- Third quarter reported revenue up
5.9% at £2.927 billion, down 1.6% at $4.533 billion in dollars, up
17.0% at €4.075 billion in euros and up 15.4% at ¥554 billion in
yen
- Third quarter constant currency
revenue up 7.9%, like-for-like revenue up 4.6%
- Third quarter constant currency net
sales up 6.1%, like-for-like net sales up 3.3%
- Nine months reported revenue up 6.5%
at £8.766 billion, down 2.3% at $13.434 billion in dollars, up
18.9% at €12.065 billion in euros and up 14.9% at ¥1,625 billion in
yen
- Nine months constant currency
revenue up 6.9%, like-for-like revenue up 4.8%
- Nine months constant currency net
sales up 5.2%, like-for-like net sales up 2.6%
- Nine months operating margin up 0.5
margin points in constant currency, 0.3 margin points in reported
and targeted to be up 0.3 margin points in constant currency for
full year in line with objective
- Average constant currency net debt
up by £403 million for the first nine months of 2015 to £3.436
billion, reflecting increased acquisition activity and share
buy-backs
- Net new business of £3.212 billion
in first nine months giving leadership again in all net new
business league tables
- Share buy-backs of £588 million in
the first nine months, up significantly from £499 million in the
same period last year and already at the full year target of 3.0%
of the issued share capital, against 3.0% for the whole of last
year
WPP (NASDAQ: WPPGY) today reported its 2015 Third Quarter
Trading Update.
Revenue analysis
£ million
2015 ∆ reported
∆ constant1
∆ LFL2
Acquisitions
2014 First
half 5,839 6.8% 6.4%
4.9% 1.5% 5,469
Third
quarter 2,927 5.9%
7.9% 4.6% 3.3% 2,763
First nine months 8,766
6.5% 6.9% 4.8%
2.1% 8,232
Net Sales analysis
£ million
2015 ∆ reported
∆ constant ∆ LFL Acquisitions
2014 First half 5,041
5.2% 4.7% 2.3%
2.4% 4,792
Third quarter
2,518 4.2% 6.1% 3.3%
2.8% 2,418
First nine months
7,559 4.9%
5.2% 2.6% 2.6%
7,210
Quarter 3 and first nine months highlights
- Reported quarter 3 revenue growth of
5.9% in sterling, with constant currency growth of 7.9%, 3.3%
growth from acquisitions and -2.0% from currency. The latter
reflects the continuing weakness of the pound sterling against the
US dollar, more than offset by the strength of sterling, primarily
against the Euro and many currencies in the faster growth
markets
- Reported quarter 3 net sales growth
of 4.2% in sterling, with constant currency growth of 6.1%,
2.8% growth from acquisitions and -1.9% from currency
- Constant currency revenue growth in
quarter 3 in all regions and business sectors, with
particularly strong growth geographically in North America, the
United Kingdom and Asia Pacific, Latin America, Africa & the
Middle East and Central & Eastern Europe, and functionally in
advertising and media investment management and sub-sectors direct,
digital and interactive and specialist communications
- Like-for-like net sales growth in
quarter 3 of 3.3%, stronger than 2.3% in the first half, partly
the result of easier comparatives, with the gap compared to revenue
growth less in the third quarter than the first half, as the scale
of digital media purchases in media investment management and data
investment management direct costs continued at a similar slightly
lighter level to the second quarter
- Operating profits and operating
margins in the first nine months well in line with target, with
an above target constant currency operating margin improvement of
0.5 margin points ahead of last year
- Average net debt for the first nine
months increased by £403 million to £3.436 billion compared to
last year, at 2015 constant rates. This continued to reflect
significant incremental net acquisition spend and share repurchases
of £374 million in the twelve months to 30 September 2015, compared
with the previous twelve months, more than offsetting the
improvements in working capital over the same period
- Net new business of $3.057 billion
in the third quarter and $5.139 billion in the first nine
months, resulting in the number one position in all net new
business tables. Results to date in the tsunami of largely United
States based media investment management reviews have been highly
satisfactory with major retentions and wins and limited losses, and
with significant opportunities still to be decided, where we have
relatively limited exposure
Current trading and outlook
- FY 2015 quarter 3 preliminary
revised forecast | this remains to be formally reviewed and
reflects characteristic caution in the fourth quarter forecast of
like-for-like revenue and net sales growth, in comparison to the
budgeted quarter 1 and quarter 2 revised forecasts. Headline net
sales operating margin target improvement, as previously, of 0.3
margin points in constant currency
- Dual focus in 2015 | 1. Stronger
than competitor revenue and net sales growth (although competitors
do not provide the latter metric) due to leading position in both
faster growing geographic markets and digital, premier parent
company creative position, new business, horizontality and
strategically targeted acquisitions; 2. Continued emphasis on
balancing revenue and net sales growth with headcount increases and
improvement in staff costs to net sales ratio to enhance operating
margins
- Long-term targets | Above
industry revenue and net sales growth due to geographically
superior position in new markets and functional strength in new
media, in data investment management, including data analytics and
the application of new technology, creativity, effectiveness and
horizontality; improvement in staff cost to net sales ratio of 0.2
or more depending on net sales growth; net sales operating margin
expansion of 0.3 margin points; 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
Review of quarter three and first nine months
Revenue
As shown in the table below, in the third quarter of 2015,
reported revenue was up 5.9% at £2.927 billion. Revenue in constant
currency was up 7.9% compared with last year, the difference to the
reportable number reflecting the continuing weakness of the pound
sterling against the US dollar, more than offset by the strength of
sterling primarily against the Euro and many currencies in the
faster growth markets. On a like-for-like basis, excluding the
impact of acquisitions and currency fluctuations, revenue was up
4.6%, slightly stronger than quarter two. Like-for-like revenue
growth in the third quarter continued at similarly strong levels in
the United States with softening in the United Kingdom, which was
more than offset by significant increases in both Western
Continental Europe and Asia Pacific, Latin America, Africa &
the Middle East and Central & Eastern Europe. Functionally, all
sectors improved over the second quarter and, as in the first half,
advertising and media investment management showed the strongest
like-for-like growth, with media investment management particularly
strong in North America, Western Continental Europe and Africa.
Data investment management, public relations and public affairs and
branding and identity, healthcare and specialist communications
(including direct, digital and interactive) all showed an improving
trend compared with the second quarter, particularly in public
relations and public affairs and in the sub-sector of direct,
digital and interactive.
In the first nine months, reported revenue was up 6.5% at £8.766
billion. Revenue in constant currency was up 6.9%, the difference
to the reportable number reflecting the continuing weakness of the
pound sterling against the US dollar, for the first time this year
being more than offset by the strength of sterling against the euro
and many currencies in the faster growth markets, thus resulting in
a modest currency headwind.
On a like-for-like basis, excluding the impact of acquisitions
and currency fluctuations, revenue was up 4.8% compared with the
same period last year, with net sales up 2.6%, with the difference
compared to revenue growth similar to the first half.
Regional review
The pattern of revenue growth differed regionally. The tables
below give details of revenue and net sales and revenue and net
sales growth by region for the third quarter and first nine months
of 2015, as well as the proportion of Group revenue and net sales
by region;
Revenue analysis – Third
Quarter
£ million
2015 ∆ reported
∆ constant3
∆ LFL4
% group
2014 %
group N. America 1,091 15.4%
8.2% 6.8% 37.2%
945 34.2% United Kingdom 435
7.6% 7.6% 1.1%
14.9% 404 14.6% W. Cont Europe
552 -4.0% 6.2%
6.1% 18.8% 574 20.8%
AP, LA, AME, CEE5
849 1.1% 8.8%
2.9% 29.1% 840
30.4%
Total Group 2,927
5.9% 7.9% 4.6%
100.0% 2,763
100.0%
Revenue analysis – First Nine
Months
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group N. America
3,255 15.3% 6.7% 6.2%
37.2% 2,823 34.3% United
Kingdom 1,295 9.0% 9.0%
4.5% 14.8% 1,188
14.4% W. Cont Europe 1,695 -6.8%
3.9% 4.5% 19.3%
1,818 22.1% AP, LA, AME, CEE
2,521 4.9% 8.3% 3.4%
28.7% 2,403 29.2%
Total Group 8,766
6.5% 6.9% 4.8%
100.0% 8,232
100.0%
Net Sales analysis – Third
Quarter
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group N. America
948 11.8% 5.0% 3.7%
37.6% 848 35.1% United
Kingdom 370 7.1% 7.1%
2.2% 14.7% 345
14.3% W. Cont Europe 453 -5.4%
4.5% 4.6% 18.0%
480 19.8% AP, LA, AME, CEE 747
0.3% 8.0% 2.4%
29.7% 745 30.8%
Total
Group 2,518 4.2%
6.1% 3.3%
100.0% 2,418
100.0%
Net Sales analysis – First Nine
Months
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group N. America
2,825 11.9% 3.6% 3.1%
37.4% 2,525 35.1% United
Kingdom 1,093 8.1% 8.1%
2.6% 14.4% 1,011
14.0% W. Cont Europe 1,418 -7.4%
3.1% 2.3% 18.8%
1,532 21.2% AP, LA, AME, CEE
2,223 3.8% 7.3% 2.3%
29.4% 2,142 29.7%
Total Group 7,559
4.9% 5.2% 2.6%
100.0% 7,210
100.0%
North America, with constant currency revenue growth of
8.2% and like-for-like growth of 6.8% in the third quarter,
slightly lower than quarter two, but stronger than the first half,
with advertising and media investment management, direct, digital
and interactive and the Group’s specialist communications
businesses continuing to perform well. Net sales however, continued
to strengthen, up 3.7% like-for-like in quarter three, compared
with 3.5% in quarter two and 2.8% for the first half.
The United Kingdom, with constant currency revenue
growth of 7.6% and like-for-like growth of 1.1% in the third
quarter, slowed compared with quarter two growth of over 4%, as
parts of the Group’s advertising and media investment management,
data investment management and healthcare businesses softened,
partly offset by strong growth in public relations and public
affairs and direct, digital and interactive. However, like-for-like
net sales growth again showed a different pattern, up 2.2%, the
same as quarter two.
Western Continental Europe, although remaining relatively
more difficult from a macro economic point of view, showed
considerable improvement in the third quarter, with like-for-like
revenue growth of 6.1% and net sales growth of 4.6%, compared to
4.6% and 2.0% respectively in quarter two. Austria, Belgium,
France, Germany, the Netherlands, Spain and Turkey performed
strongly, with Greece and Ireland slower.
Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe, showed the strongest growth in
the third quarter, with constant currency revenue growth of 8.8%.
Like-for-like revenue growth was 2.9% in the third quarter, much
stronger than the 1.1% in quarter two, as Australia, China and the
Philippines improved, partly offset by Indonesia and Malaysia,
which were slower. Net sales followed a similar pattern to revenue,
up 8.0% in constant currency and up 2.4% like-for-like, much
stronger than the 5.0% and 0.7% respectively in quarter two.
In the first nine months of 2015, 29.4% of the Group’s net sales
came from Asia Pacific, Latin America, Africa & the Middle East
and Central & Eastern Europe. This was the same as the first
half and a slight decrease over 29.7% for the same period last year
and in comparison to the Group’s revised strategic objective of
40%-45% over the next five years. With the continuing weakness of
the majority of the fast growth market currencies, the proportion
for the first nine months remained around 30% in constant
currencies. Based on the preliminary quarter three revised
forecast, the fast growth markets are expected to outperform the
slower growth mature markets in the final quarter of the year,
particularly in Asia Pacific and Latin America.
Business sector review
The pattern of revenue growth also varied by communications
services sector and operating brand. The tables below give details
of revenue and net sales, revenue and net sales growth by
communications services sector for the third quarter and first nine
months of 2015, as well as the proportion of Group revenue and net
sales for the third quarter and first nine months by those
sectors;
Revenue analysis – Third
Quarter
£ million
2015 ∆ reported
∆ constant6
∆ LFL7
% group
2014 %
group
AMIM8
1,311 8.0% 10.5%
7.2% 44.8% 1,214
43.9% Data Inv. Mgt. 584 -0.8%
3.8% -1.0% 19.9%
588 21.3%
PR & PA9
229 6.5% 5.4%
4.1% 7.8% 214 7.8%
BI, HC & SC10
803 7.5% 7.6%
5.1% 27.5% 747
27.0%
Total Group 2,927
5.9% 7.9% 4.6%
100.0% 2,763
100.0%
Revenue analysis – First Nine
Months
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group AMIM 3,950
9.6% 10.3% 8.5%
45.1% 3,604 43.8% Data Inv. Mgt.
1,758 -0.4% 2.6%
-0.8% 20.1% 1,765
21.4% PR & PA 687 5.7%
3.4% 2.2% 7.8% 650
7.9% BI, HC & SC 2,371
7.2% 5.9% 4.0%
27.0% 2,213 26.9%
Total Group
8,766 6.5%
6.9% 4.8% 100.0%
8,232 100.0%
Net Sales analysis – Third
Quarter
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group AMIM 1,092
2.6% 5.2% 3.7%
43.3% 1,064 44.0% Data Inv. Mgt.
429 1.2% 5.8%
0.0% 17.1% 424
17.5% PR & PA 225 6.2%
5.2% 4.5% 8.9% 212
8.8% BI, HC & SC 772
7.7% 7.8% 4.3% 30.7%
718 29.7%
Total Group
2,518 4.2%
6.1% 3.3% 100.0%
2,418 100.0%
Net Sales analysis – First Nine
Months
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 % group AMIM 3,313
4.1% 5.1% 3.4%
43.9% 3,182 44.1% Data Inv. Mgt.
1,286 1.5% 4.4%
0.0% 17.0% 1,267
17.6% PR & PA 675 5.2%
3.0% 2.5% 8.9% 642
8.9% BI, HC & SC 2,285
7.9% 6.5% 3.1%
30.2% 2,119 29.4%
Total Group
7,559 4.9%
5.2% 2.6% 100.0%
7,210 100.0%
In the first nine months of 2015, over 37% of the Group’s
revenue came from direct, digital and interactive, up over 100
basis points from the previous year. Digital revenue across the
Group was up strongly, almost 7% like-for-like. There does seem to
be growing client concern around what one in particular calls the
three “v”s, value, viewability and validation, particularly in
relation to on-line video. There is also client concern with the
unequal measurement standards between off-line and on-line media,
along with concern over the possible understated impact of “bots”.
We remain committed to the highest standards of clarity and
transparency on media buying and leading the industry in developing
more contemporary measurement standards in off-line and digital
media, which even some of our competitors now acknowledge.
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management revenue grew by 10.5% in quarter three, with
like-for-like growth of 7.2%, still the strongest performing sector
but slightly lower than quarter two. Constant currency net sales
growth was 5.2%, with like-for-like up 3.7%, well above quarter
two. Media investment management was up strongly in quarter three,
with Western Continental Europe and Asia Pacific improving, but
advertising slowed in North America, the United Kingdom and Asia
Pacific.
The Group gained a total of £1.910 billion ($3.057 billion) in
net new business billings (including all losses) in the third
quarter. Of this, J. Walter Thompson Company, Ogilvy & Mather,
Y&R and Grey generated net new business billings of £252
million ($403 million). GroupM, the Group’s media investment
management company, which includes Mindshare, MEC, MediaCom, Maxus,
GroupM Search and Xaxis, together with tenthavenue, generated net
new business billings of £1.526 billion ($2.442 billion) out of the
Group’s total. Net new business billings won in the first nine
months were £3.212 billion ($5.139 billion). This strong net new
businesses performance continues to ensure leadership rankings in
all net new business tables.
Data Investment Management
On a constant currency basis, data investment management revenue
grew 3.8%, with like-for-like revenue down 1.0% in quarter three.
On the same basis constant currency net sales were up 5.8% with
like-for-like flat, an improvement compared with quarter two and
similar to the first half. North America and Western Continental
Europe, the two largest regions, showed some improvement compared
with quarter two, offset by lower growth in the United Kingdom and
Asia Pacific. There seems to be a growing recognition of the value
of “real” data businesses, rather than those that depend on third
party data and an opportunity to demonstrate meaningful and
sustainable competitive differentiation through integration of
media investment management and data investment management
insights.
Public Relations and Public Affairs
In constant currencies, public relations and public affairs
revenue and net sales were up strongly at 5.4% and 5.2% in quarter
three and up 4.1% and 4.5% respectively like-for-like, the
strongest performing sector. All regions, showed positive net sales
growth in quarter three, with particularly strong growth in the
United Kingdom, Asia Pacific and Latin America. Quarter three and
the first nine months both saw especially strong growth at Cohn
& Wolfe and in social media content development in the USA at
SJR, with financial public relations in the United Kingdom up
strongly in the quarter.
Branding and Identity, Healthcare and Specialist
Communications
At the Group’s branding & identity, healthcare and
specialist communications businesses (including direct, digital and
interactive), constant currency revenue grew strongly at 7.6%, with
like-for-like growth of 5.1%, in quarter three. On the same basis
net sales were up 7.8% and 4.3% respectively. The Group’s direct,
digital and interactive and specialist communications businesses
grew above the Group average, with parts of the specialist
communications businesses in the United States even stronger, while
branding and identity and healthcare were more challenged.
Operating profitability
In the first nine months, operating profits were well ahead of
last year and net sales operating margins on a constant currency
were up 0.5 margin points, well above the Group’s full year margin
target of 0.3 margin points improvement and up on the first half
improvement.
We are in the process of reviewing our quarter three revised
forecasts. Early indications are that, although these forecasts are
characteristically cautious, revenue and net sales in the final
quarter of the year will show higher growth than the first nine
months, against weaker comparatives last year - with an improvement
in Asia Pacific, Latin America and Africa & the Middle East and
that there are some concerns about growth rates continuing to slow
in China in the latter part of 2015. Functionally, data investment
management and public relations and public affairs, healthcare and
the Group’s specialist communications businesses are forecast to be
slower.
The number of people in the Group, on a proforma basis,
excluding associates, was down 2.1% to 126,585 at 30 September
2015, as compared to 30 September 2014, against an increase in
revenue on the same basis of 4.8% and net sales of 2.6%. Similarly,
the average number of people in the Group in the first nine months
of this year was down 1.8% to 124,211, compared to 126,492 for the
same period last year. This reflected, in part, the transfer of
1,445 staff to IBM in the first half of 2015, as part of the
strategic partnership agreement and IT transformation programme.
Since the beginning of this year, the number of people in the Group
has decreased by 1.2% or 1,524 at 30 September 2015 (including the
1,445 staff transferred to IBM), and also reflecting continued
caution by the Group’s operating companies in hiring in a low
growth environment.
Balance sheet highlights
The Group continues to implement its strategy of using free cash
flow to enhance share owner value through a balanced combination of
capital expenditure, acquisitions, dividends and share buy-backs.
In the twelve months to 30 September 2015, the Group’s free cash
flow was £1.452 billion. Over the same period, the Group’s capital
expenditure, acquisitions, share repurchases and dividends were
£1.997 billion.
The Group’s strong cash flow continues to justify the decision
by the Board earlier this year to increase the dividend pay-out
ratio to a target of 50% to be achieved by 2017. The interim
dividend was increased by almost 37% in the first half,
representing a pay-out ratio of 47.5% versus the traditionally
lower 40% last year. This indicates that the newly targeted pay-out
ratio of 50% should be achieved by the end of 2016, one year ahead
of target. In the first nine months of 2015, 39.6 million shares,
or 3.0% of the issued share capital, were purchased at a cost of
£587.6 million and an average price of £14.84 per share, compared
with 3.0% of the issued share capital for the whole of last
year.
Average net debt in the first nine months of 2015 was £3.436
billion, compared to £3.033 billion in 2014, at 2015 exchange
rates. This represents an increase of £403 million. Net debt at 30
September 2015 was £4.147 billion, compared to £3.429 billion in
2014 (at 2015 exchange rates), an increase of £718 million. The
increased average and period end net debt figures reflect
significant incremental net acquisition spend of £337 million and
incremental share re-purchases of £37 million, more than offsetting
the improvements in average net working capital during the
period.
Acquisitions
In line with the Group’s strategic focus on new markets, new
media and data investment management, the Group completed 38
transactions in the first nine months; 13 acquisitions and
investments were in new markets, 27 in quantitative and digital and
5 were driven by individual client or agency needs. Out of all
these transactions, 7 were in both new markets and quantitative and
digital.
Specifically, in the first nine months of 2015, acquisitions and
increased equity stakes have been completed in advertising and
media investment management in the United States, the United
Kingdom, France, Germany, the Netherlands, Turkey, Singapore,
Australia and New Zealand; in data investment management in
the United States, Israel and Brazil; in public relations and
public affairs in the United States, Germany and India; in
branding & identity in the United States; in direct,
digital and interactive in the United States, Belgium, Sweden,
South Africa, Peru and China; in healthcare in the United
States and Australia.
Outlook
Macroeconomic and industry context
Third quarter like-for-like revenue and net sales growth were
stronger than quarter two and the first half, partly due to easier
comparatives. In 2014, like-for-like revenue growth was 1
percentage point lower in the second half than the first half, with
net sales growth 1.6 percentage points lower.
Country specific slowdowns in China and Brazil and geopolitical
issues remain top of business leaders’ concerns. The continuing
crisis in the Ukraine and consequent bilateral sanctions,
principally affecting Russia, continued tensions in the Middle East
and North Africa and the risk of possible exits from the European
Community, driven by further political and economic trouble in
Greece, top the agenda. Lower oil prices and first time
quantitative easing in Europe and continued easing in Japan may
seem to bottom or underpin the recovery. A continued, but somewhat
patchy, United States recovery and United Kingdom and Indian
strength may help confidence. Countries and opportunities like
Indonesia, the Philippines, Vietnam, Egypt, Nigeria, Mexico,
Colombia and Peru add to opportunity (and maybe even Cuba and Iran
will), along with a growing recovery in Western Continental Europe,
chiefly in Germany, Spain and Italy that will strengthen the
economic spine. France remains soft, although there are some small
signs of improvement. But there are other "grey swans", chiefly
two. First, when will the much anticipated Federal Reserve
tightening happen and what effect will that have on bond and equity
markets? Although interest rates are likely to remain lower, longer
than many anticipate, due to mediocre growth rates, when the
tightening does come, as it inevitably will, it may have a dramatic
impact on bond and equity valuations, as recent gyrations in the
markets indicate. Secondly, the somewhat surprising (at least to
the pollsters), Conservative win at the United Kingdom General
Election, has resulted in an uncertainty-stimulating European Union
referendum. In addition, the reduction of the still remaining,
substantial, United Kingdom budget deficit, is being re-addressed
in the context of a new fixed five year political cycle.
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 long-term global GDP growth at around 3.0-3.5% real and
3.5-4.0% nominal, combined with these levels of geopolitical
uncertainty; and with low inflation or fears of deflation resulting
in limited pricing power; and 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. If
you are trying to run a legacy business, at one end of the spectrum
you have the disrupters like Uber and Airbnb and at the other end
you have the cost-focused models like 3G in fast moving consumer
goods, and Valeant and Endo in pharmaceuticals, whilst in the
middle, hovering above you, you have the activists led by such as
Nelson Peltz, Bill Ackman and Dan Loeb, emphasising short-term
performance. Not surprising then, that corporate leaders tend to be
risk averse. Procurement and finance take the lead over marketing
and investment and suppliers are encouraged to play the additional
roles of banks and/or insurance companies. 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. We
see little reason, if any, for this pattern of behaviour to change
in the last quarter of 2015 or 2016, with continued caution being
the watchword. There is certainly no evidence to suggest any such
change in behaviour so far in 2015, although one or two
institutional investors, including BlackRock and Legal &
General and the United Kingdom Government itself, are saying that
they are tiring of some companies’ total focus on short-term cost
cutting and would favour strategies based more on the long-term and
top line growth and the end to quarterly reporting. In addition, a
group focusing on the importance of long-term growth and investment
is being led by Dow Chemicals and McKinsey among others.
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 route than investing in marketing and brand and hence
growing market share, particularly as equity valuations have been,
at least until recently, strong. The recent, record, spike in
merger and acquisition activity may be driven more by companies
running out of cost-reduction opportunities and trying to find new
ones, rather than trying to find revenue growth opportunities or
synergies.
It is early in our 2016 three year planning and budget cycles
but at this point in time the pattern for next year looks very
similar to 2015, but with a boost from maxi-quadrennial events,
like the visually stunning Rio Olympics and Paralympics, the less
visually stunning United States Presidential Election and the UEFA
EURO 2016 Football Championships. Historically, these events have
boosted advertising and marketing services investment by around 1%.
Forecasts of worldwide real GDP growth for 2016 still hover around
3.0-3.5% and nominal GDP growth of around 3.5-4.0%. 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-advertised faster
growing markets.
Financial targets
For 2015, reflecting the first nine months performance, our
targets remain:
- Like-for-like net sales growth of over
3.0%, despite a worldwide softening in the GDP growth rate
- Target operating margin to net sales
improvement of 0.3 margin points on a constant currency basis
In the final months of 2015, our prime focus will remain 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 technology, creativity, effectiveness and
horizontality. At the same time, we will concentrate on meeting our
operating margin objectives by managing absolute levels of costs
and increasing our flexibility in order to adapt our cost structure
to significant market changes and by ensuring that the benefits of
the restructuring investments taken in 2014 continue to be
realised. The initiatives taken by the parent company in the areas
of human resources, property, procurement, information technology
and practice development continue to improve the flexibility of the
Group’s cost base. Flexible staff costs (including incentives,
freelance and consultants) remain close to historical highs of
around 7% of revenue and net sales and continue to position the
Group extremely well should current market conditions
deteriorate.
The Group continues to improve co-operation and co-ordination
among its operating companies in order to add value to our clients’
businesses and our people’s careers, an objective which has been
specifically built into short-term incentive plans. We have, in
addition, decided that an even more significant proportion,
one-third, of operating company incentive pools are funded and
allocated on the basis of Group-wide performance in 2015. This may
be increased to one-half in 2016. Horizontality has been
accelerated through the appointment of 45 global client leaders for
our major clients, accounting for approaching one third of total
revenue of almost $19 billion and 17 country and regional managers
in a growing number of test markets and sub-regions, amounting to
about half of the 112 countries in which we operate. Emphasis has
been laid on knowledge-sharing in the areas of media investment
management, healthcare, sustainability, government, new
technologies, new markets, retailing, shopper marketing, internal
communications, financial services and media, sport and
entertainment.
The Group continues to lead the industry, in co-ordinating
investment geographically and functionally through parent company
initiatives and winning Group pitches. For example, the Group has
been very successful in the recent wave of consolidation in the
fast-moving consumer goods, travel and pharmaceutical industries
and in shopper marketing and the resulting "team" pitches. Whilst
talent and creativity (in its broadest sense) remain the key
potential differentiators between us and our competitors,
increasingly differentiation can also be achieved in three
additional ways – through application of technology, for example,
Xaxis and AppNexus; through integration of data investment
management, for example, Kantar and Rentrak and comScore, which
pleasingly have now decided to combine; and lastly investment in
content, for example, Imagina, Vice, Refinery 29, Truffle Pig,
Media Rights Capital, Fullscreen, Indigenous Media, China Media
Capital, Chime and Bruin.
Our business remains geographically and functionally well
positioned to compete successfully and to deliver on our long-term
targets:
- Revenue and net sales growth greater
than the industry average
- Improvement in net sales margin of 0.3
margin points or more, excluding the impact of currency, depending
on net sales growth and staff cost to net sales ratio improvement
of 0.2 margin points or more
- Annual headline diluted EPS growth of
10% to 15% p.a. delivered through revenue growth, margin expansion,
acquisitions and share buy-backs
We will be holding an Investor Briefing on 18 November in London
to provide a more detailed update on businesses in China and recent
trends in media investment management, two areas that investors
seem particularly interested in at the moment. The meeting will be
chaired by WPP CEO, Sir Martin Sorrell, with presentations from
several key senior managers in the business. There will be a live
webex of that meeting. Further details will be posted on our
website in due course.
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.
1 Percentage change at constant currency exchange rates2
Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals3 Percentage
change at constant currency exchange rates4 Like-for-like growth at
constant currency exchange rates and excluding the effects of
acquisitions and disposals5 Asia Pacific, Latin America, Africa
& Middle East and Central & Eastern Europe6 Percentage
change at constant currency exchange rates7 Like-for-like growth at
constant currency exchange rates and excluding the effects of
acquisitions and disposals8 Advertising, Media Investment
Management9 Public Relations & Public Affairs10 Branding and
Identity, Healthcare and Specialist Communications (including
direct, digital and interactive)
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151026005576/en/
WPPSir Martin Sorrell, Paul Richardson, Chris Sweetland, Feona
McEwan, Chris Wade+44 20 7408 2204orKevin McCormack, Fran Butera+1
212-632-2235orBelinda Rabano+86 1360 1078
488www.wppinvestor.com
WPP (NYSE:WPP)
Historical Stock Chart
From Aug 2024 to Sep 2024
WPP (NYSE:WPP)
Historical Stock Chart
From Sep 2023 to Sep 2024