WPP enjoys record year as net profit leaps 20.6% to £1.5bn

WPP has had a record year at a time when other agency groups have struggled, with net profit skyrocketing 20.6% to £1.5bn.

Sir Martin Sorrell: founder and chief executive of WPP
Sir Martin Sorrell: founder and chief executive of WPP

Even after the sharp depreciation of the pound sterling is taken into account, the group’s profits after tax are up 7.2%.

Profits before tax were £1.99bn, up 22.4% and up 9.1% in constant currency. Last year, the group posted pre-tax profit growth of 2.8% to £1.49bn.

Meanwhile, reported revenue is up 17.6% to £14.39bn.

The group credits its strong performance to its ability to take advantage of consolidation trends in the industry. These trends, it said, contributed to the wins of "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".

Most recently, WPP's joint-venture with The & Partnership, M/SIX, won the £100m Sainsbury’s media account off PHD. While this doesn’t impact the group’s 2016 results, it further underscores the group’s winning strategy.

WPP’s reported billings last year were £55.24bn, up 16% year on year, with an estimated net new business billings of £4.4bn. 

In the UK, constant currency revenue was down 0.7% in the final quarter of 2016 due to the group’s strong performance in the same period a year earlier. Its strongest business areas were in media investment management and data investment management. While advertising, public relations and public affairs, and direct, digital and interactive delivered weaker performances.

On a full year basis, constant currency revenue in the UK was up strongly at 5.0%, with like-for-like up 1.8%. The second half of the year was weaker than the first half, "perhaps reflecting Brexit uncertainties", said the release.

North America’s full-year constant currency revenue growth was up 3.9% reporting strong growth in the group’s branding & identity and direct, digital and interactive businesses.

In Asia-Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe, revenue on a constant currency basis for the year was up 11.8%. These regions now represent 29.9% of the group’s revenue, up almost a percentage point from 29% in 2015. 

In Asia, WPP reported that Cambodia, India, Malaysia, Pakistan, the Philippines and Vietnam showed double-digit like-for-like growth, with Hong Kong, Singapore and Thailand, more challenging.

Business sector performance

Overall, the business sector that showed the most growth in 2016 for the group was its branding and identity, healthcare and specialist communications (including direct, digital and interactive) division. The sector grew 11.8% on a constant currency basis and 23.2% on a reported basis to £4bn.

On the back of this performance, WPP launched a new health and wellness sub-holding company in early February.

The bulk of the group’s revenue however still comes from its advertising and media investment management businesses which grew 17.9% on a reported basis (7.7% constant) to £6.55bn.

Nevertheless, WPP reported that while advertising grew in Asia-Pacific, it softened in all other regions as trading conditions grew more difficult. 

Of the Group’s advertising networks, it was reported that Grey performed "particularly well" in 2016, especially in the United States. This is despite the ‘I Sea’ app scandal at Cannes last year that saw Grey Singapore handing back its Bronze Lion, and a management shake up at Grey London.

In the same year, GroupM generated net new business billings of £2.405 billion.

Its data investment management businesses grew more modestly by 9.7% (0.4% constant) to £2.66bn. While the group’s public relations and public affairs division grew strongly at 16.4% (5% constant) to £1.1bn. 

Outlook for 2017

In its outlook for the year, WPP’s release noted that the world seems "trapped currently in a nominal GDP growth range of 3.5-4.0%".

While the BRICs or Next 11 have historically offered higher growth rates, the last few years Brazil, Russia and China have faced challenges and slowed, although India continues to shine.

 The UK’s prospects, said WPP, are more mixed as post-Brexit vote scenarios will result in uncertainties over the next two years.

"In these circumstances, clients face challenging top line growth opportunities and uncertainties… 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," said the release.

The year ahead is likely to follow 2016, concluded the release. "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."

As a result, WPP expects a 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". 

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