Well that’s a relief.
WPP boss Sir Martin Sorrell (left) has decided that his self-imposed exile in Ireland (actually he just pops over for shareholder meetings) is to come to an end and WPP, the world’s biggest marcoms company, is to return to its UK origins in December.
WPP stomped off in a huff over UK government plans to tax overseas earnings in the UK as well, which would have cost the company an extra £50m or so. Now George Osborne and his teenage scribblers at the Treasury have decided this isn’t such a good idea (although he could still do with the money) so WPP is coming home.
WPP has just reported its first half 2012 figures which show growth at 3.6 per cent against a hoped-for four per cent, with performance slowing further in July. However this might just be the lull before the Olympics and Paralympics spending storm. First half revenue was £4.9bn and pre-tax profits were up seven per cent to £358m.
WPP claimed net new business gains of £2.48bn in the period, which is pretty impressive although agency group estimates of new business should always be taken with a pinch of salt. Clients say they’re planning to spend a lot and frequently don’t. Not so good is the revelation that WPP’s net debt is £300m higher than a year ago at an eye-watering £2.9bn. Presumably this reflects the $540m (£340m) acquisition of digital agency AKQA as well as numerous piecemeal acquisitions across the world.
Margins were 11.5 per cent, in line with the company’s plans, but with all that net debt they need to be.
So is WPP performing well? On its own terms it is, it says EBITDA profit was up ten per cent to £682m but stating profit without interest, tax and depreciation is something only relatively new companies (like Peter Scott’s Engine Group) usually get away with. WPP has been going 26 years.
At some stage it needs to make some serious inroads into its net debt and, as Sorrell is unlikely to sell anything of substance, that means a prolonged period of organic growth, strong margins and no big acquisitions (the reason for the debt).
Is that likely? A freeze on acquisitions certainly isn’t with Sorrell at the helm.