WPP to crank up buyback programme despite disappointing results

It's been a big day for shocks on the markets and services group WPP has added to the drama by announcing it missed its 2013 margin target and slashed its 2014 profitability benchmark forecast, sending its shares down 5.5% to 1258p.

While its headline operating profit margin climbed 0.3 percentage points to 15.1% in 2013, this was less than the 0.5 point increase chief executive Sir Martin Sorrell (pictured) had targeted. The group also trimmed its target increase in operating profit margins for the coming year to 0.3 percentage points from 0.5 percentage points.

However WPP did much better than its big four industry rivals with an 18% increase in pre-tax profits to £1.29 billion. Full-year revenues were up 6.2% at £11.01 billion, with a third of the growth generated by its 62 acquisitions in the year, 32 of which were in new media.

Sorrell is focussing on acquisitions in the new markets of digital and data investment management and plans to continue to spend £300 million to £400 million per year in these sectors, particularly in the faster growing emerging markets.

Solid performance

The group enjoyed a solid performance across its advertising, media and PR divisions in the UK but suffered from sluggish growth at its data investment division. The UK advertising agencies JWT and Ogilvy and media agencies Mindshare and Maxus formed a bright spot with a 10.9% rise in revenues to £1.41 billion.

Its UK PR firms Hill & Knowlton and Burson-Marsteller also did well, but the group's data investment management unit, which includes TNS and Millward Brown, failed to match the rest of the UK business as companies cut back on third-party suppliers.

WPP said it anticipated a moderate improvement in client confidence in 2014, fuelled by the Fifa World Cup and Olympics in Brazil, but said the strong UK pound and weak emerging market currencies would continue to hit margins. The company is also facing increased competition from new blood in the software, accounting and consulting sectors, which are moving in on digital marketing services.

The merger between Omnicom and Publicis, which will supersede WPP as the number one operator, is expected to receive final approval in the coming months, but already WPP is saying that consolidating competitors are discounting their pricing heavily.

Looking ahead, the group's growth is likely to accelerate, because January like-for-like revenues rose by 5.7%.

The company nonetheless announced it would more than double the size of its share buyback programme from around 1% of its outstanding share capital to 2-3%. The final dividend was also lifted by 20%, bringing the total dividend for the year to 34.21p, with a promise that it would be further boosted by 45% over the next two years.

The group took the opportunity to highlight that the vote on Scottish independence and uncertainty about Britain's membership of the EU could hamper the business. Such mentions are becoming increasingly frequent in company announcements.