While his quest to secure Britain's largest executive pay package received a setback yesterday as shares in WPP were hit by disappointment that full- year results were not accompanied by a share buy-back, strong profits growth last year mean Mr Sorrell is almost certain to clear all obstacles to his unprecedented pay bonanza.
The advertising and PR group's shares fell yesterday from 267p to 253p, below one of four trigger points for the issue of free shares worth more than pounds 14m. Mr Sorrell has already passed one milestone, at 198p a share, and is about to secure another 1.17 million shares, worth pounds 3m, because WPP's shares will soon have been above 230p for 60 consecutive working days.
To secure the maximum share handout he must navigate WPP's shares above 265p and then 304p for the same 60-day qualifying period before September 1999. With the advertising market growing strongly and WPP's shares trading on a relatively undemanding rating by industry standards, he looks certain to clear the hurdles.
The market had braced itself for a share buy-back yesterday and was disappointed that WPP only said it was putting aside pounds 25m for returning to shareholders "when market conditions are appropriate". Mr Sorrell did say, however, that strong cashflow would mean the Ogilvy & Mather to J Walter Thompson media combine would be debt free within two years.
That would represent a considerable achievement for a company that came close to going under in the early 1990s, swamped by a mountain of debts incurred during a heavy spending spree in the boom conditions of the late 1980s. Only a series of financial restructurings allowed WPP to start the long haul back to recovery.
Yesterday's figures for the year to December 1996 confirmed the continuation of that recovery. Pre-tax profits of pounds 153.3m compared with pounds 113.7m in 1995 and less than pounds 8m in 1992. Earnings per share rose 46 per cent to 13.3p, above consensus expectations and the final dividend increased 32 per cent to 1.144p.
Mr Sorrell said operating margins, which increased during the year from 9.6 to 10.8 per cent, would continue rising at more than 1 per cent a year.
He said there was no reason why WPP should not match its best performing rivals such as Omnicom and Interpublic, whose best-performing divisions generated a return on sales of up to 17 per cent.Reuse content