WPP tops the £10bn revenue mark for first time

Sir Martin Sorrell’s WPP has reported an 18% rise in pre-tax profits for 2011 to break the £1 billion mark for the first time.

WPP also posted a healthy 5.3% year on year rise in revenue last year to top the £10 billion barrier.

The group’s results show that profit before tax was up 18.5% to £1.008 billion, with overall profits for the year increasing to £916.5 million.

Growth was driven by the UK (with revenues up 6.7%) and faster growing regions (up 10.5%), although consumer insight, which includes TNS, “remained subdued” (up 0.8%), according to Bank of America Merrill Lynch (BoAML). WPP said that the solid performance in the UK market resulted in the creation of 907 jobs.

“The group’s 26th year was a record year on virtually whatever measure you are to name,” Sorrell said. “This record performance was achieved in difficult circumstances, particularly in the second half of the year.”

The marketing services group added that 2012 had started in line with expectations, with revenues up 4% year on year on a like-for-like basis. Sorrell hopes this year will remain relatively stable given events such as the Olympics and the US elections.

North America, WPP’s largest market (accounting for 34% of global revenues), was up 2.9% on a like-for-like basis to £3.4 billion. Operating profits rose 8.4% to £526 million. Meanwhile, Western Europe, which accounts for a quarter of WPP’s total revenues, grew revenues by 2.2% to £2.5 billion. Operating profits were up 28.5% to £284 million.

According to BoAML, the total dividend was up 38% to 24.6p and was 13% above the consensus (21.7p). This reflects a higher payout ratio of 36% (vs 31% in 2010), with WPP making faster than expected progress towards its 40% target.

Organic growth remained robust in January, up 4%, with all regions and sectors recording growth. Management expects 4% organic growth in 2012 and 50bps margin expansion. BoAML has increased its 2012 organic growth forecast from 2.8% to 3.5% and target a 40bps margin improvement to 14.7%.

“Agencies remain our preferred sub-sector given attractive valuations and positive earnings momentum,” BoAML said. “We favour WPP given its leading emerging market exposure and see scope for an improving trend for consumer insight in H2 to drive a re-rating, closing the valuation gap with Publicis (A-3-7, EUR41.1) which trades on a 20% PE (13.2x vs 10.8x) and 15% EV/NOPAT premium in 2012.”

WPP reduced its net debt by 6% (or £193 million) to £2.811 billion.