- Reported billings for first four
months up 7.9% at £16.230 billion and up 6.0% in constant
currency
- Reported revenue for first four
months up 10.7% at £4.182 billion, up 5.1% at $5.986 billion, up
5.0% at €5.384 billion and up 0.1% to ¥680.109 billion, continuing
to reflect volatile exchange rates
- Constant currency revenue up 8.8%,
like-for-like revenue up 4.3%
- Constant currency net sales up 7.2%,
like-for-like net sales up 3.1%
- First four months revenue, net sales
and profits well above budget and ahead of last year
- Constant currency net debt at 30
April 2016 up £589 million on same date in 2015, with average net
debt in first four months of 2016 up by £746 million over same
period in 2015, continuing to reflect strong acquisition activity
and continuing share buy-backs
WPP (NASDAQ:WPPGY) today reported its 2016 Annual General
Meeting Trading Update.
The following Chairman’s statement was referred to at the
Company’s 44th Annual General Meeting held in London at noon today
and is available on the Company’s website:
“First, a few comments on current trading.
In the first four months of 2016, reported revenue was up 10.7%
at £4.182 billion. Revenue in constant currency was up 8.8%,
continuing to reflect the slight currency tailwinds seen in the
first quarter, principally reflecting the weakness of sterling
against the US dollar and the euro. On a like-for-like basis,
excluding the impact of acquisitions and currency fluctuations,
revenue was up 4.3%, compared with the same period last year.
Reported net sales were up 9.0% at £3.571 billion, up 7.2% in
constant currency and up 3.1% like-for-like, similar to the first
quarter. The gap between revenue growth and net sales growth also
remains similar to the same period last year, reflecting the scale
of digital media purchases in media investment management and data
investment management direct costs.
The pattern of revenue and net sales growth in 2016 is generally
the same as the first quarter of 2016, with the one month of April
marginally softer, as parts of the Group’s advertising, data
investment management and branding & identity businesses were
slightly slower, albeit against a very strong comparative last
year. For the first four months, there was like-for-like revenue
and net sales growth in all regions and business sectors,
reflecting continuing strong growth in the United States with Latin
America improving markedly in the month. On a like-for-like basis,
advertising and media investment management and branding &
identity, healthcare and specialist communications (including
direct, digital and interactive), continued to be the strongest
sectors, as in the first quarter of 2016.
Regional review
North America, with year-to-date, like-for-like revenue
and net sales growth of 6.0% and 4.0% respectively, continued to
show consistent growth, with particularly strong growth in the
month in the Group’s media investment management, direct, digital
and interactive and branding & identity businesses.
The United Kingdom, with year-to-date, like-for-like
revenue and net sales growth of 3.2% and 2.7% respectively, was
slightly weaker in the month than the first quarter of 2016,
perhaps reflecting Brexit uncertainties. The Group’s media
investment management, public relations and public affairs,
branding & identity and other specialist communications
businesses, continued to perform well, with advertising, data
investment management and healthcare slightly slower.
Western Continental Europe, with year-to-date,
like-for-like revenue and net sales growth of 3.8% and 2.1%
respectively, with Austria, Belgium, Denmark, Italy, Sweden and
Turkey up significantly in the month, partly offset by France,
Germany, Greece and Spain, which were more difficult. On a
year-to-date basis, all markets, except Greece, the Netherlands and
Switzerland grew like-for-like net sales, with Austria, Belgium,
Denmark, Finland, Germany, Sweden and Turkey growing above the
average.
Asia Pacific, Latin America, Africa & the Middle East and
Central and Eastern Europe, softened in April, with
year-to-date constant currency revenue up 10.3% and like-for-like
up 2.9%. Net sales were up 9.5% in constant currency and 2.7%
like-for-like in the first four months, compared with 7.9% and 3.0%
respectively in the first quarter. In Asia Pacific, India continued
the strong growth seen in the first quarter, with Greater China
continuing to be sluggish. Latin America and Central & Eastern
Europe grew strongly in April.
Business sector review
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management revenue grew by 9.3%, with like-for-like growth of 6.7%
in the first four months, slightly lower than the first quarter,
but still the strongest performing sector. Net sales grew 5.0% in
constant currency, with like-for-like growth of 3.3%, very similar
to the first quarter figures of 5.0% and 3.4% respectively. Growth
in the Group’s media investment management businesses was
consistently strong throughout 2015 and this has continued into the
first four months of 2016.
Your company has continued to perform extremely well in the
results of the tsunami of 2015 media pitches involving over $20
billion in billings, by leading the net new business and retention
tables, often through effectively and uniquely linking the Group’s
media investment management and data investment management
capabilities.
Data Investment Management
On a constant currency basis, data investment management net
sales grew 5.8%, with like-for-like growth of 0.3% in the first
four months, a marked improvement on the first quarter
like-for-like growth of -0.1%, with all regions, except the United
Kingdom showing growth in the month. Continental Europe, Latin
America and Africa showed particularly strong growth in April.
Public Relations and Public Affairs
In constant currencies, public relations and public affairs net
sales grew 3.8%, with like-for-like growth up 2.2% in the first
four months, very similar to the first quarter growth of 4.0% and
2.3% respectively. As in the first quarter, all regions, except
North America, were up in April, with continuing strong growth in
Asia Pacific and Africa, and a significant improvement in Latin
America.
Branding and Identity, Healthcare and Specialist
Communications
At the Group’s branding and identity, healthcare and specialist
communications businesses (including direct, digital and
interactive), constant currency net sales grew strongly at 12.2%,
with like-for-like growth up 4.5% in the first four months,
compared to the first quarter growth rates of 10.9% and 5.2%
respectively. As in the first quarter, all of the Group’s
businesses in this sector, except healthcare communications,
performed well in the first four months.
Operating profitability
In the first four months, on a constant currency basis, revenue,
net sales and profits were ahead of the quarter one revised
forecast, budget and last year
As indicated in the first quarter trading update, our quarter
one revised forecasts are similar to budget, with like-for-like
revenue growth up well over 3% and net sales growth up over 3%.
For the remainder of 2016, the focus remains on growing revenue
and net sales faster than the industry average, driven by our
leading position in the new markets, in new media, in data
investment management, including data analytics and the application
of new technology, creativity and horizontality. At the same time,
we will concentrate on meeting our operating margin objectives, by
managing absolute levels of costs and increasing our cost
flexibility, in order to adapt our cost structure to significant
market changes and by ensuring that the benefits of the
restructuring investments taken in recent years continue to be
realised.
Balance sheet highlights
Average net debt in the first four months of this year was
£3.848 billion, compared to £3.102 billion in 2015, at 2016
exchange rates. This represents an increase of £746 million. Net
debt at 30 April 2016 was £4.375 billion, compared to £3.786
billion in 2015 (at 2016 exchange rates), an increase of £589
million. The period end net debt figures reflect a reduction in the
incremental net acquisition spend in the 12 months to 30 April 2016
and velocity of share buy-backs.
Acquisitions
In line with the Group’s strategic focus on new markets, new
media and data investment management, the Group completed 30
transactions in the first four months; 9 acquisitions and
investments were in new markets and 19 in quantitative and digital
and 9 were driven by individual client or agency needs. Out of
these transactions, 7 were in both new markets and quantitative and
digital.
Specifically, in the first four months of 2016, acquisitions and
increased equity stakes have been completed in advertising and
media investment management in the United Kingdom; in data
investment management in the United States, Denmark, Greece,
India and New Zealand; in public relations and public
affairs in Canada, Switzerland, Turkey and Brazil; in
branding & identity in the Netherlands; in direct,
digital and interactive in the United States, the United
Kingdom, Germany, China, Singapore, South Korea, Brazil, Colombia
and Mexico; in healthcare in the United States; in sports
marketing in the United States. One further acquisition was
made in May in direct, digital and interactive in Malaysia.
Return of funds to share owners
As outlined in the 2015 Preliminary Announcement, the
achievement of the previous targeted pay-out ratio of 45% one year
ahead of schedule, raised the question of whether the pay-out ratio
target should be increased further. Following that review, your
Board decided to up the dividend pay-out ratio to a target of 50%,
to be achieved by 2017, and, as a result, declared an increase of
almost 37% in the 2015 interim dividend to 15.91p per share,
representing a pay-out ratio of 47.5% for the first half, and an
increase of 8.3% in the final dividend to 28.78p, giving an overall
increase for the year of 17.0% and a dividend pay-out ratio of
47.7%. It now seems possible that the newly targeted pay-out ratio
of 50% will be achieved by the end of 2016, one year ahead of
schedule.
During the first four months of 2016, share buy-backs continued,
with 4.3 million shares, or 0.3% of the issued share capital,
purchased at a cost of £69 million and an average price of £15.85
per share, with 1.3 million shares being purchased as Treasury
stock and 3.0 million shares purchased by the ESOP Trusts. The
Group’s objective remains to repurchase 2-3% of the issued share
capital.
Outlook
Lower, longer? – both worldwide GDP growth and interest
rates
Despite these encouraging results in the first four months of
2016 and good prospects for the rest of the year, together with
record results in 2015, the Company's thirtieth year, following
sequential record results from 2011 onwards, clients generally
remain cautious. Worldwide real and nominal GDP growth seem stuck
in a range of 3.0-3.5%, with little inflation, consequently little
or no pricing power for clients and a resultant focus on costs to
achieve profit targets. Procurement and finance remain the dominant
functions for understandable reasons, with marketing taking a back
seat. Whilst there seems limited likelihood of a worldwide
recession, that is two quarters of negative GDP growth globally,
there will be individual countries that go into recession, as
Russia and Brazil already have. This pressure on the top line
growth rates has intensified, as the previously faster growth BRICs
markets have lost their shine, even though the Western markets of
the United States and United Kingdom and some Western Continental
European markets, like Germany, Spain and Italy have perked up.
If you are running a legacy business, as many of our clients and
we are, you face disrupters like Uber and Airbnb at one end of the
spectrum, zero-based cost budgeters at the other end, with
seemingly short-term focused activist investors in the middle, like
Nelson Peltz, Bill Ackman and Dan Loeb. There is, therefore,
considerable pressure in the system. Moreover, the average
managerial life expectancy of a United States CEO is currently 6-7
years, a CFO 5-6 years and a CMO two or three years, although the
latter has improved from 18 months recently! This cocktail of
difficult trends result, logically, in a short-term focus,
exacerbated by the needs of quarterly reporting and similarly
focused, short-term, institutional investor measurement and
incentives.
Neither do the geo-political grey swans (known unknowns) help,
let alone the possibility of black swans (unknown unknowns). In the
immediate future, we face what looks like a nail-bitingly close
Brexit vote in the United Kingdom later this month (are we sleep
walking into a black hole?), where it is generally agreed by both
sides that an "out" vote will result, at least in the short-term or
mid-term, in GDP weakness in the United Kingdom, the EU and
possibly globally, let alone further political and economic
uncertainty in the United Kingdom around Scottish Independence and
further threatened disintegration of the EU. Not forgetting the
still unresolved question of Grexit, which has recently re-emerged.
Political concerns also remain around the Ukraine, as well as the
Middle East and Africa, including the migrant crisis and continued
risk of terrorism. Add to this the potential impact of the rise of
populism at both ends of the political spectrum in the United
States Presidential election in November and the possibility of an
unpredictable Trump Presidency. In the longer term, there are
significant political and economic uncertainties surrounding three
of the BRIC nations, Brazil, Russia and China, although we remain
unabashed bulls on all three. However, all will take significant
time to resolve, especially in the case of Russia. If all this was
not enough, there are the continuing longer term fiscal deficit
issues in the United States, the United Kingdom and EU that have to
be dealt with, along with the impact of the inevitable reversal of
US, Japanese and EU quantitative easing and low interest policies
at some point in time, although just as with global GDP growth,
interest rates are likely to stay lower, longer than people
anticipate.
Having said all this, there are positives. Countries and
opportunities like Indonesia, the Philippines, Vietnam, Egypt,
Nigeria, Mexico, Colombia and Peru and recently a post-Macri
Argentina add to confidence. In addition, maybe Cuba and even Iran
(despite the continuing effective impact of sanctions, especially
on US citizens) will also improve the sentiment along with a
continuing mild recovery in Western Continental Europe.
So all in all, whilst clients are certainly more confident than
they were in September 2008 post-Lehman, with stronger balance
sheets (over $7 trillion in net cash and limited leverage),
sub-trend global GDP growth in a possible range of 3.0-3.5% real
and 5.0-5.5% nominal, combined with these levels of geopolitical
uncertainty, with low inflation or fears of deflation resulting in
limited pricing power, with short-term focused activist investors
and strengthened corporate governance scrutiny, make them unwilling
to take further risks. They, therefore, focus on costs, rather than
revenue growth. At best, clients focus on a strategy of adding
capacity and brand building in both fast growth geographic markets
and functional markets, like digital, and containing or reducing
capacity, perhaps with brand building to maintain or increase
market share, in the mature, slow growth markets. This approach
also has the apparent virtue of limiting fixed cost increases and
increasing variable costs, although we naturally believe that
marketing is an investment, not a cost.
The pattern for 2016 looks very similar to 2015, but with the
bonus of the maxi-quadrennial events of the visually-stunning Rio
Olympics, the imminent UEFA Euro Football Championships and, of
course, the United States Presidential Election to boost marketing
investments, as usual by up to 1% or so. Current forecasts of
worldwide real GDP growth still hover around 3.0% to 3.5%, with
recently reduced inflation estimates of 0.5% giving nominal GDP
growth, in dollars (because of its strength), of even less than 3%.
Advertising as a proportion of GDP should at least remain constant
overall. Although it is still at relatively depressed historical
levels, particularly in mature markets, post-Lehman, it should be
buoyed by incremental branding investments in the under-branded
faster growing markets.
Although consumers and corporates both seem to be increasingly
cautious and risk averse, the latter should continue to purchase or
invest in brands in both fast and slow growth markets to stimulate
top line sales growth. Merger and acquisition activity may be
regarded as an alternative way of doing this, particularly funded
by cheap long-term debt, but we believe clients may regard this as
a more risky way than investing in marketing and brand and hence
growing market share, particularly as equity valuations remain
strong and debt capital cheap.
All in all, 2016 looks to be another demanding year, although a
weaker UK pound against a stronger US dollar may continue to
provide some modest currency tailwind, maybe partly offset by a
stronger pound against the euro, with a modest impact on profits,
unlike the currency headwind of 2015.
Top-line Growth or Cost Cutting?
And finally, a few words on the effect of an extended period of
economic uncertainty on corporate decision-making.
A global crisis of the kind we all experienced eight years ago
has an immediate and dramatic effect on business confidence - and
so it must. Long-term plans need to be re-examined. If an
investment can be postponed without incurring an instant penalty,
it’s probably good business sense to postpone it. Caution prevails
- and quite right, too.
But 2008 is now eight years behind us - and we believe that the
recovery of confidence is lagging behind the recovery of many
economies.
Our evidence for this belief is in part based on the continuing
dependence of many marketing companies on price promotions. There
is total asymmetry between spending money on price promotions and
spending money on enhancing brand worth. Price reductions are never
a marketing investment; they are simply income forgone - and do
nothing whatever to encourage brand loyalty. Looking back, it seems
to us and our companies that necessary short-term caution has
drifted into a semi-permanent commitment to short-termism - where
prudence has been replaced by a kind of timidity - and much at the
expense of what our companies do best.
The results we have announced today, as always with this
Company, have been achieved through the achievements of tens of
thousands of talented individuals working in what may well be the
largest cottage industry on this planet. Almost everything we make
for our clients is custom-made; made for a specific client to solve
a specific problem in a specific market at a specific time. Our
companies combine native, individual inventiveness with a profound
and almost institutionalised understanding of the nature of people
and the nature of brands. It is their ability to make brands more
valued by those who buy them - and therefore more valuable to their
brand-owners - that keep WPP companies in such gratifying
demand.
Let me close then with this happy recognition. On behalf of the
board, our management and our share owners, may I thank all those
talented individuals and the companies who train and nurture them.
Not only do they build and nourish brands on behalf of their
clients; their work is also the foundation of the WPP brand itself.
Our gratitude is huge.”
This announcement has been filed at the Company Announcements
Office of the London Stock Exchange and is being distributed to all
owners of Ordinary shares and American Depository Receipts. Copies
are available to the public at the Company’s registered office.
The following cautionary statement is included for safe harbour
purposes in connection with the Private Securities Litigation
Reform Act of 1995 introduced in the United States of America. This
announcement may contain forward-looking statements within the
meaning of the US federal securities laws. These statements are
subject to risks and uncertainties that could cause actual results
to differ materially including adjustments arising from the annual
audit by management and the Company’s independent auditors. For
further information on factors which could impact the Company and
the statements contained herein, please refer to public filings by
the Company with the Securities and Exchange Commission. The
statements in this announcement should be considered in light of
these risks and uncertainties.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160608005722/en/
For WPP:Sir Martin Sorrell, +44 20 7408 2204Paul Richardson, +44
20 7408 2204Chris Sweetland, +44 20 7408 2204Feona McEwan, +44 20
7408 2204Chris Wade, +44 20 7408 2204Kevin McCormack,
212-632-2235Fran Butera, 212-632-2235Juliana Yeh, +852 2280
3790www.wppinvestor.com
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