Australia ‘below average’ as WPP profits ‘ravaged’ by strong pound
WPP, the owner of Grey, George Patterson Y&R, GroupM and J. Walter Thompson, reported a small increase in pre-tax profit because of the strength of the British pound, but saw “strong growth” in net sales growth of 7.5 per cent in Asia Pacific for the second quarter of this year.
In the company’s Q2 earnings report to shareholders, WPP described its three per cent fall in billings – to £22.060 billion ($39.2 billion) – as having been “ravaged” by the strength of the British currency, although in constant currency billings were up 5.7 per cent.
Australia was one of 14 markets banded in the below average net sales growth bracket with an increase of less than 5 per cent coming this year.
WPP reported a 1.5 per cent increase rise in pre-tax profit, to £532m ($882 million), but without currency adjustments profits were up 15.6 per cent.
The ‘BRICs’ and ‘Next 11′ – two words used often by WPP boss Sir Martin Sorrell to described high-growth markets – delivered “strong growth” from Asia Pacific. Net sales growth was up 7.5 per cent for the second quarter, compared with 3.2 in the previous quarter.
The improvement in APAC has been driven by gains in media investment management, data investment management and the firm’s direct, digital and interactive operations in Greater China, India and Pakistan, the company said.
WPP did express caution about the impact of global events, described as “grey swans”, including unrest between Russia, which was described as performing “strongly” and Ukraine, which is experiencing “continued softness”, and ongoing trouble in the Middle East.
However the company warned clients were continuing to enhance revenues by cutting costs rather than investing in marketing, adding: “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 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.”
The highlights from the report, as indicated by WPP:
- Reported revenues up 2.7% at £5.469 billion in sterling, up 11.3% at $9.135 billion in dollars and up 6.5% at €6.663 billion in euros
- Constant currency revenues up 11.3%, like-for-like revenues up 8.7%
- Constant currency net sales up 6.4%, like-for-like net sales up 4.1%
- Reported billings down 3.0% at £22.060 billion ravaged by sterling strength, but up 5.7% in constant currency
- Reported net sales margin of 13.0%, flat with last year, up 0.3 margin points on a constant currency basis and up 0.3 margin points like-for-like in line with the full year margin target
- Headline reported profit before interest and tax £622 million, down 2.4%, but up 9.0% in constant currency
- Headline profit before tax £532 million up 1.5%, up 15.6% in constant currency
- Profit before tax £491 million up 15.0%, up 33.7% in constant currency
- Reported profit after tax £396 million up 25.6%, up 47.9% in constant currency
- Headline diluted earnings per share 29.2p up 2.8%, up 17.1% in constant currency
- Reported diluted earnings per share 27.0p up 25.6%, up 47.7% in constant currency
- Dividends per share 11.62p up 10%, a pay-out ratio of 40% versus 37% last year
- Share buy-backs upped significantly in line with target to £390 million in the first half, up from £133 million last year, equivalent to 2.3% of the issued share capital against 1.0% last year
- Targeted dividend pay-out ratio of 45% likely to be achieved this year well ahead of schedule
- Including all associates and investments, revenues total over $24 billion annually and people average over 179,000
The report can be read in full here.
Robin Hicks
The analyst presentation reveals some key points not covered above
– Place greater emphasis on awards
– Australia was below average in terms of growth and the only WPP region to experience negative net sales growth
– Australia to get ‘Shared Service Centres’ to improve operating margins.
http://www.wpp.com/~/media/fil....._aug14.pdf
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Interesting that WPP are concerned that clients are cutting costs rather than investing in marketing. You only have to talk to a WPP employee for 5 mins before they start to whinge about cost cutting, no pay increases, hiring freezes etc
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