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Industry consolidation benefiting WPP

Consolidation trends in the industry are benefiting WPP, as the group releases its preliminary results for 2013.

Billings are up by 4.1% at over £46 billion, said the company, and its operating margin is at a historical high of 15.1%. Estimated net new business billings of £6.119 billion were won in the year, up over 57% on the year before.

“The group continues to benefit from consolidation trends in the industry, winning assignments from existing and new clients, including several very large industry-leading advertising, digital, media, pharmaceutical and shopper marketing assignments, which partly benefited the latter half of 2013, but the full benefit of which will be seen in Group revenues in 2014,” said a WPP statement.

In Asia Pacific, Latin America, Africa & the Middle East and Central and Eastern Europe, revenue growth in the fourth quarter was fastest.

Advertising and media investment management was also the strongest performing sector, with constant currency revenues up 7.9% in the final quarter. Advertising grew well in North America, Asia Pacific and Africa with media investment management showing particularly strong like-for-like growth across all regions, especially in North America, with double digit growth.

Of the group’s advertising networks, JWT, Ogilvy & Mather and Grey performed especially well in North America in the fourth quarter, with Y&R performing strongly in the United Kingdom. However, the group’s advertising businesses in Western Continental Europe generally remained challenged.

For its PR brands however, growth was difficult, admits the company, particularly in North America, Continental Europe, Latin America and the Middle East. Despite “careful cost management”, operating margins fell by 0.4 margin points to 14.5%, it said.

WPP’s branding and identity, healthcare and specialist communications businesses’ (including direct, digital and interactive) constant currency revenues grew strongly at 8.4%. Revenue growth slipped slightly in the fourth quarter, due primarily to slower growth in parts of the Group’s branding & identity and specialist communications businesses, but overall the second half was much stronger than the first half on a like-for-like basis, said the company.

Strategy for 2014

In 2014, WPP’s prime focus will remain on growing revenues and gross margin faster than the industry average. This will be driven by its leading position in the new markets, in new media, in data investment management, including data analytics and the application of technology, creativity and “horizontality”.

Acquisition transactions will be focused on strategy of new markets, new media and data investment management, including the application of new technology and big data. Net acquisition spend is currently targeted at around £300 to £400 million per annum, added the company.

So far in 2014, acquisitions have already been made in the first two months in the United States, the Netherlands, Poland, Russia, South Africa, China and Vietnam.

At the same time, WPP will also concentrate on meeting its operating margin objectives by managing absolute levels of costs and increasing flexibility to adapt to its cost structure when a significant market changes. It also aims to ensure that the benefits of the restructuring investments taken in 2012 continue to be realised.

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