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Ireland-based advertising titan WPP Group plc (WPPGY - Analyst Report) reported its interim results for the first half of 2012, (ended June 30, 2012)  on August 30. Diluted pro forma earnings per share in the reported period were £0.258 ($2.03 per ADR), up 13.2% (18.6% in constant currency) from £0.228 ($1.84 per ADR) in the year-ago period.


The company’s reported revenue of £4,972 million ($7,841 million) was up 5.5% compared with the year-ago period and up 6.8% on a constant currency basis due to the strength in pound sterling versus the US dollar and Euro.

The 5.5% year over year growth comprises a 3.6% organic growth, 3.2% growth from acquisitions and a negative 1.3% from currency translation.

From a geographical perspective (on a constant currency basis), WPP Group experienced a noticeable recovery in North America with revenue of £1,748 million ($2,756.7 million), reflecting an increase of 3.9% year over year. Revenue in the United Kingdom grew 5.6% to £591 million ($932.0 million), while revenue from the Western Continental Europe increased 6.6% to £1,187 million ($1,871.9 million) and from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe revenue soared 11.1% to £1,446 million ($2,280.4 million).

Revenue from Public Relations and Public Affairs grew 6.3% year over year on a constant currency basis to £459 million ($723.9 million). Branding & identity, healthcare and specialist communications witnessed a revenue increase of 9.1% to £1,278 million ($2,015.5 million), while revenue from advertising and media investment management increased 7.6% to £2,044 million ($3,223.5 million) while revenue from consumer insight soared 3.2% to £1,191 million ($1,878.3 million).

Billings in the period amounted to £21,651 million ($34,144.5 million), up 1.2% compared with a year-ago period. Net new business billings of £2,475 million ($3,903.2 million) were won during the first half of 2012.


Gross profits increased 6.1% on a constant currency basis but margins plummeted 50 basis points to 91.9% in the reported period. EBITDA increased 13.0% to £682 million ($1,075.5 million) and margins were 13.7%. Operating profit increased 13.5% to £570 million ($898.9 million) with margins of 13.5% versus 11.0% in the year-ago period.

Balance Sheet/Cash Flow

Exiting the first half of 2012, WPP Group’s net debt was £2,861 million ($4,468.2 million), down 0.6% from the year-ago period. Capital spending in the period was £116 million ($182.9 million), up 8.4% from the year-ago period.        

The company’s Board of Directors declared its first interim dividend of £0.0880 to be payable on November 12, to shareholders of record as of October 12, 2012. The dividend rate represents an increase of 18% from the previous dividend rate. Dividend payout stands at 34%, indicating gradual progress towards the company’s aim of achieving a 40% payout ratio.
The current Zacks Consensus EPS Estimates for WPP plc are $5.56 and $6.27 for years 2012 and 2013, respectively. The estimates represent year-over-year growth of 3.4% for 2012 and 12.7% for 2013.

We currently maintain a Neutral recommendation on the company.

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