WPP | Third Quarter Trading Update

WPPThird Quarter Trading Update

• Reported revenues up 1.6% at £2.496 billion

• In other major currencies reported revenues almost flat at $3.948 billion and up 12.5% at €3.151 billion

• Third quarter like-for-like revenues up 1.9%

• Reported revenues up 4.2% at £7.468 billion in first nine months, in other major currencies, reported revenues up 1.9% at $11.792 billion and up 11.9% at €9.201 billion

• Like-for-like revenues up 3.0% in first nine months

• Operating margin targeted to be up 0.5 margin points

NEW YORK & LONDON--(BUSINESS WIRE)-- WPP (NAS: WPPGY) today reported its 2012 Third Quarter Trading Update.

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 BRIC³ and Next 11³ 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.

A preliminary look at our quarter three revised forecasts indicates revenue growth slowing further in the final quarter of the year, particularly so in North America, Continental Europe and Latin America and public relations and public affairs and branding & identity, healthcare and other specialist communications, although our forecasting of the fourth quarter tends to be conservative, particularly for December, and regions outside North America and Western Continental Europe remain in line with the third quarter.

Regional review

The pattern of revenue growth differed regionally. The tables below give details of revenue and revenue growth by region for the third quarter and first nine months of 2012, as well as the proportion of Group revenues by region;

North America, with constant currency growth of 4.0% and like-for-like growth of -0.4% in the third quarter was down on the first half, with strong growth in the Group's advertising and media investment management businesses, more than offset by weakness in the Group's consumer insight, public relations and public affairs and branding & identity, healthcare and specialist communications businesses.

TheUnited Kingdom, with constant currency growth of 8.9%, was up 4.7% like-for-like in the third quarter, well ahead of the previous forecast, with strong growth in advertising and media investment management, consumer insight and public relations and public affairs, partly offset by slower growth in branding & identity and healthcare communications.

Western Continental Europe was most difficult, with like-for-like revenues down 2.1% in the third quarter. Germany, France and Turkey grew, but Spain, Portugal, Scandinavia, the Netherlands, Switzerland and Austria were tougher, with the effects of the Eurozone crisis impacting many parts of Western Continental Europe.

InAsia Pacific, Latin America, Africa & the Middle East and Central and Eastern Europe, revenue growth was strongest, with constant currency revenues up 7.4% and like-for-like revenues up 6.8%, principally driven by Latin America, Africa and the BRICs⁷ and Next 11⁸ parts of Asia Pacific and the CIVETS⁹ and the MIST¹⁰. Central and Eastern Europe was more challenged for the first time, with the Czech Republic and Poland slipping back.

As in the first half, Latin America showed the strongest growth of all of our sub-regions in the third quarter, with constant currency revenues up 15.0% and like-for-like revenues up 14.4%. The Middle East improved significantly in the third quarter, with like-for-like growth of 7.7%. In Central and Eastern Europe, like-for-like revenues were down 6.1%, with Russia, Romania and Kazakhstan up strongly but, Poland, the Czech Republic, Slovakia and the Ukraine more challenging to say the least. Growth in the BRICs was over 11%, on a like-for-like basis, with Next 11 and CIVETS up almost 10% and over 11% respectively on the same basis. The MIST was up 9%.

In the first nine months of 2012, 29.6% of the Group's revenues came from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, up 60 basis points over the same period last year and against the Group's strategic objective of 35%-40% in the next three to four years.

Business sector review

The pattern of revenue growth also varied by communications services sector and operating brand. The tables below give details of revenue, revenue growth by communications services sector for the third quarter and first nine months of 2012, as well as the proportion of Group revenues by those sectors;