- Another record year, with strong
currency tailwinds, particularly in the second half
- Reported billings up 16.0% at
£55.245 billion, up 5.5% in constant currency and 3.3%
like-for-like
- Reported revenue up 17.6% at £14.389
billion, up 3.7% at $19.379 billion, up 3.9% at €17.527 billion and
down 7.0% at ¥2.107 trillion
- Constant currency revenue up 7.2%,
like-for-like revenue up 3.0%
- Constant currency net sales up 7.4%,
like-for-like net sales up 3.1%
- Reported net sales margin of 17.4%,
up 0.5 margin points against last year, up 0.2 margin points on a
constant currency, up 0.3 margin points on a like-for-like basis,
in line with the full year margin target adjusted for the merger
with STW Communications Group Limited
- Headline EBITDA £2.420 billion, up
20.8%, up 8.0% in constant currency
- Headline profit before interest and
tax £2.160 billion, over £2 billion for the first time, up 21.8%
and up 8.5% in constant currency
- Headline profit before tax £1.986
billion, up 22.4% and up 9.1% in constant currency
- Profit before tax £1.891 billion, up
26.7%, up 12.5% in constant currency
- Profit after tax £1.502 billion, up
20.6%, up 7.2% in constant currency
- Headline diluted earnings per share
of 113.2p, up 20.9%, up 7.7% in constant currency
- Return on equity at 16.2% in 2016,
down marginally from 16.3% in 2015 versus a weighted average cost
of capital of 6.4% in 2016, also down from 6.7% in 2015
- Dividends per share of 56.60p, up
26.7%, reaching the recently targeted pay-out ratio of 50% one year
ahead of schedule and up from 47.7% last year
- Net debt £4.131 billion at 31
December 2016, an increase of £920 million on same date in 2015,
with average net debt in 2016 at £4.340 billion against £3.562
billion in 2015, primarily reflecting the weakness of sterling,
although the average net debt to EBITDA ratio remains under 1.8x
almost in the middle of the target range
- Net new business of £4.360 billion
($6.757 billion) in the year continuing the good overall
performance seen in the first nine months, but slower than the
previous year
- Above budget, but relatively slow
start to 2017, with January like-for-like revenue up 1.5% and net
sales up 1.2%, against stronger comparatives last year
- Including associates and
investments, revenue totals over $26 billion annually and people
average over 205,000
WPP (NASDAQ:WPPGY) today reported its 2016 Preliminary
Results.
Key figures
£ million
2016
∆ reported1
∆ constant2
2015 Billings
55,245 16.0% 5.5%
47,632 Revenue 14,389
17.6% 7.2%
12,235 Net
sales 12,398 17.8%
7.4%
10,524
Headline EBITDA3
2,420 20.8% 8.0%
2,002
Headline PBIT4
2,160 21.8% 8.5%
1,774
Net sales margin5
17.4% 0.5 0.3*
16.9% Profit before tax
1,891 26.7% 12.5%
1,493 Profit after tax 1,502
20.6% 7.2%
1,245
Headline diluted EPS6
113.2p 20.9% 7.7%
93.6p
Diluted EPS7
108.0p 22.2% 8.5%
88.4p Dividends per share 56.60p
26.7% 26.7%
44.69p * Like-for-like margin
points, up 0.2 margin points in constant currency
Full Year highlights
- Reported billings at £55.245
billion, up 5.5% in constant currency and up 3.3%
like-for-like
- Revenue growth of 17.6%, with
like-for-like growth of 3.0%, 4.2% growth from acquisitions and
10.4% from currency
- Like-for-like revenue growth in all
regions, led by strong growth in Western Continental Europe and
Asia Pacific, Latin America, Africa & the Middle East and
Central & Eastern Europe, 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
3.1%, with the gap compared to revenue growth reversing in the
second half, as the Group’s investment in technology enhanced the
growth of advertising and media investment management net sales and
as data investment management direct costs have been reduced
- Headline EBITDA of £2.420 billion,
up 20.8%, and up 8.0% in constant currency, reflecting currency
tailwinds and the reported 17.4% net sales margin, up 0.5 margin
points compared with last year, with like-for-like operating costs
(up 2.7%) rising less than net sales at 3.1%
- Headline PBIT increase of 21.8%
to £2.160 billion, over £2 billion for the first time, up 8.5% in
constant currency
- Net sales margin, a more
accurate competitive comparator than revenue margin, up 0.5 margin
points to an industry leading 17.4%, up 0.2 margin points in
constant currency, up 0.3 margin points like-for-like, in-line with
target, adjusted for the merger of STW Communications Group Limited
(STW) in April 2016
- Exceptional gains of £277
million, largely representing re-measurement gains in relation
to the Group’s interest in Imagina and gains on the sale of the
Group’s interest in Grass Roots
- Headline diluted EPS of 113.2p up
20.9%, up 7.7% in constant currency and reported diluted EPS up
22.2%, up 8.5% in constant currency, reflecting strong
like-for-like revenue and net sales growth, margin improvement and
acquisitions
- Final ordinary dividend of 37.05p up
28.7% and full year dividends of 56.60p per share up 26.7%
- Dividend pay-out ratio of 50% in
2016 versus 47.7% in 2015, effectively one year ahead of the newly
targeted dividend pay-out ratio of 50% in 2017
- Return on equity8 down
marginally at 16.2% in 2016, compared with 16.3% in 2015,
versus a weighted average cost of capital of 6.4% in 2016 and 6.7%
in 2015. During 2016 the value of the Group’s non-controlled
investments rose by £151 million, to £1.310 billion from £1.159
billion, reflecting the value of its content businesses, primarily
Vice and Refinery29, and the Group’s investment in comScore, which
merged with Rentrak in the first half of 2016
- Average net debt up £382
million, at £4.340 billion compared to last year, at 2016
exchange rates, continuing to reflect the significant net
acquisition spend, share re-purchases and dividends of over £1.7
billion in 2016
- Creative and effectiveness
domination recognised yet again in 2016 with the award of the
Cannes Lion to WPP for most creative Holding Company for the sixth
successive year since the award’s inception and another to Ogilvy
& Mather Worldwide for the fifth consecutive year as the most
creative agency network. Four WPP agency networks, Ogilvy &
Mather Worldwide, Y&R, Grey and J. Walter Thompson Company
finished in the top seven networks at Cannes in 2016, in positions
one, three, six and seven respectively, an outstanding achievement.
Grey New York and Ingo Stockholm were also voted the second and
third most creative agencies in the world. For the fifth
consecutive year, WPP was also awarded the EFFIE as the most
effective Holding Company, with Ogilvy & Mather ranked the most
effective agency
- Particularly, following Brexit,
accelerated implementation of growth strategy continues with
revenue ratio targets for fast growth markets and new media raised
from 35-40% to 40-45% over the next four to five years.
Quantitative revenue target of 50% already achieved
Current trading and outlook
- January 2017 | Like-for-like
revenue up 1.5% for the month, ahead of budget, with like-for-like
net sales, up 1.2%, ahead of budget and against a stronger
comparative last year
- FY 2017 budget | Given continued
tepid economic growth and recent weaker comparative net new
business trends, the budgets for 2017, on a like-for-like basis,
have been set conservatively at around 2% for both revenue and net
sales, but with a headline operating margin target improvement on
net sales of 0.3 margin points, in constant currency
- Dual focus in 2017 | 1. Revenue
and net sales 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, data investment management,
including data analytics and the application of new technology,
creativity, effectiveness and horizontality; improvement in staff
costs/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
on a constant currency basis, with an ultimate goal of almost 20%;
and headline diluted EPS growth of 10% to 15% p.a. from revenue and
net sales growth, margin expansion, strategically targeted small-
and medium-sized acquisitions and share buy-backs
In this press release not all of the figures and ratios used are
readily available from the unaudited preliminary results included
in Appendix 1. These non-GAAP measures, including constant currency
and like-for-like growth, and headline profit measures, management
believes are both useful and necessary to better understand the
Group’s results. Where required, details of how these have been
arrived at are shown in the Appendices.
Review of Group results
Revenue and Net Sales
Revenue analysis
£ million
2016
∆ reported
∆ constant9
∆ LFL10
Acquisitions
2015 First
half 6,536 11.9%
8.9% 4.3% 4.6%
5,839 Second half 7,853
22.8% 5.6% 1.8%
3.8%
6,396 Full year 14,389
17.6% 7.2% 3.0% 4.2%
12,235
Net sales analysis
£ million
2016 ∆ reported ∆ constant
∆ LFL Acquisitions
2015 First half 5,594
11.0% 8.1% 3.8%
4.3%
5,041 Second
half 6,804 24.1%
6.8% 2.4% 4.4%
5,483 Full year 12,398 17.8%
7.4% 3.1% 4.3%
10,524
Reported billings at £55.245 billion, up 16.0%, up 5.5% in
constant currency and 3.3% like-for-like. Estimated net new
business billings of £4.360 billion ($6.757 billion) were won in
the year, continuing the good performance seen in the first nine
months, although comparatively weaker in the fourth quarter,
following the particularly successful media wins in the final
quarter of 2015. Generally, 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 2016, although offset, to some extent, by a couple of
significant media losses. There is, probably, more sizeable net new
business to come, reflecting the Group’s differentiation in
horizontality, technology, data and content.
Reportable revenue was up 17.6% at £14.389 billion. Revenue on a
constant currency basis was up 7.2% compared with last year, the
difference to the reportable number reflecting the continuing
weakness of the pound sterling against most currencies,
particularly over the last six months, following the United Kingdom
vote to exit the European Union. 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 up
3.7% to $19.379 billion and headline earnings before interest and
taxes up 5.9% to $2.865 billion, which compares with the $15.417
billion and $2.130 billion respectively of the second largest11
direct (United States-based) competitor. Euro reportable revenue
was up 3.9% to €17.527 billion and headline earnings before
interest and taxes up 6.2% to €2.604 billion, which compares with
€9.733 billion and €1.584 billion respectively of the fifth
largest11 direct (European-based) competitor and yen reportable
revenue was down 7.0% to ¥2.107 trillion and headline earnings
before interest and taxes down 5.1% to ¥312 billion, which compares
with ¥838 billion and ¥167 billion of our fourth largest11 direct
(Japan-based) competitor.
On a like-for-like basis, which excludes the impact of currency
and acquisitions, revenue was up 3.0%, with net sales up 3.1%. In
the fourth quarter, like-for-like revenue was up 0.5%, the weakest
quarter of the year, following like-for-like growth of 6.7% in the
final quarter of 2015, which was that year’s strongest quarter.
North America and the United Kingdom slowed in the fourth quarter,
again partly the result of stronger comparatives, with Western
Continental Europe and Asia Pacific, Latin America, Africa &
the Middle East and Central & Eastern Europe, continuing to
perform well. Like-for-like net sales growth was stronger than
revenue growth, up 2.1% in the fourth quarter, also against a
strong comparative in 2015, with all regions, except the United
Kingdom, showing growth.
Operating profitability
Headline EBITDA was up 20.8% to £2.420 billion, from £2.002
billion the previous year and up 8.0% 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 2016 was up 21.8% to £2.160 billion,
over £2 billion for the first time, from £1.774 billion and up 8.5%
in constant currencies.
Net sales margin was up 0.5 margin points to 17.4%, up 0.2
margin points in constant currency, and up 0.3 margin points
like-for-like, in line with the Group’s full year margin target,
adjusted for the merger with STW Communications Group Limited in
Australia. The net sales margin of 17.4% is after charging £34
million ($49 million) of severance costs, compared with £24 million
($37 million) in 2015 and £367 million ($486 million) of incentive
payments, versus £331 million ($505 million) in 2015. Constant
currency operating margins improved 0.2 margin points, with
like-for-like operating margins up 0.3 margin points.
As outlined in previous Preliminary Announcements for the last
few years, due to the increasing scale of digital media purchases
within the Group’s media investment management businesses and of
direct costs in data investment management, net sales is the more
meaningful and accurate reflection of top line growth, although
currently, only one of our competitors reports net sales. The
differences are shown below in a table that compares the Group’s
like-for-like revenue and net sales against our direct competitors’
like-for-like revenue only performance over the last two years.
Full Year
WPPRevenue
WPPNet Sales
OMC
Revenue
Pub
Revenue
IPG
Revenue
Havas
Revenue
Revenue (local ‘m) £14,389 £12,398
$15,417 €9,733 $7,847
€2,276 Revenue ($'m) $19,379
$16,691 $15,417 $10,765
$7,847 $2,517 Growth Rates (%)*
3.0 3.1 3.5 0.7
5.0 3.1 Quarterly like-for-like growth%*
Q1/15 5.2 2.5 5.1
0.9 5.7 7.1 Q2/15
4.5 2.1 5.3 1.4
6.7 5.5 Q3/15 4.6
3.3 6.1 0.7 7.1
5.5 Q4/15 6.7 4.9
4.8 2.8 5.2 3.1 Q1/16
5.1 3.2 3.8
2.9 6.7 3.4 Q2/16 3.5
4.3 3.4 2.7
3.7 2.7 Q3/16 3.2 2.8
3.2 0.2 4.3
2.0 Q4/16 0.5 2.1 3.6
-2.5 5.3 4.2 2 Years
cumulative like-for-like growth % Q1/15 12.2
6.3 9.4 4.2 12.3
10.1 Q2/15 14.7 6.5
11.1 1.9 11.4
13.4 Q3/15 12.2 6.3
12.6 1.7 13.4 11.5
Q4/15 14.5 7.0 10.7
6.0 10.0 6.6 Q1/16
10.3 5.7 8.9 3.8
12.4 10.5 Q2/16 8.0
6.4 8.7 4.1
10.4 8.2 Q3/16 7.8 6.1
9.3 0.9 11.4
7.5 Q4/16 7.2 7.0
8.4 0.3 10.5 7.3
* The above like-for-like/organic revenue
figures are extracted from the published quarterly and full year
trading statements issued by Omnicom Group (“OMC”), Publicis Groupe
(“Pub”), Interpublic Group (“IPG”) and HAVAS (“Havas”)
On a reported basis, operating margins, before all incentives12
and income from associates, were 19.9%, up 0.6 margin points,
compared with 19.3% last year. The Group’s staff costs to net sales
ratio, including severance and incentives, decreased by 0.4 margin
points to 62.8% compared to 63.2% in 2015, indicating increased
productivity.
Operating costs
During 2016, the Group continued to manage operating costs
effectively, with improvements across most cost categories,
particularly staff and property costs.
Headline operating costs13 rose by 16.8%, rose by 7.0% in
constant currency and by 2.7% like-for-like. On all bases, the
growth in costs was lower than the growth in revenue and net sales.
Reported staff costs, excluding incentives, increased by 17.3%, up
7.5% in constant currency. Incentive payments amounted to £367
million ($486 million), which were 14.9% of headline operating
profit before incentives and income from associates, compared with
£331 million ($505 million) or 16.2% in 2015. Achievement of
target, at an individual Company level, generally generates 15% of
operating profit before bonus as an incentive pool, 20% at maximum
and 25% at super maximum.
On a like-for-like basis, the average number of people in the
Group, excluding associates, in 2016 was 132,657 compared to
132,315 in 2015, an increase of 0.3%. On the same basis, the total
number of people in the Group, excluding associates, at 31 December
2016 was 134,341 compared to 134,479 at 31 December 2015, a
decrease of 138 or 0.1%. This reflected the transfer of a further
250 staff to IBM in the first half of 2016, as part of the
strategic partnership agreement and IT transformation programme,
together with the continuing sound management of headcount and
staff costs in 2016 to balance revenue and costs. On the same
basis, revenue increased 3.0% and net sales 3.1%.
Exceptional gains and restructuring costs
In 2016 the Group generated exceptional gains of £277 million,
largely representing re-measurement gains in relation to the
Group’s interest in Imagina and gains on the sale of the Group’s
interest in Grass Roots. These were partly offset by investment
write-downs of £86 million, resulting in a net gain of £191
million, which in accordance with prior practice, has been excluded
from headline profit. The Group took a £27 million restructuring
provision, primarily IT transformation costs, resulting in a net
exceptional gain of £164 million.
Interest and taxes
Net finance costs (excluding the revaluation of financial
instruments) were up 14.8% at £174.1 million, compared with £151.7
million in 2015, an increase of £22.4 million. This is due to the
weakness in sterling resulting in higher translation costs on
non-sterling debt, the cost of higher average net debt and lower
income from investments, all partially offset by the beneficial
impact of lower bond coupon costs resulting from refinancing
maturing debt at cheaper rates.
The headline tax rate was 21.0% (2015 19.0%) and on reported
profit before tax was 20.6% (2015 16.6%). The headline tax rate for
2017 is expected to be around 1% higher than 2016. Given the
Group’s geographic mix of profits and the changing international
tax environment, the tax rate is expected to increase slightly over
the next few years.
Earnings and dividend
Headline profit before tax was up 22.4% to £1.986 billion from
£1.622 billion, or up 9.1% in constant currencies.
Reported profit before tax rose by 26.7% to £1.891 billion from
£1.493 billion. In constant currencies, reported profit before tax
rose by 12.5%.
Reported profit after tax rose by 20.6% to £1.502 billion from
£1.245 billion. In constant currencies, profits after tax rose
7.2%.
Profits attributable to share owners rose by 20.7% to £1.400
billion from £1.160 billion. In constant currencies, profits
attributable to share owners rose by 7.1%.
Headline diluted earnings per share rose by 20.9% to 113.2p from
93.6p. In constant currencies, earnings per share on the same basis
rose by 7.7%. Reported diluted earnings per share rose by 22.2% to
108.0p from 88.4p and increased 8.5% in constant currencies.
As outlined in the June 2015 AGM statement, the achievement of
the previously 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
23% in the 2016 interim dividend to 19.55p per share, representing
a pay-out ratio of 50% for the first half. This had 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 proposes an increase of 28.7% in the final dividend to 37.05p
per share, which, together with the interim dividend of 19.55p per
share, makes a total of 56.60p per share for 2016, an overall
increase of 26.7%. This represents a dividend pay-out ratio of 50%,
compared to a pay-out ratio of 47.7% in 2015, reaching the recently
targeted pay-out ratio of 50% one year ahead of schedule. The
record date for the final dividend is 9 June 2017, payable on 3
July 2017. Your Board will continue to review the question of
whether the dividend pay-out ratio should be further increased,
particularly given the continuing attractive opportunities to
reinvest retained earnings in the business.
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 2016, as well as the proportion of
Group revenue and net sales and operating profit and operating
margin by region;
Revenue analysis
£ million
2016 ∆ reported
∆ constant14
∆ LFL15
% group
2015 %
group N. America 5,281 17.6%
3.9% 2.0% 36.7%
4,491 36.7% United Kingdom 1,866
5.0% 5.0% 1.8%
13.0% 1,777 14.5% W Cont. Europe
2,943 21.3% 8.0%
4.8% 20.4% 2,426 19.8%
AP, LA, AME, CEE16
4,299 21.4% 11.9%
3.5% 29.9% 3,541
29.0%
Total Group 14,389
17.6% 7.2% 3.0%
100.0% 12,235
100.0%
Net sales analysis
£
million
2016 ∆ reported
∆ constant ∆ LFL
% group
2015 %
group N. America 4,604 18.6%
4.8% 2.8%
37.1% 3,882 36.9% United Kingdom
1,588 5.5% 5.5%
2.1% 12.8%
1,505 14.3% W Cont. Europe
2,425 20.3% 7.2%
3.6% 19.6% 2,016
19.2% AP, LA, AME, CEE 3,781
21.1% 11.8% 3.5%
30.5% 3,121
29.6%
Total Group 12,398
17.8% 7.4%
3.1% 100.0%
10,524 100.0%
Operating profit analysis (Headline PBIT)
£ million
2016 % margin*
2015 % margin* N. America 895
19.4% 728 18.8% United
Kingdom 261 16.5% 243
16.2% W Cont. Europe 352
14.5% 277 13.7% AP, LA, AME, CEE
652 17.2% 526
16.8%
Total Group 2,160 17.4% 1,774
16.9% * Headline PBIT as a percentage of net
sales
North America constant currency revenue was down 0.7% in
the final quarter and like-for-like down 2.8%, largely as a result
of the particularly strong comparatives in the fourth quarter of
2015, when constant currency revenue grew 11.1% and like-for-like
revenue was up 9.7%, reflecting strong growth in advertising and
media investment management, parts of the Group’s public relations
and public affairs businesses and in the branding & identity,
healthcare and direct, digital and interactive operations. On a
full year basis, constant currency revenue was up 3.9%, with
like-for-like up 2.0%. However, constant currency net sales grew
2.9% in the fourth quarter, with like-for-like up 0.5% and strong
growth in the Group’s branding & identity and direct, digital
and interactive businesses.
United Kingdom constant currency revenue was down 0.7% in
the final quarter and like-for-like down 2.6%, again in part due to
very strong comparatives for the final quarter of 2015, which saw
growth of 6.6% and 2.9% respectively. Media investment management
and data investment management like-for-like revenue was up
strongly, offset by weaker performance in advertising, public
relations and public affairs and direct, digital and interactive.
Despite the slight slow-down in the rate of revenue growth,
constant currency net sales were up 1.7% in the final quarter, with
like-for-like down 0.6%. On a full year basis, constant currency
revenue was up strongly at 5.0%, with like-for-like up 1.8%, with
the second half weaker, perhaps reflecting Brexit uncertainties.
Full year net sales were up 5.5% in constant currency, with
like-for-like up 2.1%.
Western Continental Europe, continued to grow at
reasonable and stronger than average rates, although reflecting
difficult political and macro-economic conditions, with
like-for-like revenue growth of 3.4% and net sales growth of 2.7%
in the fourth quarter, compared to 5.4% and 3.2% in the third
quarter. For the year, Western Continental Europe revenue grew 4.8%
on a like-for-like basis (4.3% in the second half), compared with
4.7% in 2015, with net sales growth of 3.6% like-for-like (2.9% in
the second half), compared to 2.5% in 2015. Germany, Norway, Spain,
Sweden and Switzerland all showed good growth in the final quarter,
but Austria, France, Ireland, Italy, the Netherlands and Portugal
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 11.9%, the
same as the first nine months growth, with like-for-like up 3.9%,
the strongest quarter of the year, and well ahead of the first nine
months growth of 3.3%. Growth in the fourth quarter was driven
principally by Latin America, Central & Eastern Europe, the
Next 1117, CIVETS18, and the
MIST19, with Africa & the Middle East
weaker. Constant currency net sales growth in the region was even
stronger at 12.8% in the final quarter, with like-for-like net
sales up 4.8%, the strongest quarter of the year, and well ahead of
the 3.8% achieved in quarter two. There was strong net sales growth
in all sub-regions except Africa & the Middle East. In Asia,
Cambodia, India, Malaysia, Pakistan, the Philippines and Vietnam
showed double-digit like-for-like growth, with Hong Kong, Singapore
and Thailand, more challenging.
Latin America had its second strongest quarter of the
year, with like-for-like revenue up 8.9%, compared with 9.5% in
quarter two. Like-for-like net sales grew 8.3% in quarter four,
also the second highest quarterly growth in 2016, with full year
growth of 6.5% (6.5% in the second half, similar to the 6.6% in the
first half). Africa slipped back in the fourth quarter, as
it did in the third quarter, with like-for-like revenue down 1.2%
in quarter four and up 2.0% full year. Net sales growth was
slightly weaker, down 1.9% like-for-like in quarter four and up
0.4% full year. In Central & Eastern Europe,
like-for-like revenue was up over 10% in quarter four, the second
highest quarter of the year, with the Czech Republic, Romania,
Russia and the Ukraine up double digits. Croatia, Hungary, Poland
and Serbia were tougher. Full year revenue for the
BRICs20, which account for almost $2.4 billion
of revenue, was up 1.7% on a like-for-like basis, with the Next 11
and CIVETS up over 14% and well over 12% respectively. The MIST was
up over 16%.
In 2016, 29.9% of the Group’s revenue came from Asia Pacific,
Latin America, Africa & the Middle East and Central &
Eastern Europe, up almost 1.0 percentage point from 29.0% in 2015.
On a net sales basis there was a similar increase to 30.5% from
29.6% in 2015.
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 2016 and operating profit and
operating margin by communications services sector;
Revenue analysis
£ million
2016 ∆ reported
∆ constant21
∆ LFL22
% group
2015 %
group
AMIM23
6,548 17.9% 7.7%
4.7% 45.5% 5,553
45.4% Data Inv. Mgt. 2,661 9.7%
0.4% -0.9% 18.5%
2,426 19.8%
PR & PA24
1,101 16.4% 5.0%
2.5% 7.7% 946 7.7%
BI, HC & SC25
4,079
23.2% 11.8% 3.0%
28.3% 3,310 27.1%
Total Group
14,389 17.6%
7.2% 3.0%
100.0% 12,235
100.0%
Net sales analysis
£ million
2016 ∆ reported
∆ constant ∆ LFL %
group
2015 % group AMIM
5,413 16.4% 6.5%
3.7% 43.6% 4,652
44.2% Data Inv. Mgt. 1,994
12.8% 3.2% 0.9%
16.1% 1,768 16.8%
PR & PA 1,079 16.0%
4.7% 2.4% 8.7%
930 8.8% BI, HC & SC
3,912 23.2% 11.8%
3.5% 31.6% 3,174
30.2%
Total Group 12,398
17.8% 7.4%
3.1% 100.0%
10,524 100.0%
Operating profit analysis (Headline PBIT)
£ million
2016 % margin*
2015
% margin* AMIM 1,027 19.0%
860
26
18.5% Data Inv. Mgt. 351 17.6%
286
16.2% PR & PA 180 16.7%
145
26
15.6% BI, HC & SC 602 15.4%
483
26
15.2%
Total Group 2,160
17.4%
1,774
16.9% * Headline PBIT as a percentage of net
sales
In 2016, 38.9% of the Group’s revenue came from direct, digital
and interactive, up 1.4 percentage points from the previous year,
with like-for-like revenue growth of 5.9% in 2016.
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management was the second strongest performing sector overall, with
constant currency revenue up 7.7% in 2016, up 4.6% in quarter four.
On a like-for-like basis, advertising and media investment
management was the strongest performing sector, with revenue up
4.7% for the year and up 0.9% in quarter four, reflecting the
impact of a weaker net new business record. Advertising grew in
Asia Pacific in quarter four and the full year, but softened in all
other regions, as trading conditions became more difficult. Media
investment management showed strong like-for-like revenue growth,
up over 8% for the year, up just under 3% in quarter four, with
strong growth in the United Kingdom, Continental Europe and Latin
America.
Of the Group’s advertising networks, Grey performed particularly
well in 2016, especially in the United States. As mentioned above,
Asia Pacific was up, but elsewhere conditions were more challenging
and overall advertising remained under pressure. Growth in the
Group’s media investment management businesses has been very
consistent for most of 2016, with constant currency and
like-for-like revenue up strongly for the year, but with a weaker
second half, largely the result of a more difficult final quarter,
as weaker net new business in the United States impacted overall
performance. Elsewhere, like-for-like revenue growth in Western
Continental Europe, media investment management’s second largest
region, was up 8%, with the UK and Latin America up double digits.
tenthavenue, the “engagement” network focused on out-of-home media,
also performed strongly in the fourth quarter, with like-for-like
net sales up well over 5%, with strong growth of 6.5% in the second
half. The strong revenue and net sales growth across most of the
Group’s businesses, offset by slower growth in the Group’s
advertising businesses in most regions, resulted in the combined
reported operating margin of this sector up by 0.5 margin points to
19.0%, up 0.2 margin points in constant currency. In 2016, J.
Walter Thompson Company, Ogilvy & Mather, Y&R and Grey
generated net new business billings of £1.102 billion ($1.709
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 £2.405 billion ($3.727
billion). The Group totalled £4.360 billion ($6.757 billion),
compared with £5.557 billion ($8.613 billion) in 2015.
Data Investment Management
On a like-for-like basis, data investment management revenue was
down 1.6% in the fourth quarter, but more importantly, with net
sales up 1.5% on the same basis. On a full year basis, constant
currency revenue was up 0.4%, but down 0.9% like-for-like, with a
weaker second half. Net sales, however, showed stronger growth with
constant currency net sales up 3.2%, up 0.9% like-for-like. The
mature markets were more difficult, remaining under pressure, but
the faster growth markets grew net sales 3%. Syndicated research
continues to show resilience, with like-for-like net sales growth
up well over 1%, but custom research, which accounts for almost
half of data investment management net sales, was down a similar
amount. Kantar Worldpanel, Kantar Health, Kantar Public, Kantar
Retail and IMRB all showed strong like-for-like net sales growth,
with Kantar Insights 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 1.4 margin points to 17.6% and by 1.0
margin point 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 2016, 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, but slower fourth quarter, primarily
the result of stronger comparatives in the specialist public
relations businesses in the final quarter of 2015. Constant
currency revenue grew 2.5% in quarter four with like-for-like net
sales down 0.7%, with strong growth in Continental Europe and the
Middle East & Africa, but North America was down over 2%, with
the United Kingdom down significantly, as a result of lower M&A
activity in the Group’s specialist financial public relations and
public affairs businesses in the fourth quarter compared with 2015.
Despite the slower growth in the final quarter, like-for-like net
sales in the Group’s specialist public relations and public affairs
businesses were up almost 7% for the year, and Cohn & Wolfe
performed particularly well. Ogilvy Public Relations and H+K
Strategies also improved, with Burson-Marsteller less buoyant. An
improving top-line and good control of costs resulted in the
operating margin improving by 1.1 margin points to 16.7% and by 0.8
margin points 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 8.0% in
quarter four, the strongest performing sector, with like-for-like
revenue up 1.5%. The Group’s direct, digital and interactive
businesses, especially WPP Digital, VML and Wunderman performed
strongly, with parts of the Group’s healthcare, branding &
identity and specialist communications businesses also growing
strongly. Operating margins, for the sector as a whole, improved
0.2 margin points to 15.4% but fell 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 over 198,000
full-time people in over 3,000 offices covering 113 countries, now
including Cuba and Iran, although in the latter case only through
affiliations, because of effectively continuing sanctions. It
services 360 of the Fortune Global 500 companies, all 30 of the Dow
Jones 30, 78 of the NASDAQ 100 and 892 national or multi-national
clients in three or more disciplines. 596 clients are served in
four disciplines and these clients account for over 53% 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 462 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 2016, operating profit was £2.063 billion, over £2 billion
for the first time, depreciation, amortisation and goodwill
impairment £455 million, non-cash share-based incentive charges
£106 million, net interest paid £168 million, tax paid £414
million, capital expenditure £285 million and other net cash
outflows £172 million. Free cash flow available for working capital
requirements, debt repayment, acquisitions, share buy-backs and
dividends was, therefore, £1.585 billion.
This free cash flow was absorbed by £697 million in net cash
acquisition payments and investments (of which £92 million was for
earnout payments, with the balance of £605 million for investments
and new acquisition payments net of disposal proceeds), £427
million in share buy-backs and £617 million in dividends, a total
outflow of £1.741 billion. This resulted in a net cash outflow of
£156 million, before any changes in working capital.
A summary of the Group’s unaudited cash flow statement and notes
as at 31 December 2016 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 56
transactions in the year; 20 acquisitions and investments were in
new markets, 38 in quantitative and digital and 10 were driven by
individual client or agency needs. Out of all these transactions,
12 were in both new markets and quantitative and digital.
Specifically, in 2016, acquisitions and increased equity stakes
have been completed in advertising and media investment
management in the United States, Canada, the United Kingdom,
Turkey, Argentina, Brazil and Ecuador; in data investment
management in the United States, Denmark, Greece, India and New
Zealand; in public relations and public affairs in Canada,
Switzerland, Turkey, Kenya, India and Brazil; in branding &
identity in the Netherlands and Hong Kong; in direct,
digital and interactive in the United States, the United
Kingdom, France, Germany, the Netherlands, Turkey, China,
Singapore, South Korea, Brazil, Colombia and Mexico; in
healthcare in the United States; and in sports
marketing in the United States.
A further 7 acquisitions and investments were made in the first
two months of 2017, with 3 in advertising and media investment
management; 2 in data investment management; and 2 in direct,
digital and interactive.
Balance sheet highlights
Average net debt in 2016 was £4.340 billion, compared to £3.958
billion in 2015, at 2016 exchange rates. On 31 December 2016 net
debt was £4.131 billion, against £3.211 billion on 31 December
2015, an increase of £920 million (an increase of £454 million at
2016 exchange rates). The increased period end debt figure reflects
£466 million of translation differences due to the weakness of
sterling, £144 million of debt acquired on the merger with STW in
Australia and the movement in non-trade working capital and
provisions of £270 million. This trend has continued in the first
seven weeks of 2017, with average net debt of £4.213 billion,
compared with £3.426 billion in the same period in 2016, an
increase of £787 million (an increase of £396 million at 2017
exchange rates). The net debt figure of £4.131 billion at 31
December, compares with a current market capitalisation of
approximately £24.5 billion ($30.5 billion), giving an enterprise
value of £28.6 billion ($35.5 billion). The average net debt to
EBITDA ratio at 1.79x, is almost in the middle of the Group’s
target range of 1.5-2.0x.
In September 2016, the Group issued £400 million of 30 year
bonds with a coupon of 2.875%. These bonds refinance £400 million
of bonds maturing in April 2017, with a coupon of 6.0%. This
continues the plan to extend debt maturities and take advantage of
current low interest rates.
Your Board continues to examine ways of deploying its EBITDA of
over £2.4 billion (over $3.2 billion) and substantial free cash
flow of almost £1.6 billion (almost $2.2 billion) per annum, to
enhance share owner value balancing capital expenditure,
acquisitions, share buy-backs and dividends. The Group’s current
market value of £24.5 billion implies an EBITDA multiple of 10.1
times, on the basis of the full year 2016 results. Including
year-end net debt of £4.131 billion, the Group’s enterprise value
to EBITDA multiple is 11.8 times.
A summary of the Group’s unaudited balance sheet and notes as at
31 December 2016 is provided in Appendix 1.
Return of funds to share owners
Dividends paid in respect of 2016 will total approximately £720
million for the year. Funds returned to share owners in 2016
totalled £1.044 billion, including share buy-backs, a decrease of
8% over 2015. In 2015 funds returned to share owners were £1.134
billion. In the last five years, £4.2 billion has been returned to
share owners and over the last ten years £5.9 billion.
In 2016, 25.9 million shares, or 2.0% of the issued share
capital, were purchased at a cost of £427 million and an average
price of £16.51.
Current trading
January 2017 like-for-like revenue was up 1.5%, ahead of budget,
with net sales up 1.2%, also ahead of budget and reflecting a more
difficult comparative, with the divergence between revenue and net
sales in the Group’s media and data investment management
businesses, continuing to narrow, as the proportionate scale of
digital media buying and data investment management continued to
reduce.
Outlook
Macroeconomic and industry context
2016, the Group’s thirty first year, was another record year,
following successive post-Lehman record years in 2011, 2012, 2013,
2014 and 2015, six record years in a row, despite a generally low
global growth or tepid environment. Top line growth remained
strong, with operating profits and margins meeting and exceeding
targets and all regions and sectors showing growth on almost all
metrics.
Generally, the world seems trapped currently in a nominal GDP
growth range of 3.5-4.0%. Historically, the BRICs or Next 11,
located in Asia Pacific, Latin America, Africa & the Middle
East and Central & Eastern Europe offered higher growth rates.
After all, that is where the next billion consumers will come from.
However, in the last few years Brazil, Russia and China have all
faced various challenges and slowed, although India remains the one
BRIC star currently continuing to shine. Whilst that diminishing
growth gap has been countered somewhat by better prospects in the
Next 11, CIVETS and MIST markets like Mexico, Colombia, Vietnam,
Indonesia, the Philippines and Egypt, the growth rates of the
mature markets of the United States, the United Kingdom and Western
Continental Europe have also improved, albeit from relatively low
levels of growth. That continues to be the case with the short to
medium prospects in the United States, at least, strengthening
under the Trump administration, which is much more strongly
pro-business, much more business-connected than the Obama
administration, outlining planned pro-growth tax, infrastructure
investment, spending and regulatory reform. The prospects in the
United Kingdom are more mixed as the post-Brexit vote scenarios
will play out over the next two years and uncertainties about the
possible outcomes increase. The four leading Western Continental
European economies, Germany, France, Italy and Spain, let alone the
Netherlands and Greece, also all face political uncertainty,
although Germany and Spain are strengthening economically.
In these circumstances, clients face challenging top line growth
opportunities and uncertainties. And although inflation may pick up
in the United States because of stimulative economic policy and in
the United Kingdom because of the weakness of sterling, generally
inflation remains at low levels, resulting in limited pricing
power. As a result, there remains considerable focus on the
short-term and cost and the finance and procurement functions are
dominant, certainly equal or more powerful than marketing, rightly
or wrongly.
In addition, if you are running a legacy business, you are faced
with three simultaneous discombobulating forces - technological
disruption from disintermediators, those like Uber or Airbnb in the
transportation and hospitality industries; the zero-based budgeting
techniques of companies like 3G Capital, Reckitt Benckiser and Coty
in consumer package goods and Valeant and Endo in the
pharmaceutical industries (although their models have become
somewhat discredited); and, finally, the attentions of activist
investors such as Nelson Peltz, Bill Ackman or Dan Loeb.
Not helping either in focusing on the long-term, is the average
term life of S&P 500 and FTSE 100 CEOs at 6-7 years, CFOs at
4-5 years and CMOs at 2-3 years. As a result, it is not surprising
that since Lehman at the end of 2008, the combined level of
dividend payments and share buybacks as a proportion of retained
earnings at the S&P 500 has steadily risen from around 60 per
cent of retained earnings to over 100%. In effect, managements are
abrogating responsibility for reinvesting retained profits to their
institutional investors. In fact, in seven of the last eight
quarters the ratio has exceeded or almost reached 100%, tapering
off in the last two quarters as stock market indices and share
prices reached new highs and the relative attraction of buy-backs
lessened.
This emphasis on the short-term and consequent disinclination to
invest for the long-term may be misplaced. Our over ten-year
experience of measuring brand valuation clearly shows that the
strongest innovators and strongest brands generate the strongest
total shareholder returns. If you had invested equally over the
last decade in the top ten brands identified by our annual
Financial Times/Millward Brown BrandZ Top 100 Most Valuable Global
Brands survey, you would have outperformed the S&P 500 index by
over 70% and the MSCI by over four times. Investing in innovation
and strong brands yields enhanced returns. Perhaps surprisingly,
corporate structures that seem to offend customary good corporate
governance may deliver better long-term results. Controlled
companies like the Murdochs’ Newscorp and Fox or the Roberts’
Comcast or Zuckerberg’s Facebook or Brin & Page’s Google or,
now, Spiegel’s Snap may provide the confidence and stability needed
to take the appropriate level of risk.
Given this macro-economic background, it is not surprising that
clients are generally grinding it out in a highly competitive
ground game, rarely resorting to a passing game or Hail Marys.
Recently, reported calendar 2016 results generally reflect this,
for example, in the auto, retail, consumer package goods and
pharmaceutical industries. Although top line growth may be hard to
find and guidance missed or just met, bottom lines are met or
exceeded. As top line growth opportunities become more and more
pressurised, acquisitions and mergers become even more attractive
as a growth opportunity, particularly if they present opportunities
for significant cost synergies and relatively unleveraged balance
sheets can be supplemented by still historically low cost long-term
debt.
Our industry is no different. Competition is fierce and as image
in trade magazines, in particular, is crucial to many, account wins
at any cost are paramount. There have been several examples
recently of major groups being prepared to offer clients up-front
discounts as an inducement to renew contracts, heavily reduced
creative and media fees, extended payment terms, unlimited indirect
liability for intellectual property liability and cash or pricing
guarantees for media purchasing commitments, although the latter
are difficult for procurement departments to measure and monitor.
As some say, you are only as strong as your weakest competitor.
These practices cannot last and will only result eventually in poor
financial performance and further consolidation, the premium being
on long-term profitable growth.
Not surprising then that your Company's top line revenue and net
sales organic growth continues to hover around the 3%+ level and on
a cumulative basis for the last two years over 6%, as it has done
in previous sets of consecutive years. In the first half of 2016
growth was around 4%, due to weaker comparatives and in the second
half at around 2% due to stronger comparatives.
2017 is unlikely to be much different. There seems little reason
for an upside breakout in growth in terms of worldwide GDP growth,
or indeed a downside breakout, despite the possibility of an
increase in interest rates in the short-term. Interest rates are
likely to continue to remain at historically low relative levels,
longer than some think. Whilst Trumponomics may well result in an
increase in the United States GDP growth rate and the United States
is the biggest ($18 trillion) GDP engine out of a total of $74
trillion worldwide, political uncertainties in Europe, West and
East, the Chinese focus on qualitative growth and the longer-term
recovery of Latin America, probably mean that stronger growth will
be harder to find outside the United States. America First, if the
new Administration’s plans are implemented, will almost definitely
mean a stronger American economy, at least in the short- to
medium-term.
2017 is neither a maxi- or mini-quadrennial year, although it
will be somewhat influenced by the build-up for the Russian World
Cup and the mid-term Congressional elections, both in 2018. Nominal
GDP growth should continue to grow in the 3.5-4% range, with
advertising as a proportion remaining constant overall, with mature
markets continuing at lower than pre-Lehman levels,
counter-balanced by under-branded faster growth markets growing at
faster rates. In our own case, budgets indicate top line revenue
and net sales growth of around 2%, reflecting the impact of a lower
net new business record in the latter part of 2016, although new
business activity and conversion rates currently remain high.
Financial guidance
The budgets for 2017 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 sub-sector of direct, digital and interactive, with a
stronger second half of the year, reflecting the 2016 comparative.
Our 2017 budgets show the following;
- Like-for-like revenue and net sales
growth of around 2%
- Target operating margin to net sales
improvement of 0.3 margin points excluding the impact of
currency
In 2017, our prime focus will remain on growing revenue and net
sales faster than the industry average, driven by our leading
position in horizontality, faster growing geographic markets and
digital, premier parent company creative and effectiveness
position, new business and strategically targeted acquisitions. 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 2015 and 2016 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.
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 48 global client leaders for our major clients, accounting for
over one third of total revenue of almost $20 billion and 19
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. Whilst talent
and creativity (in the broadest sense) remain key potential
differentiators between us and our competitors, increasingly
differentiation can also be achieved in three additional ways –
through application of technology, for example, Xaxis, AppNexus and
Triad; through integration of data investment management, for
example, Kantar and comScore (now merged with Rentrak); and through
investment in content, for example, Imagina, Vice, Media Rights
Capital, Fullscreen, Indigenous Media, China Media Capital, Bruin
and Refinery29.
In addition, strong and considered points of view on the
adequacy of online and, indeed, offline measurement, on
viewability, on internet fraud and transparency, on online media
placement and brand safety and, finally, on fake news are all
examples where further differentiation is important and can be
secured through considered initiatives. With its leadership
position, as the world's largest media investment management
operation, GroupM has developed a strong united point of view with
its leading clients and associates, like AppNexus, in all these
areas and has aligned with Kantar's data investment management
capabilities, for example, through comScore, to provide better
capabilities. These philosophical differences and operational
capabilities are extremely effective in responding to the trade
association and regulatory issues that have been raised
recently.
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 costs 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 2016 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
perhaps of 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,
comScore and Triad. 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
Last but not least.........
The business we are in demands that we be quick on our feet;
quick to take advantage of new opportunities; quick to respond to
new challenges; quick to understand new popular attitudes. 2016,
more than any we can remember, was a year that made countless such
demands.
But there is another skill, at least as important, that gets
less recognition. It is less newsworthy, rarely draws attention to
itself and is perhaps closer to wisdom. It is the ability to
create, recognise, refresh and maintain those long-term brand
values that provide most big companies with their most reliable
profit streams. At a time when all external pressures seem to call
for instant, short-term responses, an understanding of the value of
confidence, consistency and continuity has never itself been more
valuable.
It requires no less attentiveness and no less sensitivity to
change in a market’s dynamics. But it knows when a gentle turn of
the wheel is going to be far more favourable for a brand’s future
than a dramatic change of course.
The results we report today are the outcome of tens of thousands
of different client projects undertaken by tens of thousands of
talented individuals working for a great diversity of companies
within WPP. Some of these companies have yet to celebrate their
fifth birthday; others are as old as their clients’ oldest brands.
Increasingly, they work together.
We thank them all for another record-breaking year.
And the uncertainties of 2017 mean that we shall be more than
ever grateful not only for their fleetness of foot, but also for
the benefit of their considered thoughtfulness and accumulated
experience.
To access WPP's 2016 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 Ranked by
market capitalisation as at 2 March 2017 12 Short and long-term
incentives and the cost of share-based incentives 13 Excluding
direct costs, goodwill impairment, amortisation of acquired
intangibles, investment gains and write-downs (in 2016 exceptional
gains were £277 million, investment write-downs of £86 million,
restructuring charges and costs in relation to the IT
transformation project were £27 million) 14 Percentage change at
constant currency exchange rates 15 Like-for-like growth at
constant currency exchange rates and excluding the effects of
acquisitions and disposals 16 Asia Pacific, Latin America, Africa
& Middle East and Central & Eastern Europe 17 Bangladesh,
Egypt, Indonesia, South Korea, Mexico, Nigeria, Pakistan,
Philippines, Vietnam and Turkey - the Group has no operations in
Iran (accounting for over $1.1 billion revenue, including
associates) 18 Colombia, Indonesia, Vietnam, Egypt, Turkey and
South Africa (accounting for almost $1 billion revenue, including
associates) 19 Mexico, Indonesia, South Korea and Turkey
(accounting for over $820 million revenue, including associates)
20
Brazil, Russia, India and China (accounting for over $2.8 billion
revenue, including associates) 21 Percentage change at constant
currency exchange rates 22 Like-for-like growth at constant
currency exchange rates and excluding the effects of acquisitions
and disposals
23
Advertising, Media Investment Management
24
Public Relations & Public Affairs
25
Branding and Identity, Healthcare and Specialist Communications
(including direct, digital and interactive)
26
Re-classification of associate business now split between
advertising and branding & identity, healthcare and specialist
communications
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170303005242/en/
For WPPSir Martin Sorrell, Paul Richardson, Lisa Hau, Feona
McEwan, Chris Wade+44 20 7408 2204orFran Butera, Kevin McCormack+1
212 632 2235orJuliana Yeh+852 2280 3790wppinvestor.com
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