WPP beats forecasts in 'ugly' year

Advertising giant WPP topped market expectations with its results for 2012 but labelled its performance as 'ugly' due to the varying levels of growth throughout the year.

Advertising giant WPP topped market expectations with its results for 2012 but labelled its performance as 'ugly' due to the varying levels of growth throughout the year.

The company, led by media guru Sir Martin Sorrell, reported full-year revenues of £10.37bn, up 3.5% from 2011 and ahead of the £10.3bn consensus estimate.

However, changes in exchange rates - particularly the strength of the pound against the euro - reduced revenue growth by 2.3 percentage points. At constant exchange rates (CER), revenue rose 5.8%.

Like-for-like (LFL) sales growth was 2.9%, ahead of the 2.6% increase expected by analysts.

Billings were down slightly at £44.4bn due to the strength of the pound. CER billings rose 1.6%.

Profit before interest and tax (PBIT) increased by 7.1% from £1.43bn to £1.53bn. Gross margins rose 0.6 margin points to 16.1%, the highest reported level in the industry, WPP said.

The company paid a full-year dividend of 28.51p per share for 2012, up 15.9% year-on-year.

Meanwhile, net debt stood at £2.82bn at the end of the year, up from £2.47bn at the end of 2011 due to increased spending on acquisitions and higher dividends.

Ugly yearThe company said: "2012, the group's twenty seventh year, was like the previous year, a record year, but it felt very different. We reached our targets, but we got there ugly."

It described how LFL revenue growth started strongly but tailed off during the year as clients lacked the "necessary confidence" given the "known unknowns". These included the Eurozone crisis, Middle-Eastern conflict, Chinese hard/soft landing, US deficit and Britain's EU membership.

It admitted that it did not make cost adjustments quickly enough to counter increased staff investment until quarters three and four with the LFL number of employees slightly down by the end of the year.

"So all in all, whilst clients may be more confident than they were in September 2008 pre-Lehman, with stronger balance sheets, these increased levels of uncertainty combinedwith strengthened corporate governance scrutiny make them unwilling to take further risks."

OutlookWPP said that revenues in January were ahead of budget, up 2.0% on a LFL basis with all regions except North America showing growth.

"The pattern for 2013 looks very similar to 2012, perhaps with increased client confidence balancing the lack of maxi- or mini-quadrennial events," the company said.

While forecasts for global economic growth have been reduced recently - "and may be reduced further in due course" - the firm expects advertising as a proportion of gross domestic product (GDP) should at least remain constant.

"Although it is still at relatively depressed historical levels, particularly in mature markets, post-Lehman and advertising should grow at least at a similar rate as GDP."

Recommended

Broker safety – your questions answered
Investment strategy

Broker safety – your questions answered

Cris Sholto Heaton answers more of your questions about the safety of stockbroker accounts
25 Mar 2020
How demographics affects stock valuations
Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Do you own shares in Sirius Minerals? Here’s what you need to do now
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
The world’s fund managers are getting very bullish – be careful out there
Stockmarkets

The world’s fund managers are getting very bullish – be careful out there

The latest survey of fund managers shows them to be extremely bullish on all the same things. And that, says John Stepek, means the market is in dange…
21 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021