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WPP Preliminary Results: billings at £55.245 billion, up 5.5%; revenue growth of 17.6%

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WPP Preliminary Results: billings at £55.245 billion, up 5.5%; revenue growth of 17.6%

WPP recently announced its 2016 preliminary results where it had a record year, with strong currency tailwinds, particularly in the second half.

It reported billings at £55.245 billion, up 5.5% in constant currency and up 3.3% like-for-like while it reported revenue growth of 17.6%, with like-for-like growth of 3.0%, 4.2% growth from acquisitions and 10.4% from currency.

The group registered a like-for-like revenue growth in all regions, led by strong growth in Western Continental Europe and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, and in all sectors, except data investment management, with particularly strong growth in advertising and media investment management and branding and identity, healthcare and specialist communications (including direct, digital and interactive).

Like-for-like net sales growth was at 3.1%, with the gap compared to revenue growth reversing in the second half, as the Group’s investment in technology enhanced the growth of advertising and media investment management net sales and as data investment management direct costs have been reduced.

  EBITDA was of £2.420 billion, up 20.8%, and up 8.0% in constant currency, reflecting currency tailwinds and the reported 17.4% net sales margin, up 0.5 margin points compared with last year, with like-for-like operating costs (up 2.7%) rising less than net sales at 3.1%.

PBIT increase was of 21.8% to £2.160 billion, over £2 billion for the first time, up 8.5% in constant currency.

Net sales margin, a more accurate competitive comparator than revenue margin, was up 0.5 margin points to an industry leading 17.4%, up 0.2 margin points in constant currency, up 0.3 margin points like-for-like, in-line with target, adjusted for the merger of STW Communications Group Limited (STW) in April 2016.

Gains of £277 million were reported, largely representing re-measurement gains in relation to the Group’s interest in Imagina and gains on the sale of the Group’s interest in Grass Roots.

Average net debt was up £382 million, at £4.340 billion compared to last year, at 2016 exchange rates, continuing to reflect the significant net acquisition spend, share re-purchases and dividends of over £1.7 billion in 2016.

The Group’s creative and effectiveness domination was recognised yet again in 2016 with the award of the Cannes Lion to WPP for most creative Holding Company for the sixth successive year since the award’s inception and another to Ogilvy & Mather Worldwide for the fifth consecutive year as the most creative agency network. Four WPP agency networks, Ogilvy & Mather Worldwide, Y&R, Grey and J. Walter Thompson Company finished in the top seven networks at Cannes in 2016, in positions one, three, six and seven respectively, an outstanding achievement. Grey New York and Ingo Stockholm were also voted the second and third most creative agencies in the world. For the fifth consecutive year, WPP was also awarded the EFFIE as the most effective Holding Company, with Ogilvy & Mather ranked the most effective agency.

Particularly, following Brexit, accelerated implementation of growth strategy continues with revenue ratio targets 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% is already achieved by the Group.

As of January 2017, like-for-like revenue was up 1.5% for the month, ahead of budget, with like-for-like net sales, up 1.2%, ahead of budget and against a stronger comparative last year.

Given continued tepid economic growth and recent weaker comparative net new business trends, the budgets for 2017, on a like-for-like basis, have been set conservatively at around 2% for both revenue and net sales, but with a headline operating margin target improvement on net sales of 0.3 margin points, in constant currency.

The Group’s dual focus in 2017 is revenue and net sales growth from leading position in horizontality, faster growing geographic markets and digital, premier parent company creative and effectiveness position, new business and strategically targeted acquisitions and also, continued emphasis on balancing revenue growth with headcount increases and improvement in staff costs/net sales ratio to enhance operating margins.

As for long-term targets, the above industry revenue growth, due to effective implementation of horizontality, geographically superior position in new markets and functional strength in new media, data investment management, including data analytics and the application of new technology, creativity, effectiveness and horizontality; improvement in staff costs/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.

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