WPP's full year results show reported billings up 4.9%, net sales up 5.8%, and like-for-like (LFL) net sales growing 3.3%. The reported net sales margin of 16.9%, was up 40 basis points and ahead of target; operating profit rose by 8.7%, and diluted earnings per share by 13.3% (all at Constant Exchange Rates, CER). The full year dividend has been increased by 17% to 44.69p per share and the group remains confident of further progress in 2016. The shares rose by 2% in early morning trading.
- LFL net sales grew across every region, with North America the strongest. Q4 LFL net sales up 4.9%, the strongest quarter of the year.
- 37.5% of revenue came from direct, digital and interactive, up 1.2 percentage points from the previous year, with LFL revenue growing 7.6% over 2014.
- The group spent £693 million on 52 acquisitions during 2015 and spent £588 million on share buybacks (3.0% of the issued share capital).
- Net debt at year end was £3.2 billion, against £2.3 billion last year. The average net debt to EBITDA ratio is 1.78x, in the middle of the Group's target range (1.5-2.0x).
Current trading and outlook
LFL net sales were up 2.3% in January, against strong comparatives. WPP's 2016 guidance is for:
- Like-for-like revenue growth of well over 3% and net sales growth of over 3%
- Operating margin improvement of 0.3 margin points excluding the impact of currency
The group's long term target remains unchanged: diluted EPS growth of 10% to 15% p.a. delivered through revenue growth, margin expansion, acquisitions and share buy-backs.
WPP is the largest media agency in the world, with 188,000 employees in a group of businesses spanning everything from creative campaigns to media buying and market research.
Advertising is a cyclical industry but at the moment conditions in most of WPP's markets are good. The company has done an excellent job of controlling costs which has seen margins progressively expand over recent years. This has translated into very strong cash flows, enabling organic growth to be supplemented by acquisitions. In recent years, deal-making has been focused on raising exposure to digital media and faster growing nations, with a target for 40-45% of sales to be earned from each of these categories within five years.
Over the last twenty years WPP has grown the dividend at a double-digit compound annual growth rate. Over the long term WPP continues to target earnings per share growth of 10% to 15% per annum delivered through revenue growth, margin expansion, acquisitions and share buy-backs. If they can achieve this, prospects for future dividends ought to be encouraging.
As long as the global economy behaves itself, WPP should be capable of strong growth. The shares trade on a price to earnings ratio (P/E) of 14.9x, slightly above the long run average of c. 12.8x. The prospective gross yield for the coming year is 3.4%, rising to 3.9% by FY18, on current analyst forecasts.
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