WPP announces ‘historical high’ of 15.1 per cent operating margin for 2013

Ogilvy's Tham Khai Meng

Ogilvy’s Tham Khai Meng

Advertising giant WPP, which owns ad agencies Ogilvy & Mather and JWT and the media agency collective GroupM, has released its financial results for 2013, with revenues up 6.2 per cent and operating margin up a “historical high” of 15.1 per cent.

The holding points out, in its summary of the year, that WPP was the most highly awarded group for the third year in succession at Cannes, advertising’s top awards show. Ogilvy & Mather, led by Singaporean Tham Khai Meng as global creative director, was the most awarded creative agency network.

WPP results

The highlights from WPP’s 2013 balance sheet, as reported by the company:

  • Reported billings increased 4.1% to £46.2bn driven by a strong leadership position in all net new business league tables
  • Revenue growth of 6.2%, with like-for-like growth of 3.5%, 2.2% growth from acquisitions and 0.5% from currency
  • Like-for-like revenue growth in all regions, characterised by strong growth in Asia Pacific, Latin America, Africa and the Middle East and the United Kingdom and all but one sector (public relations and public affairs), with strong growth in advertising and media investment management and branding and identity, healthcare and specialist communications (including direct, digital and interactive)
  • Like-for-like gross margin or net sales growth at 3.4%, in-line with like-for-like revenue growth of 3.5%, but with stronger growth in the Group’s data investment management businesses, offset by lower gross margin growth in media investment management, as we see the initial impact of increased digital inventory trading, where billings effectively become revenues in comparison with traditional media buying. Revenues are, therefore, likely to grow faster than before and faster than gross margin. As a result, we will be focusing more on our gross margin or net sales margin
  • Headline EBITDA growth of 8.0% giving 0.3 margin points improvement, with like-for-like operating costs (+2.9%) rising slower than revenues
  • Strength of sterling in the second half and final quarter lowered reported margins by 0.2 margin points. In the second half of 2013 and more particularly in the final quarter, when approximately two-thirds and 40% respectively of our profits are earned, sterling strengthened against many currencies in key faster growth markets by 10-20%, such as India, Australia, Japan, South Africa, Brazil, Argentina and Indonesia, where operating margins are also above the Group average. This began to have an impact on the Group’s reported margins in September, but escalated throughout the final quarter, with a full year impact of 0.2 margin points. Group margins on a constant currency basis increased by 0.5 margin points, in line with the Group’s margin target of 0.5 margin point improvement. On a like-for-like basis they improved 0.6 margin points.
  • Headline PBIT increase of 8.5% with PBIT margin rising by 0.3 margin points to 15.1%, surpassing the previous historical pro forma high of 14.8% achieved in 2012. On a constant currency and like-for-like basis PBIT margins increased by 0.5 and 0.6 margin points, reflecting the impact of the strength of sterling on the faster growth markets
  • Exceptional gains of £36 million largely representing gains on the re-measurement of the Group’s equity interests, where we have acquired a majority stake
  • Gross margin or net sales margin, a more accurate competitive comparator, up 0.4 margin points to an industry leading 16.5%, up 0.5 margin points in constant currency and 0.6 margin points like-for-like
  • Headline diluted EPS up 10.1% and reported diluted EPS up 10.8%, with 20% higher final ordinary dividend of 23.65p and full year dividends of 34.21p per share up 20%
  • Targeted dividend pay-out ratio raised to 45%, to be reached in 2014
  • Average net debt decreased £244m (7.5%) to £2.989bn compared to last year, at 2013 exchange rates, reflecting the continued improvement in working capital in the second half of the year and also the benefit of converting all of the £450 million Convertible Bond in mid-2013 and lower acquisition spending in 2013
  • Creative and effectiveness excellence recognised again in 2013 with the award of the Cannes Lion to WPP for the most creative Holding Company for the third successive year since its inception, another to Ogilvy & Mather Worldwide for the second consecutive year as the most creative agency network and another to Ogilvy Brazil as the most creative agency. Grey was named Global Agency of the Year 2013 by both Ad Age and Adweek. For the second consecutive year, WPP was awarded the EFFIE as the most effective Holding Company
  • 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

Current trading and outlook

  • January 2014 | Like-for-like revenues up 5.7% for the month, with like-for-like gross margin or net sales, a more accurate competitive comparator up 4.1%, ahead of budget and stronger than the final quarter of 2013
  • FY 2014 budget | Like-for-like revenue and gross margin or net sales growth of over 3% and headline operating margin target improvement for both of 0.3 margin points, excluding the impact of currency
  • Dual focus in 2014 | 1. Revenue growth from leading position in faster growing geographic markets and digital, premier parent company creative position, new business, “horizontality” and strategically targeted acquisitions; 2. Continued emphasis on balancing revenue growth with headcount increases and improvement in staff costs/revenue ratio to enhance operating margins
  • Long-term targets recalibrated | Above industry revenue growth due to 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/gross margin ratio of 0.2 to 0.4 margin points p.a. depending on gross margin or 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 margin expansion, strategically targeted small and medium-sized acquisitions and share buy-backs



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