- The Company celebrated its thirtieth
birthday with another record year, despite strong currency
headwinds in the second half
- Reported billings up 3.1% at £47.632
billion, and up 4.9% in constant currency
- Reported revenue up 6.1% at £12.235
billion, down 1.4% at $18.693 billion, up 17.8% at €16.874 billion
and up 12.4% at ¥2.264 trillion
- Constant currency revenue up 7.5%,
like-for-like revenue up 5.3%
- Constant currency net sales up 5.8%,
like-for-like net sales up 3.3%
- Reported net sales margin of 16.9%,
up 0.2 margin points against last year, up 0.4 margin points on a
constant currency basis, ahead of the full year margin target of
0.3 margin points improvement in constant currency
- Headline profit before interest and
tax £1.774 billion, up 5.6% and up 8.7% in constant
currency
- Headline profit before tax £1.622
billion, up 7.3% and up 11.2% in constant currency
- Profit before tax £1.493 billion, up
2.8%, up 7.3% in constant currency
- Profit after tax £1.245 billion, up
8.1%, up 11.9% in constant currency
- Headline EBITDA £2.002 billion,
crossing £2 billion for the first time
- Headline diluted earnings per share
of 93.6p, up 10.2%, up 13.3% in constant currency
- Return on equity at 16.3% in 2015,
up 1.3 percentage points on 2014 versus a weighted average cost of
capital of 6.7% in 2015
- Dividends per share of 44.69p, up
17.0%, pay-out ratio of 47.7% versus 45.0% last year, effectively
one year ahead of the newly targeted dividend pay-out ratio of 50%
in 2017
- Net debt £3.211 billion at 31
December 2015, an increase of £936 million on same date in 2014,
with average net debt in 2015 at £3.562 billion against £3.073
billion in 2014
- Net new business of £5.557 billion
($8.613 billion) in the year with the Group first overall in new
business league tables for the fourth year in a row and GroupM
topping both the RECMA media tsunami net new business and
retentions tables
- Above budget start to 2016, with
January like-for-like revenue up 4.2% and net sales up 2.3%,
against strong comparative last year
- Including associates and
investments, revenue totals over $27 billion annually and people
average over 194,000
WPP (NASDAQ:WPPGY) today reported its 2015 Preliminary
Results.
Key figures
£ million
2015
∆ reported1
∆ constant2
2014 Billings 47,632
3.1% 4.9%
46,186 Revenue
12,235 6.1% 7.5%
11,529
Net sales 10,524 4.6%
5.8%
10,065
Headline EBITDA3
2,002 4.9% 7.7%
1,910
Headline PBIT4
1,774 5.6% 8.7%
1,681
Net sales margin5
16.9% 0.2* 0.4*
16.7% Profit before tax 1,493
2.8% 7.3%
1,452 Profit after tax
1,245 8.1% 11.9%
1,152
Headline diluted EPS6
93.6p 10.2% 13.3%
84.9p
Diluted EPS7
88.4p 9.8% 13.4%
80.5p Dividends per share 44.69p
17.0% 17.0%
38.20p
* Margin points
Full Year highlights
- Reported billings at £47.632
billion, up 4.9% in constant currency and up 4.0%
like-for-like, driven by a strong overall leadership position in
net new business league tables
- Revenue growth of 6.1%, with
like-for-like growth of 5.3%, 2.2% growth from acquisitions and
-1.4% from currency
- Like-for-like revenue growth in all
regions, led by strong growth in North America, and in all
sectors, except data investment management, with particularly
strong growth in advertising and media investment management and
branding and identity, healthcare and specialist communications
(including direct, digital and interactive)
- Like-for-like net sales growth at
3.3%, with the gap compared to revenue growth less than the
first half, as the proportionate scale of digital media purchases
in media investment management and data investment management
revenue decreased
- Headline EBITDA crossing £2 billion
for the first time, up 4.9%, and up 7.7% in constant currency,
reflecting currency headwinds and 19.0% net sales margin, slightly
up on last year, with like-for-like operating costs (+2.6%) rising
less than net sales
- Headline PBIT increase of 5.6%
to £1.774 billion, up 8.7% in constant currency
- Net sales margin, a more
accurate competitive comparator, up 0.2 margin points to an
industry leading 16.9%, up 0.4 margin points in constant currency,
ahead of the targeted constant currency increase of 0.3 margin
points
- Exceptional gains of £296
million, largely representing gains on the sale of certain
Kantar internet measurement businesses to comScore Inc., the sale
of the Group’s interests in e-Rewards and Chime Communications plc,
together with re-measurement gains of £165 million, primarily the
gain of £132 million in relation to the acquisition of a majority
stake in IBOPE in Latin America. These are partly offset by £106
million of restructuring costs, including £37 million of IT
transformation costs, investment write-downs of £79 million and by
£29 million of IT asset write-downs, resulting in a net exceptional
gain of £82 million
- Headline diluted EPS up 10.2%,
up 13.3% in constant currency and reported diluted EPS up 9.8%, up
13.4% in constant currency, reflecting strong like-for-like revenue
and net sales growth, margin improvement and acquisitions
- Final ordinary dividend of 28.78p up
8.3% and full year dividends of 44.69p per share up 17.0%
- Dividend pay-out ratio of 47.7%,
in 2015 versus 45.0% in 2014, and possibly to achieve the newly
targeted pay-out ratio of 50% in 2016, one year ahead of
schedule
- Return on equity8 up to 16.3%
in 2015, up 1.3 percentage points from 15.0% in 2014, versus a
weighted average cost of capital of 6.7% in 2015 and 6.1% in 2014.
During 2015 the value of the Group’s non-controlled investments
rose by £490 million, to £1.159 billion from £669 million,
primarily reflecting the increasing value of its content
businesses, chiefly Vice, and the partnership formed during the
year with comScore
- Average net debt up £489
million, at £3.562 billion compared to last year, at 2015
exchange rates, reflecting the significant incremental net
acquisition spend, share re-purchases and dividends of £361
million
- Creative and effectiveness
excellence recognised again in 2015 with the award of the
Cannes Lion to WPP for the most creative Holding Company, for the
fifth 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, in 2015 Grey was named Global Agency of the Year 2014 by
both US trade magazines Ad Age and Ad Week. For the third
consecutive year, WPP was awarded the EFFIE as the most effective
Holding Company and WARC’s most effective Holding Company for the
second year in a row
- Strategy implementation
accelerated in a pre- and post-POG (Publicis Omnicom Group)
world, as sector targets for fast growth markets and digital raised
from 35-40% to 40-45% over the next five years and horizontality
across clients, countries and regions raised to the number one
strategic priority
Current trading and outlook
- January 2016 | Like-for-like
revenue up 4.2% for the month, ahead of budget, with like-for-like
net sales, up 2.3%, also ahead of budget and against strong
comparatives
- FY 2016 budget | As in 2015,
like-for-like revenue growth of well over 3% and net sales growth
of over 3% and headline operating margin target improvement on net
sales of 0.3 margin points, excluding the impact of currency
- Dual focus in 2016 | 1. Revenue
growth from leading position in horizontality, faster growing
geographic markets and digital, premier parent company creative and
effectiveness position, new business and strategically targeted
acquisitions; 2. Continued emphasis on balancing revenue growth
with headcount increases and improvement in staff costs/net sales
ratio to enhance operating margins
- Long-term targets | Above
industry revenue growth, due to effective implementation of
horizontality, 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 costs/net sales margin ratio of 0.2 to 0.4
margin points p.a. depending on net sales growth; operating margin
expansion of 0.3 margin points or more on a constant currency
basis; and headline diluted EPS growth of 10% to 15% p.a. from
revenue growth, margin expansion, strategically targeted small- and
medium-sized acquisitions and share buy-backs
In this press release not all of the figures and ratios used are
readily available from the unaudited preliminary results included
in Appendix 1. Where required, details of how these have been
arrived at are shown in the Appendices.
Review of group results
Revenue
Revenue analysis
£ million
2015 ∆ reported
∆ constant9
∆ LFL10
Acquisitions
2014 First half
5,839 6.8% 6.4% 4.9% 1.5%
5,469 Second half 6,396
5.5% 8.4% 5.8% 2.6%
6,060
Full year 12,235 6.1%
7.5% 5.3% 2.2%
11,529
Net sales analysis
£ million
2015 ∆ reported
∆ constant ∆ LFL Acquisitions
2014
First half 5,041 5.2%
4.7% 2.3% 2.4%
4,792 Second half
5,483 4.0% 6.8% 4.1%
2.7%
5,273 Full year
10,524 4.6% 5.8% 3.3% 2.5%
10,065
Reported billings at £47.632 billion, up 4.9% in constant
currency. Estimated net new business billings of £5.557 billion
($8.613 billion) were won in the year, with the Group first overall
in net new business tables for the fourth year in a row. The Group
continues to benefit from consolidation trends in the industry,
winning assignments from existing and new clients, including
several very large industry-leading advertising, digital, media,
pharmaceutical and shopper marketing assignments, which partly
benefitted the latter half of 2015, but the full benefit of which
will be seen in Group revenue in 2016. The Group has been actively
engaged in the tsunami of media investment management reviews,
chiefly in the United States, totalling approximately $20 billion.
The Group has been particularly successful in these reviews and is
now ranked first by RECMA, both for net new business and
retentions. There is, probably, more net new business to come,
increasingly driven by the Group’s differentiation in technology,
data and content.
Reportable revenue was up 6.1% at £12.235 billion. Revenue on a
constant currency basis was up 7.5% 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. As
a number of our competitors report in US dollars, euros and yen,
appendices 2, 3 and 4 show WPP’s Preliminary results in reportable
US dollars, euros and yen respectively. This shows that US dollar
reportable revenue was down 1.4% to $18.693 billion and headline
earnings before interest and taxes down 1.3% to $2.704 billion,
which compares with the $15.134 billion and $2.029 billion
respectively of the second largest direct (United States-based)
competitor. Euro reportable revenue was up 17.8% to €16.874 billion
and headline earnings before interest and taxes up 16.8% to €2.453
billion, which compares with €9.601 billion and €1.487 billion
respectively of the fourth largest direct (European-based)
competitor and yen reportable revenue was up 12.4% to ¥2.264
trillion, which compares with ¥818 billion of our nearest current
Japanese competitor.
On a like-for-like basis, which excludes the impact of currency
and acquisitions, revenue was up 5.3%, with net sales up 3.3%. In
the fourth quarter, like-for-like revenue was up 6.7%, the
strongest quarter of the year, following like-for-like growth in
the third quarter of 4.6%, reflecting stronger growth in the fourth
quarter in North America, the United Kingdom and Asia Pacific,
Latin America, Africa & the Middle East and Central &
Eastern Europe, partly offset by slightly slower growth in Western
Continental Europe. Like-for-like net sales were up 4.9% in the
fourth quarter, the strongest quarter of the year, with all
regions, except the United Kingdom and Western Continental Europe,
recording their strongest quarter of the year.
Operating profitability
Headline EBITDA was up 4.9% to £2.002 billion, crossing £2
billion for the first time, from £1.910 billion the previous year
and up 7.7% in constant currency. Group revenue is more weighted to
the second half of the year across all regions and sectors, and,
particularly, in the faster growing markets of Asia Pacific and
Latin America. As a result, the Group’s profitability and margin
continue to be skewed to the second half of the year, with the
Group earning approximately one-third of its profits in the first
half and two-thirds in the second half. Headline operating profit
for 2015 was up 5.6% to £1.774 billion from £1.681 billion and up
8.7% in constant currencies.
Net sales margin was up 0.2 margin points to 16.9% and up 0.4
margin points in constant currency, ahead of the Group’s margin
target of 0.3 margin points improvement, in constant currency,
compared to 16.7% in 2014. The net sales margin of 16.9% is after
charging £24 million ($37 million) of severance costs, compared
with £37 million ($63 million) in 2014 and £331 million ($505
million) of incentive payments, versus £313 million ($512 million)
in 2014. Constant currency operating margins improved 0.4 margin
points, ahead of the full year margin target. Over the last three
years, reported operating margins have improved by 0.8 margin
points and by 1.2 margin points, excluding the impact of
currency.
Given the significance of data investment management revenue to
the Group, with none of our parent company competitors presently
represented in that sector, net sales is a more meaningful measure
of comparative top-line growth, although we know competitors do
have significant principal media, barter, telesales, food broking
and field marketing operations, where the same issue may arise. Net
sales is a more appropriate measure, because data investment
management revenue includes pass-through costs, principally for
data collection, on which no margin is charged. In addition, the
Group’s media investment management sub-sector is increasingly
buying digital media for its own account on a transparent opt-in
basis and, as a result, the subsequent billings to clients have to
be accounted for as revenue, as well as billings. We believe a
number of our competitors face the same issue, and as a result
believe reporting practices should be standardised. Thus, it is
possible that the revenue and revenue growth rate could increase,
whilst net sales and net sales growth rate remain the same and,
therefore, the latter presents a clearer picture of underlying
performance. Because of these two significant factors, the Group,
whilst continuing to report revenue and revenue growth, will focus
even more on net sales margins. In 2015, the reported headline net
sales margin was up 0.2 margin points to 16.9%, achieving the
highest reported comparative level in the industry.
On a reported basis, operating margins, before all incentives11
and income from associates, were 19.3%, up 0.2 margin points,
compared with 19.1% last year. The Group’s staff cost to net sales
ratio, including severance and incentives, decreased by 0.8 margin
points to 63.2% compared to 64.0% in 2014, indicating increased
productivity.
Operating costs
During 2015, the Group continued to manage operating costs
effectively, with improvements across most cost categories,
particularly staff and property costs.
Headline operating costs12 rose by 4.3%, rose by 5.2% in
constant currency and by 2.6% like-for-like. On all bases, the
growth in costs was lower than the growth in revenue. Reported
staff costs, excluding incentives, increased by 3.2%, up 4.3% in
constant currency. Incentive payments amounted to £331 million
($505 million), which were 16.2% of headline operating profit
before incentives and income from associates, compared with £313
million ($512 million) or 16.3% in 2014. Achievement of target
generates 15% of operating profit before bonus as an incentive
pool.
On a like-for-like basis, the average number of people in the
Group, excluding associates, in 2015 was 124,930 compared to
127,286 in 2014, a decrease of 1.9%. On the same basis, the total
number of people in the Group, excluding associates, at 31 December
2015 was 128,123 compared to 130,173 at 31 December 2014, a
decrease of over 2,000 or 1.6%. This reflected partly 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,
together with the continuing sound management of headcount and
staff costs in 2015 to balance revenue and costs. On the same
basis, revenue increased 5.3% and net sales 3.3%.
Exceptional gains and restructuring costs
In 2015 the Group generated exceptional gains of £296 million,
largely representing gains on the sale of certain Kantar internet
measurement businesses to comScore Inc., the sale of the Group’s
interests in e-Rewards and Chime Communications plc, together with
re-measurement gains of £165 million, primarily the gain of £132
million in relation to the acquisition of a majority stake in IBOPE
in Latin America. These were partly offset by investment
write-downs of £79 million, resulting in a net gain of £217
million, which in accordance with prior practice, has been excluded
from headline profit. The Group took a £106 million restructuring
provision, including £37 million of IT transformation costs, and
£29 million of IT asset write-downs, resulting in a net exceptional
gain of £82 million.
Interest and taxes
Net finance costs (excluding the revaluation of financial
instruments) were down 9.7% at £151.7 million, compared with £168.0
million in 2014, a decrease of £16.3 million. This reflected the
beneficial impact of lower bond coupon costs resulting from
refinancing maturing debt at cheaper rates, partially offset by
lower income from investments.
The headline tax rate was 19.0% (2014 20.0%) and on reported
profit before tax was 16.6% (2014 20.7%). The reported tax rate is
lower than the headline tax rate, as most of the gains on disposals
of subsidiaries and investments and the gains on re-measurement of
equity interests, are not taxable.
Earnings and dividend
Headline profit before tax was up 7.3% to £1.622 billion from
£1.513 billion, or up 11.2% in constant currencies.
Reported profit before tax rose by 2.8% to £1.493 billion from
£1.452 billion, reflecting lower relative levels on the revaluation
of financial instruments. In constant currencies, reported profit
before tax rose by 7.3%.
Reported profit after tax rose by 8.1% to £1.245 billion from
£1.152 billion. In constant currencies, profits after tax rose
11.9%.
Profits attributable to share owners rose by 7.7% to £1.160
billion from £1.077 billion. In constant currencies, profits
attributable to share owners rose by 11.3%.
Headline diluted earnings per share rose by 10.2% to 93.6p from
84.9p. In constant currencies, earnings per share on the same basis
rose by 13.3%. Reported diluted earnings per share rose by 9.8% to
88.4p from 80.5p and increased 13.4% in constant currencies.
As outlined in the June 2015 AGM statement, 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, against the
traditionally lower first-half pay-out of 40% in the previous year.
This has the effect of evening out the pay-out ratio between the
two half-year periods and consequently balancing out the dividend
payments themselves, although the pattern of profitability and
hence dividend payments seems likely to remain one-third in the
first half and two-thirds in the second half. Given your Company’s
strong progress, your Board declares an increase of 8.3% in the
final dividend to 28.78p per share, which, together with the
interim dividend of 15.91p per share, makes a total of 44.69p per
share for 2015, an overall increase of 17.0%. This represents a
dividend pay-out ratio of 47.7%, compared to a pay-out ratio of
45.0% in 2014. The record date for the final dividend is 10 June
2016, payable on 4 July 2016. 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 target.
Further details of WPP’s financial performance are provided in
Appendices 1, 2, 3 and 4.
Regional review
The pattern of revenue and net sales growth differed regionally.
The tables below give details of revenue and net sales, revenue and
net sales growth by region for 2015, as well as the proportion of
Group revenue and net sales and operating profit and operating
margin by region;
Revenue analysis
£ million 2015 ∆ reported
∆ constant13
∆ LFL14
% group
2014 % group N. America
4,491 15.2% 7.9% 7.1% 36.7%
3,900 33.8% United Kingdom 1,777 8.4% 8.4% 4.1% 14.5%
1,640 14.2% W Cont. Europe 2,426 -5.6% 4.7% 4.7% 19.8% 2,569 22.3%
AP, LA, AME, CEE15
3,541 3.5% 8.5% 4.2% 29.0% 3,420 29.7%
Total Group
12,235 6.1% 7.5%
5.3% 100.0% 11,529
100.0%
Net sales analysis
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 %
group N. America 3,882 11.8% 4.7%
4.1% 36.9% 3,472 34.5% United Kingdom
1,505 7.8% 7.8% 2.9%
14.3% 1,396 13.9% W Cont. Europe 2,016
-5.9% 4.3% 2.5% 19.2% 2,143
21.3% AP, LA, AME, CEE 3,121 2.2%
7.3% 3.0% 29.6% 3,054 30.3%
Total Group 10,524 4.6%
5.8% 3.3% 100.0%
10,065 100.0%
Operating profit analysis (Headline
PBIT)
£ million
2015 % margin*
2014 % margin* N. America 728
18.8% 622 17.9% United Kingdom 243
16.2% 221 15.8% W Cont. Europe
277 13.7% 277 12.9% AP, LA, AME, CEE
526 16.8% 561 18.3%
Total Group
1,774 16.9% 1,681
16.7%
* Headline PBIT to net sales
North America, with constant currency revenue growth of
11.1% in the final quarter and like-for-like growth of 9.7%,
strengthened further, exceeding the strong growth seen in the first
nine months, an improvement over the third quarter year-to-date
constant currency growth of 6.7% and like-for-like growth of 6.2%.
Particularly strong growth was achieved in advertising and media
investment management, parts of the Group’s public relations &
public affairs businesses and branding & identity, direct,
digital and interactive operations. On a full year basis, constant
currency revenue was up 7.9%, with like-for-like up 7.1%. Net sales
were up 4.7% in constant currency, with like-for-like up 4.1%.
United Kingdom constant currency revenue rate of growth
in the final quarter, although lower than quarter three, remained
strong at 6.6%, compared to 7.6% in quarter three, with
like-for-like growth of 2.9%, well ahead of the 1.1% seen in
quarter three. The Group’s advertising, public relations and public
affairs, branding & identity and direct, digital and
interactive businesses performed particularly well. Despite the
slight slow-down in the rate of revenue growth, net sales remained
strong, with constant currency growth of 6.9%, slightly down on the
7.1% in quarter three, with like-for-like growth of 3.5% compared
with 2.2% in quarter three. On a full year basis, constant currency
revenue was up 8.4%, with like-for-like up 4.1%. Net sales were up
7.8% in constant currency, with like-for-like up 2.9%.
Western Continental Europe, although remaining patchy
from a macro-economic point-of-view, continued the improvement seen
in quarter three, with constant currency revenue growth of 6.7%,
the highest rate of growth in 2015, partly driven by acquisitions,
with like-for-like up 5.3%, down slightly on the 6.1% seen in
quarter three. Similarly, net sales growth on a constant currency
basis was up 7.2% in the final quarter, the highest rate of growth
in 2015, compared to 4.5% growth in quarter three, again partly
driven by acquisitions. On a like-for-like basis, net sales were up
3.0% in the final quarter, compared with 4.6% in quarter three. For
the year, Western Continental Europe revenue grew 4.7% on a
like-for-like basis (5.7% in the second half), compared with 3.8%
in 2014, with net sales growth of 2.5% like-for-like (3.7% in the
second half), compared to 1.1% in 2014. Belgium, Denmark, Germany,
Italy and Turkey all showed good growth in the final quarter, but
Austria, France, Ireland, the Netherlands, Spain, Sweden and
Switzerland were tougher.
In Asia Pacific, Latin America, Africa & the Middle East
and Central & Eastern Europe, on a constant currency basis,
revenue growth in the fourth quarter remained strong at 9.1%, ahead
of the nine months growth of 8.3%, with like-for-like up 6.3%, the
second highest quarter of 2015, slightly lower than the 6.8% seen
in quarter one. Growth in the fourth quarter was driven principally
by Asia Pacific, Latin America and Africa, the
CIVETS16, Next 1117and the
MIST18. Central and Eastern Europe, after the
improvement seen in quarter three, slipped back slightly, with full
year like-for-like revenue down 1.3%. Constant currency net sales
growth in the region was 7.3% overall, with like-for-like net sales
up 3.0%. In Asia, Bangladesh, Cambodia, India, Indonesia, Myanmar,
Pakistan and Vietnam, had double-digit like-for-like growth, with
Japan and Malaysia more challenging.
Latin America had its strongest quarter of the year, with
like-for-like revenue up 7.8%, compared with the previous highest
of 4.2% in quarter three. Like-for-like net sales grew 7.1% in
quarter four, also the highest quarterly growth in 2015, with full
year growth of 4.8% (6.5% in the second half compared with 2.6% in
the first half). Africa also grew strongly, with
like-for-like revenue up 8.3% in quarter four and up 8.1% full
year, driven by the Group’s media investment management, data
investment management and direct, digital and interactive
businesses. In Central & Eastern Europe, like-for-like
revenue was up over 1% in quarter four, compared with 3% in quarter
three, with Croatia, the Czech Republic, Hungary and Kazakhstan up
strongly. Poland, Russia and the Slovak Republic were tougher. Full
year revenue for the BRICs19, which account
for over $2.8 billion of revenue, was up well over 3% on a
like-for-like basis, with the Next 11 and CIVETS up
over 9% and well over 11% respectively. The MIST was up
almost 8%.
In 2015, 29.0% of the Group’s revenue came from Asia Pacific,
Latin America, Africa & the Middle East and Central &
Eastern Europe – down slightly from 29.7% in 2014, due to the
strength of sterling against the currencies of many of the markets
in the region still having a significant impact. On a net sales
basis there was also a slight drop to 29.6% from 30.3% in 2014.
Business sector review
The pattern of revenue and net sales 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, as well as the proportion
of Group revenue and net sales for 2015 and operating profit and
operating margin by communications services sector;
Revenue analysis
£ million
2015 ∆ reported
∆ constant20
∆ LFL21
% group
2014 % group
AMIM22
5,553 8.2% 9.9% 8.4%
45.4% 5,134 44.5% Data Inv. Mgt. 2,426
-0.1% 3.5% -0.2% 19.8% 2,429
21.1%
PR & PA23
946 6.0% 4.7% 3.0% 7.7%
892 7.7%
BI, HC & SC24
3,310 7.7% 7.3% 5.3%
27.1% 3,074 26.7%
Total Group
12,235 6.1% 7.5%
5.3% 100.0% 11,529
100.0%
Net sales analysis
£ million
2015 ∆ reported
∆ constant ∆ LFL % group
2014 %
group AMIM 4,652 3.3% 5.3% 3.8%
44.2% 4,502 44.7% Data Inv. Mgt.
1,768 1.1% 4.6% 0.3% 16.8% 1,749
17.4% PR & PA 930 5.6% 4.3%
3.4% 8.8% 880 8.7% BI, HC & SC
3,174 8.2% 7.8% 4.2%
30.2% 2,934 29.2%
Total Group
10,524 4.6% 5.8%
3.3% 100.0% 10,065
100.0%
Operating profit analysis (Headline
PBIT)
£ million
2015 % margin*
2014 % margin* AMIM 856 18.4%
836 18.6% Data Inv. Mgt. 286
16.2% 273 15.6% PR & PA 155
16.7% 139 15.8% BI, HC & SC 477
15.0% 433 14.7%
Total Group
1,774 16.9% 1,681
16.7%
* Headline PBIT to net sales
In 2015, 37.5% of the Group’s revenue came from direct, digital
and interactive, up 1.2 percentage points from the previous year,
with revenue growing 7.6% like-for-like over 2014.
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management was the strongest performing sector overall, with
constant currency revenue up 9.9% in 2015, up 9% in quarter four.
Like-for-like revenue was up 8.4% for the year and up over 8% in
quarter four. Advertising grew strongly in North America and Latin
America in quarter four, but the UK, Continental Europe and Africa
were more challenging. Media investment management showed strong
like-for-like growth, with double digit growth in all regions and
sub-regions, except the UK and the Middle East.
Of the Group’s advertising networks, J. Walter Thompson Company,
Ogilvy & Mather and Grey performed well in quarter four. As
mentioned above, North America and Latin America grew strongly in
quarter four, but elsewhere conditions were more difficult and
overall advertising remained challenged. Growth in the Group’s
media investment management businesses has been very consistent
throughout the year, with constant currency and like-for-like
revenue up strongly for the year, but with a slightly weaker second
half, principally in the UK. tenthavenue, the “engagement” network
focused on out-of-home media, also performed strongly in the fourth
quarter, with like-for-like net sales up almost 9%. The strong
revenue and net sales growth across most of the Group’s businesses,
partly offset by the challenges in the Group’s advertising
businesses in most regions, resulted in the combined reported
operating margin of this sector down by 0.2 margin points to 18.4%
but up 0.2 margin points in constant currency. In 2015, J. Walter
Thompson Company, Ogilvy & Mather, Y&R and Grey generated
net new business billings of £1.087 billion ($1.685 billion). In
the same year, GroupM, the Group’s media investment management
company, which includes Mindshare, MEC, MediaCom, Maxus, GroupM
Search, Xaxis and now, Essence, together with tenthavenue,
generated net new business billings of £3.840 billion ($5.952
billion). The Group totalled £5.557 billion ($8.613 billion),
slightly down on 2014 of £5.831 billion ($9.330 billion).
Data Investment Management
On a constant currency basis, data investment management revenue
grew 5.8% in the fourth quarter, the strongest quarter of 2015,
with like-for-like revenue up 1.4%. Net sales showed a similar
pattern, with constant currency net sales up 5.2% in quarter four
and up 0.8% like-for-like. On a full year basis, constant currency
revenue was up 3.5%, but down 0.2% like-for-like, with a stronger
second half. Net sales showed a similar pattern with a stronger
second half on both a constant currency and like-for-like basis.
The mature markets were more difficult, remaining under pressure,
but the faster growth markets grew net sales almost 2%. Syndicated
research continues to show resilience, with like-for-like net sales
growth up well over 2%, but custom research, which accounts for
almost half of data investment management net sales, was down a
similar amount. Kantar Worldpanel, Kantar Health, Kantar Retail and
IMRB all showed strong like-for-like net sales growth, with TNS,
Millward Brown and Lightspeed more challenged. There seems to be a
growing recognition of the value of “real” first party data
businesses, rather than those that depend on third party data.
Reported operating margins improved 0.6 margin points to 16.2% and
by 1.1 margin points in constant currency. Good cost control and
the continued benefits of restructuring contributed to the
improvement in operating margin. Although there has been further
improvement during 2015, the slowest sub-sector continues to be
like-for-like net sales growth in the custom businesses in mature
markets, where discretionary spending remains under review by
clients.
Public Relations and Public Affairs
In constant currencies the Group’s public relations and public
affairs businesses continued the growth shown earlier in the year,
with a stronger second half and even stronger quarter four.
Constant currency revenue grew 8.2% in quarter four with
like-for-like net sales up 5.8%, with strong growth in all regions,
but particularly in the United Kingdom, Latin America and the
Middle East & Africa. Ogilvy Public Relations, Cohn & Wolfe
and the specialist public relations and public affairs businesses
in the United States, the United Kingdom and Germany performed
well, with Burson-Marsteller and H+K Strategies less buoyant. An
improving top-line and good control of costs resulted in the
operating margin improving by 0.9 margin points to 16.7% and by 1.0
margin point in constant currency.
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 revenue grew strongly at 11.2% in
quarter four, as with most of our businesses the strongest quarter
of 2015, with like-for-like revenue up 8.8%, a significant
improvement over quarter three. The Group’s direct, digital and
interactive businesses, especially JWT Mirum (the digital arm of J.
Walter Thompson Worldwide), WPP Digital and VML performed strongly,
with parts of the Group’s healthcare and branding & identity
businesses slower. Operating margins, for the sector as a whole,
improved 0.3 margin points to 15.0% and by 0.3 margin points in
constant currency, with operating margins negatively affected as
parts of the Group’s direct, digital and interactive businesses in
Western Continental Europe, together with branding & identity
and healthcare slowed.
Client review
Including associates, the Group currently employs almost 190,000
full-time people in over 3,000 offices in 112 countries, now
including Cuba. It services 352 of the Fortune Global 500
companies, all 30 of the Dow Jones 30, 77 of the NASDAQ 100 and 830
national or multi-national clients in three or more disciplines.
552 clients are served in four disciplines and these clients
account for over 52% of Group revenue. This reflects the increasing
opportunities for co-ordination and co-operation or horizontality
between activities, both nationally and internationally, and at a
client and country level. The Group also works with 448 clients in
6 or more countries. The Group estimates that well over a third of
new assignments in the year were generated through the joint
development of opportunities by two or more Group companies.
Horizontality across clients, countries and regions and on which
the Group has been working on for many years, is clearly becoming
an increasingly important part of our client strategies,
particularly as clients continue to invest in brand in
slower-growth markets and both capacity and brand in faster-growth
markets.
Cash flow highlights
In 2015, operating profit was £1.632 billion, depreciation,
amortisation and goodwill impairment £384 million, non-cash
share-based incentive charges £99 million, net interest paid £151
million, tax paid £301 million, capital expenditure £246 million
and other net cash outflows £154 million. Free cash flow available
for working capital requirements, debt repayment, acquisitions,
share buy-backs and dividends was, therefore, £1.263 billion.
This free cash flow was absorbed by £693 million in net cash
acquisition payments and investments (of which £44 million was for
earnout payments, with the balance of £649 million for investments
and new acquisition payments net of disposal proceeds), £588
million in share buy-backs and £546 million in dividends, a total
outflow of £1.827 billion. This resulted in a net cash outflow of
£564 million, before any changes in working capital.
A summary of the Group’s unaudited cash flow statement and notes
as at 31 December 2015 is provided in Appendix 1.
Acquisitions
In line with the Group’s strategic focus on new markets, new
media and data investment management, the Group completed 52
transactions in the year; 18 acquisitions and investments were in
new markets, 37 in quantitative and digital and 8 were driven by
individual client or agency needs. Out of all these transactions,
11 were in both new markets and quantitative and digital.
Specifically, in 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, South Africa, Singapore,
Australia, New Zealand and Mexico; in data investment
management in the United States, the United Kingdom, the Czech
Republic, Israel and Brazil; in public relations and public
affairs in the United States, Germany and India; in branding
& identity in the United States and the United Kingdom; in
direct, digital and interactive in the United States, the
United Kingdom, Belgium, Germany, Sweden, Lebanon, UAE, South
Africa, Peru and China; in healthcare in the United States,
the United Kingdom and Australia; and in sports marketing in
the United States.
A further 15 acquisitions and investments were made in the first
two months of 2016, with 1 in advertising and media investment
management; 2 in data investment management; 3 in public relations
and public affairs; 7 in direct, digital and interactive; 1 in
healthcare; and 1 in sports marketing.
There appears to be growing evidence that excessive, competitive
acquisition pricing together with lower standards for compliance,
driven by a desire to play catch-up have resulted in slower, and
even negative growth rates and impairments for some competitors
with several acquired companies in Brazil, India and China.
Balance sheet highlights
Average net debt in 2015 was £3.562 billion, compared to £3.073
billion in 2014, at 2015 exchange rates. On 31 December 2015 net
debt was £3.211 billion, against £2.275 billion on 31 December
2014, an increase of £936 million (an increase of £851 million at
2015 exchange rates). The increased period end debt figure reflects
the significant incremental net acquisition spend of £198 million,
incremental share re-purchases of £77 million and incremental
dividends of £86 million. This trend has continued in the first six
weeks of 2016, with average net debt of £3.376 billion, compared
with £2.426 billion in the first six weeks of 2015, an increase of
£950 million (an increase of £822 million at 2016 exchange rates).
The net debt figure of £3.211 billion at 31 December, compares with
a current market capitalisation of approximately £19.926 billion
($28.026 billion), giving an enterprise value of £23.137 billion
($32.542 billion). The average net debt to EBITDA ratio at 1.78x,
is in the middle of the Group’s target range of 1.5-2.0x.
In March 2015, the Group issued €600 million 15 year bonds at a
coupon of 1.625%, in conjunction with a three year exchange offer
of €252 million at 0.43% for part of the existing €750 million
6.625% bonds due in May 2016. In November 2015, the Group issued
€600m 4 year bonds with a coupon of 0.75%. These bonds refinanced
the remaining €498m bonds maturing in May 2016, with a coupon of
6.625%. This continues the plan to extend maturities and take
advantage of current low interest rates.
Your Board continues to examine ways of deploying its EBITDA of
over £2.0 billion (over $3.0 billion) and substantial free cash
flow of almost £1.3 billion (almost $2.0 billion) per annum, to
enhance share owner value. The Group’s current market value of
£19.926 billion implies an EBITDA multiple of 10.0 times, on the
basis of the full year 2015 results. Including year-end net debt of
£3.211 billion, the Group’s enterprise value to EBITDA multiple is
11.6 times.
A summary of the Group’s unaudited balance sheet and notes as at
31 December 2015 is provided in Appendix 1.
Return of funds to share owners
Dividends paid in respect of 2015 will total £575 million for
the year. Funds returned to share owners in 2015 totalled £1.134
billion, including share buy-backs, an increase of 17% over 2014.
In 2014 funds returned to share owners were £0.971 billion. In the
last five years, £3.5 billion has been returned to share owners and
over the last ten years £5.2 billion.
In 2015, 39.6 million shares, or 3.0% of the issued share
capital, at the top-end of our target range, were purchased at a
cost of £588 million and an average price of £14.84.
Current trading
January 2016 like-for-like revenue was up 4.2%, ahead of budget,
with net sales up 2.3%, also ahead of budget, and reflecting a more
difficult comparative and the continuing divergence between revenue
and net sales in the Group’s media and data investment management
businesses, as noted earlier. All regions and sectors, except data
investment management and public relations and public affairs,
showed revenue and net sales growth, with advertising and media
investment management, direct, digital and interactive and the
specialist communications businesses, up the strongest.
Outlook
Macroeconomic and industry context
2015, the Group’s thirtieth year, was another record year,
following successive post-Lehman record years in 2011, 2012, 2013
and 2014, five record years in a row, despite a generally low
global growth environment.
Parallel universes
After another record year in 2014, the Group’s performance in
2015, neither a maxi- or mini-quadrennial, has been particularly
creditable, as worldwide GDP growth, both nominal and real, slowed
in the second half of last year and into the new year. Pleasingly,
bottom-line growth and operating margin improvement has been
particularly strong, beyond budget, target and last year. Revenue
and net sales growth were also better, or similar, with all
geographies and sectors (except data investment management) growing
revenue and net sales on both a constant currency and like-for-like
basis. Like-for-like revenue and net sales were up 4.9% and 2.3%
respectively in the first six months and up 5.8% and 4.1% for the
second half. Revenue and net sales momentum continues, with the two
year half-yearly growth rates at 13.6% and 6.4% to 13.5% and 6.6%
respectively. Our operating companies are still hiring cautiously
and responding to any geographic, functional and client changes in
revenue – positive or negative. On a constant currency basis,
operating profit was above budget and well ahead of last year and
the increase in the net sales margin was well above the Group’s
full year target of a 0.3 margin points improvement on a constant
currency basis.
Despite this strong performance, the always on, Don Draperish
general industry optimism seems misplaced. To survive in the
advertising and marketing services sector, you have to remain
positive, indeed optimistic, seeing the glass half-full and
industry and company reports generally continue, understandably, to
reflect that attitude. However, general client behaviour does not
reflect that state of mind, as tepid GDP growth, low or no
inflation and consequent lack of pricing power encourage a focus on
cutting costs to reach profit targets, rather than revenue growth.
In addition, there seem to be little, if any, reasons for an upside
breakout from the current levels of real or nominal GDP growth,
which remain stuck around 3% to 4% and below the pre-Lehman trend
rate, which by definition was unsustainable. In fact, in recent
months, whilst real GDP forecasts have remained steady, nominal
forecasts have deteriorated significantly to under 3%, due to the
strength of the US dollar, although the same pundits expect
inflation (somewhat optimistically?) to increase in the coming
years. In this respect, oil price reductions, the Iranian nuclear
“armistice” and the international currency wars have not been
helpful black or grey swans. The faster growth markets of the BRICs
and Next 11, located in Asia, Latin America, Africa & the
Middle East and Central & Eastern Europe continue to grow
faster than the slower markets of North America and Western Europe,
although the growth gap has narrowed significantly as Brazil,
Russia and China have slowed and the United States and United
Kingdom and, even some parts of Western Continental Europe, have
quickened.
Geopolitical issues remain top of business leaders’ concerns.
The continuing crisis in the Ukraine and consequent bilateral
sanctions, continued tensions in the Middle East and North Africa
and the continuing risk, despite the negotiated agreement, of a
“Grexit”, or even more seriously now, a “Brexit” from the European
Community top the agenda. Lower oil prices and first time and
continued quantitative easing in Europe and continued easing in
Japan may seem to bottom or underpin the recovery and a continued,
but somewhat patchy, United States recovery and United Kingdom and
Indian strength may help confidence. But concerns about China,
aggravated by the recent renminbi devaluation and stock market
decline, and Brazil remain, although we remain unabashed bulls of
both.
Countries and opportunities like Indonesia, the Philippines,
Vietnam, Egypt, Nigeria, Mexico, Colombia and Peru and now
post-Macri Argentina add to confidence (and maybe even Cuba and
Iran will), along with a mild recovery in Western Continental
Europe, chiefly in Germany, Spain and Italy. France remains soft,
although there are some small signs of improvement.
But there are other "grey swans", chiefly three. First, will the
Federal Reserve pre-Christmas tightening falter, or even reverse
and what will be the further impact 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
comes, as it inevitably will, it may have a dramatic impact on bond
and equity valuations, as recent gyrations in the markets indicate.
Will continued renminbi weakness, for example, blow the Federal
Reserve Bank off course from further tightening in 2016? Secondly,
the somewhat surprising result of the United Kingdom General
Election (at least to the pollsters), with the Conservatives
winning an overall majority, has resulted in an
uncertainty-stimulating European Union referendum, now pegged for
23 June. 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. Finally,
the free fall in the oil price, although effectively a tax cut for
consumers, has not resulted, it seems, in increased consumer
spending, perhaps due to the lingering, psychological impact of
that now infamous weekend in September 2008. Moreover, oil
producing states and their sovereign wealth funds have had to pull
in their investment horns, which in turn has caused concerns in
relation to energy bank loans to both public and private sectors
and the liquidity of banks themselves.
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 2.5% to 3.0% real
and 3.5% to 4.0% 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. 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 or JAB in fast moving
consumer goods and Valeant and Endo in pharmaceuticals (although
their models are under pressure currently), whilst in the middle,
towering above you, you have the activists led by such as Nelson
Peltz, Bill Ackman and Dan Loeb, with a perception of stressing
short-term performance – maybe they need a marketing campaign to
establish they really are long-term? Not surprising then, that
corporate leaders tend to be risk averse. The average “life
expectancy” of CEOs is around 6 to 7 years, CFOs around 4 to 5
years and CMOs 2 years. No wonder conservatism rules.
Interestingly, the company structures that offend corporate
governance with “geared” voting structures, seem to be the ones
that encourage more long-term strategic thinking. In these
conditions, 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
know from our own annual Millward Brown BrandZ Top 100 Most
Valuable Global Brands Survey, that brand investment drives
top-line like-for-like sales growth, which, in turn, is the biggest
determinant of total share owner return. Investment in the top 10
brands from this Survey annually over the last 10 years would yield
a total investment return 300% greater than the MSCI.
We see little reason, if any, for this pattern of behaviour to
change in 2016, with continued caution being the watchword. There
is certainly no evidence, based on 2015, to suggest any such change
in behaviour, although one or two institutional investors,
including, most notably, Blackrock, Legal & General and the
United Kingdom Government, are saying that they are tiring with
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.
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 UEFA Euro Football Championships and, of course, the
United States Presidential Election to boost marketing investments,
as usual by up to 1% or so, above advertising as a proportion of
GDP. 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, 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 have been,
at least until recently, strong. The recent, potentially record,
spike in merger and acquisition activity may be driven more by
companies running out of cost-reduction opportunities, rather than
trying to find revenue growth opportunities or synergies.
Financial guidance
The budgets for 2016 have been prepared on a cautious basis as
usual (hopefully), but continue to reflect the faster growing
geographical markets of Asia Pacific, Latin America, Africa &
the Middle East and Central & Eastern Europe and faster growing
functional sectors of advertising, media investment management and
direct, digital and interactive to some extent moderated by the
slower growth in the mature markets of Western Continental Europe.
Our 2016 budgets show the following;
- Like-for-like revenue growth of well
over 3% and net sales growth of over 3%
- Target operating margin to net sales
improvement of 0.3 margin points excluding the impact of
currency
In 2016, 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 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 and 2015 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 above 8% of net
sales and continue to position the Group extremely well should
current market conditions deteriorate. Some commentators and
analysts believe that the markets are signalling a recession.
Whilst some countries may technically go into recession (i.e. two
consecutive quarters of negative GDP growth), we do not believe
there will be a general recession. More likely the markets are
adjusting to continued low growth; so lower, longer – both growth
and interest rates.
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 decided
that up to half of operating company incentive pools are funded and
allocated on the basis of Group-wide performance in 2016 and
beyond. Horizontality has been accelerated through the appointment
of 45 global client leaders for our major clients, accounting for
over one third of total revenue of almost $20 billion and 17
regional and country managers in a growing number of test markets
and sub-regions, covering about half of the 112 countries in which
we operate.
Emphasis has been laid on the areas of media investment
management, healthcare, sustainability, government, new
technologies, new markets, retailing, shopper marketing, internal
communications, financial services and media and entertainment. The
Group continues to lead the industry, in co-ordinating
communications services geographically and functionally through
parent company initiatives and winning Group pitches. For example,
the Group has been very successful in the recent tsunami of media
investment management pitches, chiefly in the United States and is
now ranked first by RECMA, for both net new business reviews and
retentions. The swing factor between the most and least successful
firms totals approximately $5 billion on net new business
currently, and even more including retentions and will probably go
higher in due course. This has resulted in an increase in our media
investment market share to about a third and market leadership in
all regions, with North America now at around 30%. Whilst talent
and creativity (in the broadest sense) remain key 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, Rentrak and
comScore, and investment in content, for example, Imagina, Vice,
Media Rights Capital, Fullscreen, Indigenous Media, China Media
Capital 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
Uses of funds
As capital expenditure remains relatively stable, our focus is
on the alternative uses of funds between acquisitions, share
buy-backs and dividends. We have increasingly come to the view,
that currently, the markets favour consistent increases in
dividends and higher sustainable pay-out ratios, along with
anti-dilutive progressive buy-backs and, of course,
sensibly-priced, small- to medium-sized strategic acquisitions.
Buy-back strategy
Share buy-backs will continue to be targeted to absorb any share
dilution from issues of options or restricted stock. However, given
the operating and net sales margin targets of 0.3 margin points,
the targeted level of share buy-backs will be 2-3% of the
outstanding share capital. If achieved, the impact on headline EPS
would be equivalent to an incremental improvement of 0.2 margin
points. In addition, the Company does also have considerable free
cash flow to take advantage of any anomalies in market values, as
the average 2015 net debt to EBITDA ratio is under 1.8 times, at
the mid-point of our market guidance of 1.5-2.0 times.
Acquisition strategy
There is still a very significant pipeline of reasonably priced
small- and medium-sized potential acquisitions, with the exception
of Brazil and India and digital in the United States, where prices
seem to have got ahead of themselves because of pressure on
competitors to catch up. This is clearly reflected in some of the
operational issues that are starting to surface elsewhere in the
industry, particularly in fast growing markets like China, Brazil
and India. Transactions will be focused on our strategy of new
markets, new media and data investment management, including the
application of new technology and big data. Net acquisition spend
is currently targeted at around £300 to £400 million per annum,
excluding slightly more significant “one-offs”, like IBOPE in Latin
America and comScore. We will continue to seize opportunities in
line with our strategy to increase the Group’s exposure to:
- Faster growing geographic markets and
sectors
- New media and data investment
management, including the application of technology and big
data
A further 15 acquisitions and investments were made in the first
two months of 2016, with 1 in advertising and media investment
management; 2 in data investment management; 3 in public relations
and public affairs; 7 in direct, digital and interactive; 1 in
healthcare; and 1 in sports marketing.
Last but not least………
WPP companies have always been conscious of the need for
diversity in the workplace; and not just out of a sense of moral
responsibility, which we take very seriously. On behalf of their
clients, our companies’ people are responsible for understanding,
and appealing to, just about every one of the world’s 7 billion
citizens. And while we have never believed that only a teenager can
understand a teenager or only a pensioner can understand a
pensioner, there can be no doubt that diversity among our people is
a professional necessity. For us, diversity is not simply a
question of race, colour or gender; at least as important is a
diversity of attitude, of mind-set, of ways of approaching
problems. Uniform, conventional thinking will never of itself meet
the demands of our clients.
The results reported here, presented in dispassionate numbers,
are all the product of the inventive work of tens of thousands of
talented individuals - and with no two alike. They come from
countless different backgrounds and have countless different ways
of looking at the world. They embody skills that range from the
statistician to the screenwriter. They represent perhaps the most
diverse example of diversity of any single organisation.
We welcome this opportunity to salute them all and thank them
for everything they have done to make 2015 as good a year as it has
been.
To access WPP's 2015 preliminary results financial tables,
please visit www.wpp.com/investor
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 in reported sterling
2 Percentage change at constant currency exchange rates
3 Headline earnings before interest, tax, depreciation and
amortisation
4 Headline profit before interest and tax
5 Headline profit before interest and tax, as a percentage of
net sales
6 Diluted earnings per share based on headline earnings
7 Diluted earnings per share based on reported earnings
8 Return on equity is headline diluted EPS divided by equity
share owners funds per share
9 Percentage change at constant currency exchange rates
10 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
11 Short and long-term incentives and the cost of share-based
incentives
12 Excluding direct costs, goodwill impairment, amortisation of
acquired intangibles, investment gains and write-downs (in 2015
exceptional gains were £296 million, investment write-downs of £79
million, restructuring charges and costs in relation to the IT
transformation project were £106 million and IT asset write-downs
were £29 million)
13 Percentage change at constant currency exchange rates
14 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
15 Asia Pacific, Latin America, Africa & Middle East and
Central & Eastern Europe
16 Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa
(accounting for over $1 billion revenue, including associates)
17 Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria,
Pakistan, Philippines, Vietnam and Turkey - the Group has no
operations in Iran (accounting for well over $1 billion revenue,
including associates)
18 Mexico, Indonesia, South Korea and Turkey (accounting for
over $760 million revenue, including associates)
19 Brazil, Russia, India and China (accounting for over $2.8
billion revenue, including associates)
20 Percentage change at constant currency exchange rates
21 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
22 Advertising, Media Investment Management
23 Public Relations & Public Affairs
24 Branding and Identity, Healthcare and Specialist
Communications
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version on businesswire.com: http://www.businesswire.com/news/home/20160304005197/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
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