WPP Posts 3% Growth In 2016

WPP reported a 17.6% revenue gain in 2016 to 14.4 billion British pounds (approximately $19.4 billion), with much of that gain (10.4%) coming from a favorable foreign exchange impact as the British pound continued to weaken after the UK’s decision to leave the European Union.

After-tax profit for the year was up 20.6% to 1.5 billion pounds (approximately $1.8 billion at today’s exchange rate).

WPP’s organic revenue growth (which excludes acquisitions, asset sales and foreign-exchange impact) for the year was 3%, while fourth-quarter growth was 0.5%.

Organic net sales growth (which strips out pass-through and principle buying revenue) for the full year was 3.1% and 2.1% for the fourth quarter.

By comparison, IPG reported 2016 organic revenue growth of 5% and fourth-quarter growth of 5.3%. Publicis Groupe reported 2016 organic growth of 0.7% and an organic revenue decline in the fourth quarter of 2.5%. And Omnicom Group posted organic growth of 3.5% for the full year and 3.6% in the fourth quarter.

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Unlike WPP, the other holding companies do not break out organic net sales growth. But WPP says that due to the increasing scale of digital media purchases (and subsequent resale to clients) within the Group's media investment management businesses and higher direct costs in data investment management, “net sales is the more meaningful and accurate reflection of top line growth.”

Given what the company termed “continued tepid economic growth and recent weaker comparative net new business trends,” it’s currently targeting a conservative 2% increase in both organic revenue and net sales growth for full-year 2017.

The company was buffeted with a couple of huge media losses in 2016, including the global Volkswagen and AT&T accounts.  

In North America, WPP posted organic net sales growth of 2.8%. In the UK, Western Continental Europe and its other regions (combined) the comparable figures were 2.1%, 3.6% and 3.5% respectively.

Ad industry Competition, the firm stated, “is fierce and as image in trade magazines, in particular, is crucial to many, account wins at any cost are paramount.”

The company added that there have been several recent examples (not identified) “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.”

Such practices, WPP added, “cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth.”

2017 is unlikely to be much different in terms of existing macroeconomic conditions and resulting low-single digit growth, the firm stated. “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. …

"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.”

If the new administration’s “America First” plans are implemented,” the firm added, “it will almost definitely mean a stronger American economy, at least in the short-to medium term.”

 

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