A robust 2011 for WPP; records highest ever revenue

WPP announced its 2011 preliminary results, which show a robust year for the company driven by various factors including growth in all regions and business sectors, characterised by particularly strong growth geographically in Asia Pacific and Latin America and functionally in advertising, media investment management and direct, digital and interactive.

The Group has recorded billings of almost £45 billion in 2011. The revenues and profit before tax (PBT) of over £10 billion and £1 billion are the highest ever for WPP. The operating margin of 14.3% equals pre­Lehman proforma high. The Dividends per share increased by over 38 per cent and were at 24.60p.

WPP’s Key Highlights of 2011

The key highlights of the year show that WPP billings increased by 4.9 % to £44.792bn, driven by net new billings of £3.225bn. There was a revenue growth of 7.4%, with like-for-like growth of 5.3%, 3.1% growth from acquisitions and -1.0% from currency.

The Like-for-like gross margin growth was ahead of revenue growth by 0.6 percentage points at 5.9%, which was very close to first quarter 2011 revenue forecast. The Headline EBITDA growth was of 14 % giving 1 margin point improvement with direct costs (+2%) and operating costs (+6%) rising more slowly than revenues. The Headline PBIT increase was of 16.3% with PBIT margin rising by 1.1 point to equal historic proforma high of 14.3%

The gross margins, a more accurate competitive comparator, was up 1.1 margin points to 15.5%. The Headline diluted EPS up 19.4% and reported diluted EPS up 40.5%, with 45.0% higher second interim ordinary dividend of 17.14 p and full year dividends of 24.60 p per share up 38.3%. The average net debt reduction was of £193m (-6%) generation to £2.811bn reflecting strong cash flow.

WPP has also noted its performance at the Cannes Lion International Festival of Creativity as a key highlight of the year, where the agency was awarded Holding Company of the Year for creative excellence.

Billings and Revenue Growth

Billings were up 4.9% at £44.792 billion. Estimated net new business billings of £3.225 billion ($5.160 billion) were won in the year, up over 7% on last year, placing the Group first or second in all leading net new business tables. The Group continues to benefit from consolidation trends in the industry, winning assignments from existing and new clients. These wins continued into the second half of the year with several very large industry-leading advertising, digital and media assignments, the full benefit of which was seen in Group revenues in late 2011 and will continue in 2012.

Reportable revenue was up 7.4% at £10.022 billion, the first time the Group has exceeded £10 billion. Revenue on a constant currency basis was up 8.4% compared with last year, changes in exchange rates chiefly reflecting the strength of the pound sterling primarily against the US dollar.

On a like-for-like basis, which excludes the impact of currency and acquisitions, revenues were up 5.3%, with gross margin up 5.9% or 0.6 percentage points higher. In the fourth quarter, like-for-like revenues were up 4.5%, down slightly on the third quarter, primarily due to stronger comparatives. Over the last two years, on a combined basis, there has been a sequential improvement in like-for-like quarterly revenue growth, with 6.7% for the first quarter, 10.3% in the second, 12.2% for the third and 13.1% for the fourth.

This two year combined sequential quarterly growth continues to reflect increased client advertising and promotional spending – with the former tending to grow faster than the latter, which from our point of view is more positive – across most of the Group’s major geographic markets and functional sectors despite tougher comparatives. Nonetheless, clients understandably continue to demand increased effectiveness and efficiency, i.e. better value for money.

Operating profitability

Headline EBITDA was up 14.0% to £1.640 billion from £1.439 billion and up 15.0% in constant currencies. Group revenues are more weighted to the second half of the year across all regions and functions and particularly in the faster growing markets of Asia Pacific and Latin America. As a result, the Group’s profitability continues to be skewed to the second half of the year. Headline operating profit for 2011 was up 16.3% to £1.429 billion from £1.229 billion and up 17.3% in constant currencies.

Headline operating margins were up 1.1 margin points to 14.3% compared to 13.2% in 2010, equal to the proforma high pre-Lehman and well ahead of the Group’s original target of 0.5 margin points and revised target of at least 0.7 margin points. On a like-for-like basis operating margins were also up 1.1 margin points. Headline gross margin margins were up 1.1 margin points to 15.5%, close to the highest reported levels in the industry.

Region Wise Growth

North America continued to show good growth throughout the year, with constant currency revenues up 6.3%. The United Kingdom, against market trends, showed even stronger growth, with constant currency revenues up almost 9% and gross margin even stronger up almost 11%, accelerating in the second half.

Western Continental Europe, although relatively more difficult, grew constant currency revenues by over 6%, partially reflecting acquisition activity. Austria, Germany, Switzerland and Turkey all showed strong like-for-like growth for the year, but France and especially Greece, Portugal and Spain remained affected by the Eurozone debt crisis.

In Asia Pacific, Latin America, Africa & the Middle East and Central and Eastern Europe, revenue growth was strongest, up well over 12%, principally driven by Latin America and the BRICs and Next 11 parts of Asia Pacific and the CIVETS and the MIST. Like-for-like growth was up well over 10%.

Growth in the BRICs, which account for almost $2 billion of revenue, was over 17%, on a like-for-like basis, with Next 11 and CIVETS up 13% and well over 9% respectively on the same basis. The MIST was up almost 14%.

In 2011, over 29% of the Group’s revenues came from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe – over 1.0 percentage point more compared with the previous year and against the Group’s strategic objective of 35-40% in the next three to four years.

 

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