the weakness of the pound sterling against the US dollar. On a like-for-like basis, excluding the impact of acquisitions and currency fluctuations, revenues were up 1.9%. Like-for-like revenue growth in the third quarter was softer than the first half, particularly in September and in North America and Continental Europe as a whole. Functionally, both consumer insight and public relations and public affairs experienced slower growth than in the first half, again particularly in September. Advertising and media investment management and branding & identity, healthcare and specialist communications (including direct, digital and interactive), as in 2011 and the first half of 2012, were the strongest sectors.

In the first nine months, reported revenues were up 4.2% at £7.468 billion. Revenues in constant currency were up 6.1%, reflecting the strength of the pound sterling against the euro and against certain BRIC and Next 11 currencies, partly offset by the weakness of the pound sterling against the US dollar. On a like-for-like basis, excluding the impact of acquisitions and currency fluctuations, revenues were up 3.0% compared with the same period last year.