2020 INTERIM RESULTS 27 August 2020
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This presentation contains statements that are, or may be deemed to be, “forward - looking statements”. Forward - looking statements give the Group’s current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’, ‘target’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulations, UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), the Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should, however, consult any additional disclosures that the Group may make in any documents which it publishes and/or files with the US Securities and Exchange Commission (SEC). All investors, wherever located, should take note of these disclosures. Accordingly, no assurance can be given that any particular expectation will be met and investors are cautioned not to place undue reliance on the forward-looking statements. Forward-looking statements are subject to assumptions, inherent risks and uncertainties, many of which relate to factors that are beyond the Group’s control or precise estimate. The Group cautions investors that a number of important factors, including those in this presentation, could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such factors include, but are not limited to, those discussed under Item 3.D ‘Risk factors’ in the Group’s Annual Report on Form 20 -F for FY 2019 and any impacts of the COVID-19 pandemic. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge and information available to the Directors on the date of this presentation. 2 2020 INTERIM RESULTS
AGENDA 1. FIRST H 1. FIRST HALF H ALF HIGH IGHLIGHTS LIGHTS 2. 2. FINAN FINANCI CIAL AL PE PERF RFOR ORMANCE MANCE 3. 3. BUSINESS BUSINESS UPDATE UPDATE 4. 4. Q&A Q&A
FIRST HALF: RESILIENT PERFORMANCE IN CHALLENGING ENVIRONMENT Impact of COVID-19 significant. LFL revenue less pass-through costs -9.5% in H1: • Jan/Feb -0.6%, March -7.9%, Q2 -15.1%, July -9.2% - CPG/Tech/Pharma 56% of our business 1 , -0.7% in H1; Auto/Luxury/Travel 22%, -11.7% - Agile and collaborative working with clients in a rapidly changing market: • Technology and ecommerce in demand, PR less impacted - c. $4 billion in new business, market-leading – Intel, HSBC, Unilever Media China - Strong response from our people • Good progress on cost savings, increased liquidity, net debt down significantly • year-on-year, reinstating interim dividend. Goodwill impairment of £2.5 billion Acceleration of our strategy • 2020 INTERIM RESULTS 4 1. Top 200 clients
FINANCIAL PERFORMANCE
UNAUDITED HEADLINE¹ IFRS INCOME STATEMENT HA HALF F YE YEAR AR TO TO 30 30 JU JUNE NE 2020 20 20 £M 20 2019² 19² £M Δ REPORTE TED Δ LFL FL³ Continuing operations • Disposals account for 0.8% Revenue 5,583 6,368 -12.3% -11.5% reduction in revenue less pass- Revenue less pass-through costs 4,668 5,199 -10.2% -9.5% through costs with currency Operating profit 382 617 -38.1% 0.1% favourable Income from associates - 15 -100% • Associate income down by £15m PBIT 382 632 -39.6% as benefit of Kantar investment Net finance costs (106) (138) 23.3% offset by COVID-19 related Profit before tax 276 494 -44.2% downsides Tax at 23.1% (2019: 23.4%) (64) (112) 42.9% • Diluted EPS from continuing Profit after tax 212 382 -44.6% operations down 45% Non-controlling interests (21) (31) 30.8% Profit attributable to 191 351 -45.8% shareholders Diluted EPS 15.4p 28.0p -45.0% Operating profit margin⁴ 8.2% 11.9% -3.7pt -3.7pt EBITDA 480 731 -34.4% 1 Figures before goodwill and intangibles charges, gains/losses on step-ups, gains/losses on disposals of subsidiaries 3 Like-for-like growth at constant currency exchange rates and excluding effect and investments, investment and other write-downs, share of exceptional gains/losses of associates, restructuring and of acquisitions and disposals transformation costs, restructuring costs in relation to COVID-19, litigation settlement, gain on sale of New York 4 Margin as % of revenue less pass-through costs freehold property and revaluation of financial instruments 6 2020 INTERIM RESULTS 2 2019 figures re-presented in accordance with IFRS 5 : Non-Current Assets Held for Sale and Discontinued Operations
RECONCILIATION OF HEADLINE OPERATING PROFIT TO REPORTED OPERATING PROFIT • Investment write-downs 2020 2019 Δ primarily relates to impairment HALF YEAR TO 30 JUNE £M £M £M of certain investments in associates, including Imagina Headline Operating Profit 382 617 (235) (£210m) Goodwill impairment (2,521) - (2,521) • Restructuring and Amortisation and impairment of intangibles (53) (53) - transformation costs relate to ongoing costs for the Investment and other write-downs (220) - (220) continuing restructuring plan Restructuring and transformation costs (18) (34) 16 first outlined in December 2018 Restructuring costs in relation to COVID-19 (39) - (39) • COVID-19 restructuring costs Gains on disposal of investments & subsidiaries 16 41 (25) relate to severance actions taken in the second quarter as a Litigation settlement - 17 (17) response to the pandemic Gain on sale of freehold property in New York - 8 (8) • Gains on disposals includes Non headline items (2,835) (21) (2,814) £15m on the disposal of the sports agency Two Circles Reported Operating Loss/(Profit) (2,453) 596 (3,049) 7 2020 INTERIM RESULTS
GOODWILL IMPAIRMENT • Impairments of £2,741m (including £2,521m of goodwill impairments for subsidiaries and £220m for associates shown as investment and other write-downs): Half Year £M Total Impairments Wunderman Thompson 1,071 VMLY&R 472 Geometry Global 233 Imagina (associate) 210 Landor & FITCH 158 Burson Cohn & Wolfe 129 Other 468 Total 2,741 • The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed, triggered by the impact of COVID-19 • The impairments are driven by a combination of higher discount rates used to value future cash flows, a lower profit base in 2020 and lower industry growth rates 8 2020 INTERIM RESULTS
GLOBAL INTEGRATED AGENCIES: MEDIA MORE IMPACTED THAN CREATIVE BUT VMLY&R STANDS OUT Δ £M H1 2020 £M REPORTED Δ LFL H1 PERFORMANCE Revenue less pass-through 3,462 -10.3% -9.5% costs • VMLY&R the best performer, close to flat LFL in H1 reflecting improving Headline operating profit 256 -44.8% business momentum since merger Headline operating margin 7.4% -4.6pt • WT performed better than overall GIA, again benefiting from creation LFL REVENUE LESS PASS-THROUGH COSTS GROWTH of an integrated agency Q3 2019 Q4 2019 Q1 2020 Q2 2020 5.0% • Hogarth production in strong 1.7% demand 0.0% • GroupM underperformed overall GIA, -0.8% -2.6% -5.0% due to closer correlation of its revenue to client media spend -10.0% • July net sales shows improvement to -15.0% -15.7% -9.2% LFL -20.0% 2020 INTERIM RESULTS 9
PUBLIC RELATIONS: STRONGEST SECTOR, OPERATING PROFIT UP YEAR-ON-YEAR Δ £M H1 2020 £M REPORTED Δ LFL H1 PERFORMANCE Revenue less pass-through 426 -3.6% -4.5% costs • Good demand from clients for Headline operating profit 72 5.8% strategic stakeholder communications Headline operating margin 16.9% 1.5pt • Specialist PR strong performer, LFL REVENUE LESS PASS-THROUGH COSTS GROWTH achieving LFL growth; H+K Q3 2019 Q4 2019 Q1 2020 Q2 2020 Strategies best performing of 0.0% major agencies -0.1% -0.9% -1.4% • Formation of Finsbury Glover Hering to create a global leader in strategic communications -5.0% • July net sales shows improvement to -2.7% LFL -7.5% -10.0% 2020 INTERIM RESULTS 10
SPECIALIST AGENCIES: MIXED PERFORMANCE WITH AKQA AND GEOMETRY RELATIVELY STRONG Δ £M H1 2020 £M REPORTED Δ LFL H1 PERFORMANCE Revenue less pass-through • AKQA and Geometry relative 780 -13.3% -11.8% costs outperformers, with focus on Headline operating profit 54 -36.6% experience and commerce • GTB broadly in line despite Headline operating margin 7.0% -2.6pt ongoing drag from assignment loss LFL REVENUE LESS PASS-THROUGH COSTS GROWTH • Project-based work in Brand Q3 2019 Q4 2019 Q1 2020 Q2 2020 Consulting suffered from short 0.0% term budget cuts -3.4% -5.0% • Events businesses and our specialist airline agency heavily -7.4% -7.4% -10.0% impacted in Q2 • July net sales shows improvement -15.0% to -12.5% LFL -16.3% -20.0% 2020 INTERIM RESULTS 11
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