- Third quarter reported revenues up 3.1% at £2.763 billion, up 10.8%
at $4.609 billion in dollars and up 10.9% at €3.482 billion in euros
- Third quarter constant currency revenues up 10.6%, like-for-like
revenues up 7.6%
- Third quarter constant currency net sales up 6.1%, like-for-like
net sales up 3.0%
- Nine months reported revenues up 2.8% at £8.232 billion, up 11.1%
at $13.744 billion in dollars and up 8.0% at €10.145 billion in euros
- Nine months constant currency revenues up 11.0%, like-for-like
revenues up 8.3%
- Nine months constant currency net sales up 6.3%, like-for-like net
sales up 3.8%
- Nine months operating margin up 0.4 margin points in constant
currency and targeted to be up 0.3 for full year in line with objective
- Average constant currency net debt down by £126 million for the
first nine months of 2014 to £2.935 billion
- Net new business of £3.592 billion in first nine months giving
leadership in new business league tables as for the last two and three
quarter years
- Share buy-backs of £499 million in the first nine months up
significantly from £134 million last year and already at the full year
target of 3.0% of the issued share capital against 1.4% for the whole
of last year
Company Website:
http://www.wpp.com/wpp/
NEW YORK & LONDON -- (Business Wire)
WPP (NASDAQ: WPPGY) today reported its 2014 Third Quarter Trading Update.
Revenue analysis* |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
|
£ million
| | 2014 | |
∆ reported
| |
∆ constant1 | |
∆ LFL2 | |
Acquisitions
| | 2013 |
First half | |
5,469
| |
2.7%
| |
11.3%
| |
8.7%
| |
2.6%
| |
5,327
|
Third quarter | |
2,763
| |
3.1%
| |
10.6%
| |
7.6%
| |
3.0%
| |
2,680
|
First nine months | |
8,232
| |
2.8%
| |
11.0%
| |
8.3%
| |
2.7%
| |
8,007
|
Net Sales analysis* |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
|
£ million
| | 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
Acquisitions
| | 2013 |
First half | |
4,792
| |
-1.9%
| |
6.4%
| |
4.1%
| |
2.3%
| |
4,884
|
Third quarter | |
2,418
| |
-1.2%
| |
6.1%
| |
3.0%
| |
3.1%
| |
2,447
|
First nine months | |
7,210
| |
-1.7%
| |
6.3%
| |
3.8%
| |
2.5%
| |
7,331
|
* Disclosure of revenue and net sales figures necessary to more
accurately show underlying trends, given the significant increase in
both on-line media buying as principal, together with pass-through costs
for data investment management
Quarter 3 and first nine months highlights
- Reported quarter 3 revenue growth of 3.1%, with constant
currency growth of 10.6%, 3.0% growth from acquisitions and -7.5% from
currency. The latter reflects the continuing strength of the pound
sterling against the US dollar, Euro and many currencies in the faster
growth markets, as seen in the final quarter of 2013 and the first
half of this year.
- Reported quarter 3 net sales down 1.2% in sterling, but up 6.2%
in dollars and 6.3% in euros, with like-for-like growth of 3.0%, 3.1%
growth from acquisitions and -7.3% 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 and 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 3.0%, compared
to 4.1% for the first half, with the gap compared to revenue growth
similar to the first half, as the scale of digital media purchases in
media investment management and data investment management revenues
continued
- Operating profits and operating margins in the first nine
months in line with target (including a more than target constant
currency operating margin improvement of 0.4 margin points) and ahead
of last year
- Average net debt for the first nine months decreased by £126m
(4%) to £2.935 billion compared to last year, at 2014 constant rates,
continuing to reflect an improvement in working capital, the benefit
of converting the £450 million Convertible Bond, offset by higher
acquisition spending and higher share buy-backs
- Net new business of $1.658 billion in the third quarter and
$5.747 billion in the first nine months, again ranking first in net
new business tables, as has been the case for the last two and three
quarter years. This new business success has accelerated into the last
quarter, with a particularly strong recent surge of half-a-dozen or so
new business wins across the globe, amounting to approximately more
than an additional $1 billion in billings
Current trading and outlook
- FY 2014 quarter 3 preliminary revised forecast | Some softening
in preliminary quarter 3 forecast like-for-like revenue and net sales
growth from the quarter 2 revised forecast, but net sales growth
target of over 3% maintained. Headline net sales operating margin
target improvement, as previously, of 0.3 margin points in constant
currency
- Dual focus in 2014 | 1. Stronger than competitor revenue and
net sales growth 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 net sales growth with
headcount increases and improvement in staff costs/net sales ratio to
enhance operating margins
- Long-term targets reaffirmed | Above industry revenue and net
sales growth due to geographically superior position in new markets
and functional strength in new media and data investment management,
including data analytics and the application of new technology;
improvement in staff cost/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 excluding the impact of currency; and headline diluted
EPS growth of 10% to 15% p.a. from net sales growth, margin expansion,
strategically targeted small and medium-sized acquisitions and share
buy-backs
Review of quarter three and first nine months
Revenues
As shown in the table below, in the third quarter of 2014, reported
revenues were up 3.1% at £2.763 billion. Revenues in constant currency
were up 10.6% compared with last year, the difference to the reportable
number reflecting the continuing strength of the pound sterling against
the US dollar, the euro and many currencies in the faster growth
markets, but with some easing, principally against the US dollar in the
last two months, mostly reflecting the uncertainties that surrounded the
Scottish referendum. On a like-for-like basis, excluding the impact of
acquisitions and currency fluctuations, revenues were up 7.6%.
Like-for-like revenue growth in the third quarter showed some slackening
in North America and the United Kingdom, partly offset by a significant
increase in Western Continental Europe, with Asia Pacific, Latin
America, Africa & the Middle East and Central and Eastern Europe similar
to the first half. Functionally, as in the first half, advertising and
media investment management showed the strongest like-for-like growth,
with media investment management particularly stronger than in the first
half in Western Continental Europe and Africa & the Middle East and data
investment management, public relations and public affairs and branding
and identity, healthcare and specialist communications (including
direct, digital and interactive) slower.
In the first nine months, reported revenues were up 2.8% at £8.232
billion. Revenues in constant currency were up 11.0%, the difference to
the reportable number reflecting the continuing strength of the pound
sterling against the US dollar, the euro and many currencies in the
faster growth markets, but at a lower relative level than the first half.
On a like-for-like basis, excluding the impact of acquisitions and
currency fluctuations, revenues were up 8.3% compared with the same
period last year, with net sales up 3.8%, with the difference compared
to revenue growth similar to the first half.
A preliminary look at our quarter three revised forecasts indicates full
year net sales growth forecast somewhat softer than the quarter two
revised forecasts at over 3.0%, with quarter four slower than the first
nine months, although this tends to reflect the conservative cadence of
our forecasting.
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 2014, as well as
the proportion of Group revenues and net sales by region;
Revenue analysis – Third Quarter |
| |
| |
| |
| |
| |
|
| |
| | | | | | | | | | | |
£ million
| | 2014 | |
∆ reported
| |
∆ constant3 | |
∆ LFL4 | |
% group
| | 2013 | |
% group
|
N. America
| |
945
| |
-0.3%
| |
7.5%
| |
7.8%
| |
34.2%
| |
948
| |
35.4%
|
United Kingdom
| |
404
| |
14.9%
| |
14.9%
| |
10.2%
| |
14.6%
| |
352
| |
13.1%
|
W. Cont Europe
| |
574
| |
-2.5%
| |
5.3%
| |
4.3%
| |
20.8%
| |
589
| |
22.0%
|
AP, LA, AME, CEE5 | |
840
| |
6.2%
| |
16.4%
| |
8.5%
| |
30.4%
| |
791
| |
29.5%
|
Total Group | | 2,763 | | 3.1% | | 10.6% | | 7.6% | | 100.0% | | 2,680 | | 100.0% |
Revenue analysis – First Nine Months |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
£ million
| 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
% group
| | 2013 | |
% group
|
N. America
|
2,823
| |
1.3%
| |
9.8%
| |
9.5%
| |
34.3%
| |
2,788
| |
34.8%
|
United Kingdom
|
1,188
| |
16.4%
| |
16.4%
| |
13.4%
| |
14.4%
| |
1,021
| |
12.7%
|
W. Cont Europe
|
1,818
| |
-1.6%
| |
4.1%
| |
3.2%
| |
22.1%
| |
1,847
| |
23.1%
|
AP, LA, AME, CEE
|
2,403
| |
2.2%
| |
15.7%
| |
8.7%
| |
29.2%
| |
2,351
| |
29.4%
|
Total Group | 8,232 | | 2.8% | | 11.0% | | 8.3% | | 100.0% | | 8,007 | | 100.0% |
Net Sales analysis – Third Quarter |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
£ million
| 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
% group
| | 2013 | |
% group
|
N. America
|
848
| |
-5.2%
| |
2.2%
| |
2.3%
| |
35.1%
| |
895
| |
36.6%
|
United Kingdom
|
345
| |
7.3%
| |
7.3%
| |
3.7%
| |
14.3%
| |
322
| |
13.2%
|
W. Cont Europe
|
480
| |
-4.7%
| |
2.9%
| |
1.5%
| |
19.8%
| |
503
| |
20.5%
|
AP, LA, AME, CEE
|
745
| |
2.5%
| |
12.6%
| |
4.4%
| |
30.8%
| |
727
| |
29.7%
|
Total Group | 2,418 | | -1.2% | | 6.1% | | 3.0% | | 100.0% | | 2,447 | | 100.0% |
Net Sales analysis – First Nine Months |
| |
| |
| |
| |
| |
| |
| | | | | | | | | |
£ million
| 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
% group
| | 2013 | |
% group
|
N. America
|
2,525
| |
-4.2%
| |
3.9%
| |
3.6%
| |
35.1%
| |
2,637
| |
36.0%
|
United Kingdom
|
1,011
| |
8.0%
| |
8.0%
| |
5.8%
| |
14.0%
| |
935
| |
12.8%
|
W. Cont Europe
|
1,532
| |
-3.8%
| |
1.8%
| |
0.9%
| |
21.2%
| |
1,592
| |
21.7%
|
AP, LA, AME, CEE
|
2,142
| |
-1.1%
| |
12.1%
| |
5.1%
| |
29.7%
| |
2,167
| |
29.5%
|
Total Group | 7,210 | | -1.7% | | 6.3% | | 3.8% | | 100.0% | | 7,331 | | 100.0% |
North America, with constant currency revenue growth of 7.5% and
like-for-like growth of 7.8% in the third quarter, was slower compared
with quarter two and the first half, with advertising and media
investment management, direct, digital and interactive and the Group’s
specialist communications businesses continuing to perform well.
TheUnited Kingdom, with constant currency revenue growth
of 14.9% and like-for-like growth of 10.2% in the third quarter, also
slowed slightly compared with the first half growth of over 15%, with
particularly strong growth in the Group’s media investment management
businesses. Like-for-like net sales growth was 3.7%.
Western Continental Europe, although remaining difficult, showed
improvement in the third quarter, with like-for-like revenue growth of
4.3% and net sales growth of 1.5%, compared to -0.3% in quarter two and
+0.6% for the first half. France, Germany and Turkey performed strongly,
but Austria, Belgium, Norway and Switzerland were tough.
Asia Pacific, Latin America, Africa & the Middle East and Central and
Eastern Europe, showed the strongest growth in the third quarter,
with constant currency net sales growth of 12.6% and like-for-like
growth of 4.4%. In Asia Pacific, all markets, except Japan, showed net
sales growth, with double digit growth in India, Indonesia, Malaysia,
Philippines and Vietnam.
In the first nine months of 2014, 29.7% of the Group’s net sales came
from Asia Pacific, Latin America, Africa & the Middle East and Central
and Eastern Europe, an increase over the first half figure of 29.1% and
against the Group’s revised strategic objective of 40%-45% over the next
five years. Due to 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.
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 2014, as well as
the proportion of Group revenues and net sales for the third quarter and
first nine months by those sectors;
Revenue analysis – Third Quarter |
| |
| |
| |
| |
| |
|
| |
| | | | | | | | | | | |
£ million
| | 2014 | |
∆ reported
| |
∆ constant6 | |
∆ LFL7 | |
% group
| | 2013 | |
% group
|
AMIM8 | |
1,214
| |
11.7%
| |
20.1%
| |
17.1%
| |
43.9%
| |
1,087
| |
40.6%
|
Data Inv. Mgt.
| |
588
| |
-4.7%
| |
2.2%
| |
0.5%
| |
21.3%
| |
617
| |
23.0%
|
PR & PA9 | |
214
| |
-6.4%
| |
0.3%
| |
0.1%
| |
7.8%
| |
229
| |
8.5%
|
BI, HC & SC10 | |
747
| |
-0.1%
| |
6.8%
| |
2.0%
| |
27.0%
| |
747
| |
27.9%
|
Total Group | | 2,763 | | 3.1% | | 10.6% | | 7.6% | | 100.0% | | 2,680 | | 100.0% |
Revenue analysis – First Nine Months |
| |
| |
| |
| |
| |
|
| |
| | | | | | | | | | | |
£ million
| | 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
% group
| | 2013 | |
% group
|
AMIM
| |
3,604
| |
9.9%
| |
19.3%
| |
16.7%
| |
43.8%
| |
3,279
| |
40.9%
|
Data Inv. Mgt.
| |
1,765
| |
-4.9%
| |
2.4%
| |
1.4%
| |
21.4%
| |
1,855
| |
23.2%
|
PR & PA
| |
650
| |
-5.4%
| |
1.9%
| |
1.6%
| |
7.9%
| |
687
| |
8.6%
|
BI, HC & SC
| |
2,213
| |
1.2%
| |
8.8%
| |
3.9%
| |
26.9%
| |
2,186
| |
27.3%
|
Total Group | | 8,232 | | 2.8% | | 11.0% | | 8.3% | | 100.0% | | 8,007 | | 100.0% |
Net Sales analysis – Third Quarter |
| |
| |
| |
| |
| |
|
| |
| | | | | | | | | | | |
£ million
| | 2014 | |
∆ reported
| |
∆ constant
| |
∆ LFL
| |
% group
| | 2013 | |
% group
|
AMIM
| |
1,064
| |
0.6%
| |
8.3%
| |
5.5%
| |
44.0%
| |
1,058
| |
43.3%
|
Data Inv. Mgt.
| |
424
| |
-4.4%
| |
2.4%
| |
1.2%
| |
17.5%
| |
444
| |
18.1%
|
PR & PA
| |
212
| |
-6.4%
| |
0.3%
| |
0.1%
| |
8.8%
| |
226
| |
9.2%
|
BI, HC & SC
| |
718
| |
-0.2%
| |
6.8%
| |
1.4%
| |
29.7%
| |
719
| |
29.4%
|
Total Group | | 2,418 | | -1.2% | | 6.1% | | 3.0% | | 100.0% | | 2,447 | | 100.0% |
Net Sales analysis – First Nine Months
£ million
|
| 2014 |
|
∆ reported
|
|
∆ constant
|
|
∆ LFL
|
|
% group
|
| 2013 |
|
% group
|
AMIM
| |
3,182
| |
-0.6%
| |
8.0%
| |
5.8%
| |
44.1%
| |
3,203
| |
43.7%
|
Data Inv. Mgt.
| |
1,267
| |
-5.7%
| |
1.5%
| |
1.2%
| |
17.6%
| |
1,343
| |
18.3%
|
PR & PA
| |
642
| |
-5.2%
| |
2.2%
| |
1.8%
| |
8.9%
| |
677
| |
9.2%
|
BI, HC & SC
| |
2,119
| |
0.5%
| |
8.2%
| |
2.9%
| |
29.4%
| |
2,108
| |
28.8%
|
Total Group | | 7,210 | | -1.7% | | 6.3% | | 3.8% | | 100.0% | | 7,331 | | 100.0% |
In the first nine months of 2014, almost 36% of the Group’s revenues
came from direct, digital and interactive, up 100 basis points from the
previous year. Digital revenues across the Group were up strongly,
almost 11% like-for-like.
Advertising and Media Investment Management
In constant currencies, advertising and media investment management
revenues grew by 20.1% in the third quarter, with like-for-like growth
of 17.1%, still the strongest performing sector and significantly
stronger than the first half. Constant currency net sales growth was
8.3% with like-for-like growth of 5.5%, the strongest performing sector.
North America, the United Kingdom and Africa & the Middle East were well
above the Group average, with Asia Pacific and Latin America slower.
The Group gained a total of £1.036 billion ($1.658 billion) in net new
business billings (including all losses) in the third quarter. Of this,
Ogilvy & Mather, J. Walter Thompson Company (celebrating its 150th
Anniversary year with a return to its original name), Y&R and Grey
generated net new business billings of £173 million ($277 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 £669 million ($1.070
billion) out of the Group’s total. As in the first half, the Group ranks
first in net new business tables, as it has done for the last two and
three quarter years. Net new business billings won in the first nine
months were £3.592 billion ($5.747 billion). The surge of net new
business wins announced in quarter four already amounts to over $1.0
billion.
Data Investment Management
On a constant currency basis, data investment management revenues grew
2.2%, with like-for-like revenues up 0.5% in the third quarter. On the
same basis constant currency net sales were up 2.4% with like-for-like
growth of 1.2%, the same as the first half. Continental Europe, Asia
Pacific, Latin America, Africa & the Middle East net sales grew well
above the average, with North America and the United Kingdom slower.
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 revenues and
net sales were up 0.3% in the third quarter and up 0.1% like-for-like, a
slower rate of growth than the first half. All regions, except
Continental Europe showed positive net sales growth in the third
quarter, with Belgium, Finland, Germany and Norway challenging. In the
third quarter and the first nine months both saw particularly strong
growth in content development in the USA through SJR.
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 revenues grew strongly at 6.8%, with like-for-like
growth of 2.0%, in the third quarter. Net sales were up 1.4%
like-for-like. The Group’s direct, digital and interactive and
specialist communications businesses grew above the Group average, with
branding and identity and healthcare more challenged.
Operating profitability
In the first nine months, constant currency profits and operating
margins were ahead of target and last year, despite severance costs in
the first nine months rising significantly compared to the same period
in 2013.
We are in the process of reviewing our quarter three revised forecasts,
but early indications are that revenues and net sales in the final
quarter of the year will show lower growth than the first nine months,
with an improvement in Asia Pacific and Africa & the Middle East, offset
by a slower North America, Continental Europe and Latin America.
Functionally, advertising, public relations and public affairs, branding
and identity and the Group’s specialist communications businesses are
forecast to be slower. However, the historical bases of our previous
quarter three revised forecasts have usually been conservative.
The population of the Group, on a proforma basis, excluding associates,
was up 0.7% to 122,586 at 30 September 2014, as compared to 30 September
2013, against an increase in revenues on the same basis of 8.3% and net
sales of 3.8%. Similarly, the average population of the Group in the
first nine months of this year was up 1.4% to 120,828, compared to
119,194 for the same period last year. Since the beginning of this year,
the population of the Group on a proforma basis has increased by 0.7%
from 121,769 to 122,586, a lower figure than budget, reflecting
continued caution by the Group’s operating companies in hiring.
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 2014, the Group’s free cash flow was £1.5
billion. Over the same period, the Group’s capital expenditure,
acquisitions, share repurchases and dividends were £1.6 billion.
The Group’s strong cash flow continues to justify the decision by the
Board in mid-2013 to target an increase in the dividend pay-out ratio to
45% over the two years 2014 and 2015. The interim dividend was increased
by 10% in the first half, giving a pay-out ratio of 40% versus 37% for
the same period in 2013, and it seems likely that the 45% target pay-out
ratio will be reached one year early. In the first nine months of 2014,
40.1 million shares, or 3.0% of the issued share capital, were purchased
at a cost of £499 million and an average price of £12.45 per share,
compared with 1.4% of the issued share capital for the whole of last
year.
Average net debt in the first nine months of 2014 was £2.935 billion,
compared to £3.061billion in 2013, at 2014 exchange rates. This
represents a decrease of £126 million, continuing to reflect
improvements in the levels of working capital in the second half of 2013
and also the benefit of converting the £450 million Convertible Bond in
mid-2013. Net debt at 30 September 2014 was £3.315 billion, compared to
£2.850 billion in 2013 (at 2014 exchange rates), an increase of £465
million. The increased period end net debt figure reflects significant
incremental net acquisition spend of £155 million and incremental share
re-purchases of £365 million, more than offsetting the improvements in
net working capital at the period end.
In September the Group issued two medium-term bonds in Euros and US
dollars, totalling the equivalent of over £1.0 billion to take advantage
of current low interest rates. Not only does this secure future funding,
but reduces interest charges further.
Acquisitions
In line with the Group’s strategic focus on new markets, new media and
data investment management, the Group completed 55 transactions in the
first nine months; 31 acquisitions and investments were in new markets
and 44 in quantitative and digital. Of these, 20 were in both new
markets and quantitative and digital.
Specifically, in the first nine months of 2014, acquisitions and equity
stakes have been completed in advertising and media investment
management in Canada, the United States, the United Kingdom, France,
the Netherlands, Poland, Russia, Turkey, the Middle East, South Africa,
Peru, Australia, China, India and Vietnam; in data investment
management in the United Kingdom, Italy, the Netherlands, Romania,
Spain, the Kingdom of Saudi Arabia and the United Arab Emirates; in
public relations and public affairs in China; in direct, digital
and interactive in the United States, the United Kingdom, China and
Vietnam. In quarter four, 4 further transactions have been announced in
October in data investment management in the United States and France
and in healthcare in the United States.
More generally, two important technology partnerships should be
highlighted, which underline one of the Group’s strategic objectives of
applying technology to enhance clients’ marketing effectiveness.
Firstly, in September with AppNexus, to strengthen the technology
backbone of Xaxis. Secondly, in October, a similarly structured
partnership with Rentrak to develop new techniques for off-line and
digital television and film audience measurement. In both cases the
Group contributed technology assets and invested cash for significant
minority interests. This approach enables the Group to effectively
leverage its existing technology assets.
Outlook
Macroeconomic and industry context
Third quarter like-for-like revenue and net sales growth slowed slightly
in comparison with the first and second quarters of the year, mainly due
to tougher comparatives. In 2013, like-for-like revenue growth was over
200 basis points or over 2 percentage points greater in the second half
than the first half.
Before and during the third quarter geopolitical risks continued to
multiply. There certainly are a lot of swans about – both black and
grey. Whilst one United Kingdom or Scottish grey swan (known unknowns)
may have disappeared, at least for the moment, that has been replaced by
the black swans (unknown unknowns) of Ebola and Hong Kong. Concerns
still remain globally over four other grey swans, with perhaps five now
in the case of the United Kingdom. They include the continuing fragility
and lack of growth in the Eurozone, for example, with the recently
disappointing GDP growth, or lack of growth from Italy and France and
subsequent initiation of quantitative easing by the European Central
Bank; the prospects for the Middle East, now considerably worse than a
year ago; a Chinese or BRICs hard or soft landing, with most, if not all
suffering a slowdown in 2013, and which continued into the first nine
months of 2014; and, probably still most importantly, dealing with the
US deficit and a record $18 trillion of debt, together with tapering,
which has just commenced, in the most effective way. In addition,
although more parochially, the political decision in the United Kingdom
on Britain’s membership of the European Union, still adds further
uncertainty to the United Kingdom economy.
Recently, all these concerns have been heightened by the emergence of
three, again largely geopolitical, black swans (unknown unknowns).
First, during the World Economic Forum last January, the re-emergence of
Sino/Japanese tensions over the Diaoyu/Senkaku Islands; secondly, the
crisis in the Ukraine and the consequential Russian sanctions; and,
thirdly, the most recent terrible conflicts in Iraq, Gaza and the rise
of Isis.
All in all, whilst clients may be more confident than they were in
September 2008, they broadly remain unwilling to take further risks,
particularly given multiple geopolitical flash points. They remain
focussed on a strategy of adding capacity and brand building in both
fast growth geographic 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. In
addition, in a world still growing more slowly than before the Lehman
crisis in 2008, they understandably, but perhaps inadvisedly, remain
focussed, on achieving their profitability objectives by cutting costs,
rather than by growing the top-line. The recent surge of merger
and acquisition activity, although to some extent driven by tax
considerations, may reflect a concern that cost reduction opportunities
may be close to being exhausted and that growth by acquisition may need
to be tapped to release further cost efficiencies.
The overall pattern for 2014 looks very similar to 2013, perhaps with
slightly increased client confidence in the first half of the year,
enhanced by slightly stronger global GDP growth forecasts. These
forecasts reflected the mini-quadrennial events of the Winter Olympics
at Sochi, the FIFA World Cup in Brazil (which did position perceptions
of Brazil and Latin America, overall positively, just as the Beijing
Olympics did for China, the World Cup did for South Africa and London
2012 did for the United Kingdom) and the mid-term Congressional
elections in the United States. Forecasts of worldwide real GDP growth
still hover around 2.7%, with inflation of 2.0% giving nominal GDP
growth of around 4.7% for 2014, a percent or so increase on 2013,
although they have been reduced recently and may be reduced further in
due course. 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 and
advertising should grow at least at a similar rate as GDP, buoyed by
incremental branding investments in the under-branded faster growing
markets.
Although both consumers and corporates seem to be increasingly cautious
and risk averse, they 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 and for tax
inversion reasons, but we believe clients may ultimately regard this as
a more risky way than investing in marketing and brand and hence growing
market share, particularly given the variability or flexibility of
marketing spend – and, of course, following the United States clampdown
on tax inversion.
All in all, however, on a reportable basis, 2014 looks likely to be
another demanding year, as a strong United Kingdom pound and weak faster
growth market currencies continue to take their toll on our reported
results. But, if our financial targets are met, 2014 will be another
strong year, as the first half and nine months results demonstrate.
Current nominal worldwide GDP forecasts for 2015 indicate a similar
growth rate at around 5.0%. This suggests that 2015 should be another
reasonable year for our industry, despite the absence of any mini- or
maxi-quadrennial events and as we gear up for maxi-quadrennial 2016 and
a spectacular Rio 2016 Olympics, UEFA European Football Championship and
United States Presidential election.
In addition, it is particularly pleasing to report continuing progress
for the Group’s creative and effectiveness excellence with the award of
the Cannes Lion (the advertising industry’s Oscar), to WPP for the most
creative Holding Company for the fourth successive year since the
award’s inception and another to Ogilvy & Mather Worldwide for the third
consecutive year as the most creative agency network. In another rare
occurrence in our industry, Grey was named Global Agency of the Year
2013 by both US trade magazines Ad Age and Adweek. For the third
consecutive year, WPP was also awarded the EFFIE as the most effective
Holding Company.
Financial targets
For 2014, reflecting the first nine months performance, our targets
remain:
-
Like-for-like net sales growth of over 3.0%
-
Target operating margin to net sales improvement of 0.3 margin points
on a constant currency basis
In 2014, our prime focus continues to be growing revenues 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 and
horizontality. At the same time, we will concentrate on meeting our
operating margin objectives by managing absolute levels of costs and
increasing cost flexibility, in order to adapt our cost structure in
case of significant market changes. 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 6.5% of revenues or 7.5% of 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 a
significant proportion of operating company incentive pools will be
funded and allocated on the basis of Group-wide performance this year
and over the coming years. This will stimulate co-operative behaviour
even more. Horizontality has been accelerated through the appointment of
over 40 global client leaders for our major clients, accounting for over
one third of total revenues in 2013 of $17 billion and of 16 country and
sub-regional managers already covering 50 of 111 countries in a growing
number of test markets and sub-regions. Emphasis has been laid on the
areas of media investment management, healthcare, sustainability,
government, new technologies, new markets, retailing, sport, shopper
marketing, internal communications, financial services and media 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
pharmaceutical and shopper marketing industries and the resulting "team"
pitches and a number of others, which combined creative and media
assignments.
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% per annum delivered
through net sales growth, margin expansion, acquisitions and share
buy-backs
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 rates
| |
2 | |
Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
|
3 | |
Percentage change at constant currency exchange rates
| |
4 | |
Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
|
5 | |
Asia Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe
| |
6 | |
Percentage change at constant currency exchange rates
| |
7 | |
Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
|
8 | |
Advertising, Media Investment Management
| |
9 | |
Public Relations & Public Affairs
| |
10 | |
Branding and Identity, Healthcare and Specialist Communications
(including direct, digital and interactive)
| |
Contacts:
WPP
Sir Martin Sorrell / Paul Richardson / Chris Sweetland / Feona
McEwan / Chris Wade
+44 20 7408 2204
or
Kevin McCormack /
Fran Butera
212-632-2235
or
Belinda Rabano
+86 1360
1078 488
www.wppinvestor.com
Source: WPP
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