WPP has just posted revenue growth of seven per cent in the first quarter to £2.22bn (8.4 per cent in constant currency).
Advertising and media agencies were the strongest performers, up 12.9 per cent at constant prices, with research lagging the field at just 3.4 per cent suggesting CEO Sir Martin Sorrell still has work to do to justify his £1.1bn investment in TNS three years ago.
As usual with marcoms groups Asia Pacific and emerging markets, including Sir Martin’s bizarre CIVETS (Colombia, Indonesia, Vietman, Egypt, Turkey and South Africa) grew the fastest but the US, WPP’s biggest market, was most significant, growing by 9.1 per cent, a slight slowdown on the 9.9 per cent generated in the last quarter of 2010.
As ever with WPP there’s a danger of too much information but you may as well have it all. Here’s the first quarter report from the horse’s mouth.
In the first quarter of 2011, reported revenues were up 7.0% at £2.223 billion. Revenues in constant currency were up 8.4%, reflecting the strength of the pound sterling against the US dollar and Euro. On a like-for-like basis, excluding the impact of acquisitions and currency fluctuations, revenues were up 6.7% and gross margin 7.4% compared with the same period last year. Revenues have continued to recover following the stabilisation in quarter one of last year and the sequential improvement in like-for-like growth in quarters two, three and four of 2010.
The pattern of revenue growth in 2011 has started similarly to the second half of 2010, with improvements across all sectors and geographies. Our budgets for 2011 indicated like-for-like growth of 5% over last year and for the first three months we were in line with those projections. A first look at our flash quarter one revised forecasts, indicates further improvement for the year to over 6%, with a more balanced pattern over the two halves, despite tougher comparatives in the second half.
In 2010 we were surprised at the speed of the recovery in the more mature markets of the United States and Germany and more traditional media, like free-to-air television. This pattern has continued into the first quarter of 2011, although as indicated in the budgets for this year, the faster growing markets of Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe are growing even faster. They were last into the recession and last out.
On a constant currency basis, the Group’s revenue grew by 8.4%, in line with the Group’s budget, but with gross margin, probably a better indicator of top-line growth and cost comparator, growing faster at 9.1%. In 2010, the United States behaved more like a faster growing market, with constant currency growth of 8.0%. In the first quarter of 2011 this has continued, with revenue on the same basis up 9.1% and only slightly below the third quarter of 2010, which saw the highest quarterly growth since the second quarter of 2007, at 9.9%.
However, the world continues to move at very different speeds, with the BRICs, Next 11 or CIVETS generally growing strongest, followed by the United States and Germany, then the United Kingdom, France, Italy and Spain with Japan, weakest, suffering from years of stagnation and now triple hit by the dreadful earthquake, tsunami and nuclear disasters.
In the first quarter, revenue growth in the United Kingdom, on a constant currency basis, was up 7.7% with Western Continental Europe up 2.2% and Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe growing strongly at 12.6%. Western Continental Europe remains the most challenging, with revenues in France and Spain the most affected, when compared with the same period last year.
The Middle East has been affected by the current political turmoil in the first quarter, growing only 1.5%. Central and Eastern Europe grew at 9.1%, driven primarily by Russia and Poland, with the combined revenues in these two markets up over 13%. Latin America grew 10.4% on a constant currency basis, but 16.7%, like-for-like, following the disposal of a call centre business in Argentina in September 2010. Asia Pacific was up 12.5% on a constant currency basis and excluding Japan (which was flat) was up 13.8%, with all the Group’s major markets, except Malaysia, showing strong growth. Two of the Group’s biggest markets in Asia, Mainland China and India showed combined growth of 18.4%, versus 12.5% in 2010.
By communications services sector, advertising and media investment management continued to “bite-back” with revenues on a constant currency basis up 12.9%, followed by branding and identity, healthcare and specialist communications (including direct, digital and interactive) up 7.9%. The Group’s direct and interactive networks of Wunderman and OgilvyOne, together with specialist digital agencies VML and JWT Inside showed strong growth.
Public relations and public affairs continued the solid performance in 2010, with growth of 5.6%, which was slightly ahead of quarter four in 2010, the highest quarterly growth in 2010. Consumer insight revenues were up 3.4% with gross margin up more at 3.6% (3.8% like-for-like), and with North America, the United Kingdom and Western Continental Europe weaker, but stronger growth in Asia Pacific, Latin America, Africa and the Middle East, despite the current political and human challenges in North Africa, the Middle East and Japan.
Net new business billings for the first quarter were reasonably strong at £841 million ($1.346 billion), not as good as the first quarter last year, but well in line with the quarterly average last year, which was very strong and the Group continues to benefit from consolidation trends in the industry, winning many assignments from existing and new clients. The general economic situation continues to encourage a significant number of account reviews, consolidations and new business opportunities, particularly in media investment management.
In the first quarter, profits and operating margins were ahead of budget and well ahead of last year. Although severance costs in the first quarter of 2011 were below the same period last year, this reduction was offset by increased performance based incentive pools, which as a result of improved profitability in the first quarter are at a higher level of pre-bonus operating profit compared with the first quarter of 2010.
We are in the process of reviewing our quarter one revised forecasts, but early indications are that revenues in the balance of the year will grow faster than budgeted, with full year like-for-like revenue growth of over 6%. The higher levels of incentive compensation paid out this year has focused attention on variable, rather than fixed, compensation and has helped to ease, to some extent, potential pressure on salaries. As our operating companies continue to be more positive about 2011, the increase in selective hiring and talent investment, particularly in the faster growing markets, originally seen in the second half of 2010, has continued into 2011.
During 2009 the Group took action to bring into balance the fall in revenues with staff costs, with a significant reduction in the number of people employed in the Group. As revenues stabilised towards the end of 2009 and growth returned in 2010, our operating companies began hiring again, although as mentioned above, mainly in the faster growing markets. Although hiring has begun again, the discipline of balancing revenues with headcount has continued.
The number of people in the Group, on a proforma basis excluding associates, was up 4.2% or 4,350 at 31 March 2011 to 106,825, as compared to 31 March 2010, against an increase in revenues on the same basis of 6.7%. The average number of people in the Group in the first quarter of this year was up similarly by 4.2% to 106,076 compared to 101,763 for the same period last year. In 2009, the point-to-point headcount fell by 12%, in 2010 it rose 4.5% and in 2011, by 31 March, it had risen another 1%. Overall, therefore, the number of people in the business has fallen by over 6%, whilst revenues are now back to pre-Lehman levels on a proforma basis, a significant increase in productivity.
So now we’ve had first quarter results from WPP, Omnicom, Publicis Groupe, Interpublic and Havas.
Who’s winning? Publicis Groupe with reported revenue growth of 10.7 per cent seems to have its nose in front.
With low debt considering its big acquisitions of Digitas and Razorfish and with a steady stream of small acquisitions underway the French giant headed by Maurice Levy just might be narrowing the gap significantly with its rather bigger rivals WPP and Omnicom.
Which won’t go down very well at WPP HQ in London’s Mayfair.
Wonder if this is why WPP bought Germany’s Commarco and Scholz and Friends in a very quick and surprising deal just last week?