WPP Sees Boost in Profit

WPP Group—boosted by the better-than-expected performance of mature geographical markets and traditional media—said 2010 earnings before interest, taxes, depreciation and amortization jumped 16 percent to $2.3 billion. Revenue climbed 7.4 percent to $15.2 billion.
“Following a brutal 2009, when the post-Lehman financial world did not come to an end, as some had feared, 2010 was a year of significant recovery, as clients refocused on top-line sales growth and expansion, particularly in faster-growth geographic markets, as well as continued cost containment in the slower-growth markets of the United States and Western Europe,” the holding company said in a statement.
Billings rose 1.6 percent, or $65.9 billion, in 2010. It was a year of quarterly sequential improvement in revenue growth after none in the first quarter, which was followed by increases of 4.7 percent, 7.5 percent and 8.5 percent. WPP’s strong finish last year continued into 2011, with revenue in January increasing more than 8 percent.
In an interesting detail to the earnings release, WPP underscored its strategy is to continue to have variable staff costs—incentives, freelance and consultants fees—as a “significant” proportion of total staff costs and revenue in order to have flexibility in dealing with revenue volatility, economic slowdowns and recessions. “In 2010, there was a significant increase in the ratio of variable staff costs to total staff costs, rising to 13.4 percent and as a proportion of revenue, rising to 7.8 percent, representing the highest ratios for the last 10 years,” per WPP.
Even as profits rose 16 percent, headcount declined in 2010. At the end of the year, on a like-for-like basis, the average number of WPP employees fell 4.2 percent to 101,387 from 105,849 in 2009.
Going forward, the company noted the shift in geographic growth, saying: “The pattern of revenue growth looks as though it will be slightly different, with the balance of growth shifting from the West to the East to China and India, to the South to Brazil and Latin America and to the Southeast to Africa and, functionally, to media investment management, digital media and data analytics and the application of technology. The shift to the East applies even in Europe itself, as the strongman of Europe, Germany, forms a strong axis with Poland, relatively untouched by the recession and Russia, blessed with vast, increasingly valuable energy resources.”
WPP said 2011 client budgets indicate that revenue growth will continue at around 5 percent although the company voiced caution about Euro-zone contagion; America’s lack of willingness to confront deficit reduction; and the recent unrest in oil-producing countries in the Middle East and North Africa.