News Column

UPDATE: WPP To Achieve Dividend Target Early As Pretax Profit Rises

August 26, 2014

Hana Stewart-Smith

LONDON (Alliance News) - Media buying giant WPP PLC said Tuesday it is likely to achieve its targeted dividend pay-out ratio of 45% in 2014, a year ahead of schedule, as it saw pretax profit rise in the half-year to the end of June despite the continued strength of the pound hampering revenues.

The company proposed an interim dividend of 11.62 pence, up from 10.56 pence in the previous year. It also upped share buy-backs during the half, in line with its target of GBP390 million, up from GBP133 million in the previous year.

WPP posted a pretax profit of GBP491.1 million in the half, up from GBP427.1 million in the previous year, as revenue rose 2.7% to GBP5.47 billion from GBP5.33 billion at actual currency rates. Revenues rose 11% on a constant currency basis.

Revenue was driven by consolidation trends in the industry, and securing business with existing and new clients, said WPP. Results from pitches after recent pharmaceutical client consolidations benefited its healthcare communications business, it said, adding that the full benefit of several large advertising, digital and media assignments would be be seen in revenues later in 2014 and in 2015.

Net sales fell 1.9% to GBP4.79 billion from GBP4.88 billion, although on a constant currency basis net sales would have risen 6.4%.

In the second quarter, the company saw net sales growth of 4.1% in the US, slightly down from the 4.4% recorded in the first quarter as it saw slower growth in its advertising and media investment management and healthcare communications business. In the UK, net sales were up 6.5% in the second quarter, similar to the first quarter.

In Western Continental Europe, net sales dropped 0.3% in the second quarter compared to growth of 1.7% in the first quarter, as it saw improvements in France, Greece, Portugal, Spain and Turkey offsetting weakness in Germany, the Netherlands, Denmark, Norway, Belgium, Switzerland and Italy, WPP said.

In Asia Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe net sales improved 7.5% in the second quarter, driven by improvement in Asia Pacific as WPP invested in businesses in China, India and Pakistan.

Net sales were up 14% in Central and Eastern Europe, boosted by growth in Poland, the Czech Republic and Russia despite current political tensions, although Ukraine was softer, due to ongoing conflicts in the country.

Chief Executive Martin Sorrel said in an interview Tuesday morning that whilst Russia had been positive in the first-half, European Union sanctions will have an impact in the future.

The company said it had seen net sales up 2.8% in July compared to the previous year, with all regions and sectors positive, in a similar pattern to the first-half, although slightly lower overall.

WPP reiterated its guidance for the full year, with net sales organic growth of over 3%, and margin expansion of over 30 basis points. Additionally, it reaffirmed its long-term targets of net sales operating margin expansion of 0.3 margin point or more, and headline diluted earnings per share growth of 10% to 15% per year from net sales growth.

Also on Tuesday, the company announced that it will acquire French digital search marketing agency Keyade SAS and US based research firm InsightExpress LLP. WPP did not provide financial details for either acquisition.

Keyade posted revenues of EUR7.0 million for the year to end-March. InsightExpress posted revenues of USD26.4 million in 2013.

Numis retained its Add rating for WPP, as the results slightly beat its expectations. Although it expects to trim its full-year margin forecast for the company by 10 basis points due to the strength of sterling, this is offset by lower interest, leaving its forecasts unchanged.

Edison Investment Research analyst Fiona Orford-Williams said: "WPP’s interim figures show the stark impact of currency shifts, but stripping these out, the progress is very encouraging."

Tom Robertson of Accendo Markets highlighted the aborted merger between peers Omnicom Group Inc and Publicis Ltd as possibly leading to WPP winning business. However, Robertson noted that in February WPP had lowered its margin guidance, and he suggested that large sporting events such as the FIFA World Cup may have contributed to the first half growth.

"If so, where are the drivers for growth going forward?" Robertson said.

Shares in WPP were trading up 1.8% at 1,249.50 pence Tuesday afternoon.

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Source: Alliance News

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