Interim Results - Part 1
WPP GROUP PLC
16 August 1999
PART 1
1999 INTERIM RESULTS
Profit before tax up 20% to £112.6 million
against £93.8 million
Fully diluted earnings per share up almost
17% to 9.8p from 8.4p
Interim ordinary dividend up 19% to 1.0p per share
Net new business billings of almost £1 billion
* Revenue up 13% to £1.017 billion and up over 11% in
constant currencies
* Profit before interest and tax up almost 19% to
£128.9 million and up almost 18% in constant
currencies
* Operating margin up 0.6% and 0.7% in constant
currencies in line with objectives
* Profit before tax up 20% to £112.6 million and up
over 19% in constant currencies
* Fully diluted earnings per share up almost 17% to
9.8p from 8.4p and up 16% in constant currencies
* Interim ordinary dividend up 19% to 1.0p per share
* Net new business billings of almost £1 billion ($1.6
billion) up 25% over £800 million ($1.3 billion) in
comparable period
Summary of Results
The Board of WPP Group plc announces its results for the
six months ended 30 June 1999, which show significant
continued improvement.
Reportable revenue was up 13% at £1.017 billion. On a
constant currency basis revenue was up over 11%.
Profit before interest and tax was up almost 19% to
£128.9 million from £108.5 million and up almost 18% in
constant currencies.
Reported operating margins rose by 0.6% to 12.7% from
12.1% in line with the Group's financial objectives. In
constant currencies the operating margin grew by 0.7%.
Operating costs rose by over 11% in reported figures, and
rose by over 9% in constant currencies.
The Group's staff cost to revenue ratio fell to 49.6%
from 50.2%. On a like-for-like basis the average number
of people in the Group was 26,916 in the first half of
the year, compared to 26,039 in 1998, an increase of
3.4%. The total number of people in the Group at the
half-year end was 27,334 against 25,565 in 1998.
Net interest payable and similar charges increased to
£16.3 million from £14.7 million, reflecting improved
profitability and liquidity more than offset by the
impact of increased interest rates, share repurchases and
acquisitions.
Reported profit before tax rose 20% to £112.6 million
from £93.8 million. In constant currency pre-tax profits
rose by over 19%. Pre-tax margins rose to 11.1% from
10.4%.
The tax rate on profit on ordinary activities fell to 31%
from 32% last year.
Fully diluted earnings per share were up almost 17% at
9.8p, and were up 16% in constant currencies.
The Board recommends an increase of 19% in the interim
ordinary dividend to 1.0p net per share.
Review of Operations
Revenue by Region
The pattern of revenue growth differed regionally. The
table below gives details of the proportion of revenue
and revenue growth (on a constant currency basis) by
region for the first six months of 1999.
Region Revenue as a % Revenue growth
of total group % 99/98
North America 44 15.4
UK 21 13.2
Continental Europe 20 12.2
Asia Pacific, Latin 15 -1.6*
America, Africa &
Middle East
___ ___
TOTAL GROUP 100 11.4
---- ----
* flat excluding impact of Australian de-consolidation
As can be seen, North America, UK and Continental Europe
continued to grow strongly. Recovery in Asia Pacific was
counter-balanced by continued weakness in Latin America.
Net new business billings of almost £1.0 billion ($1.6
billion) were won in the first half of the year, 25% up
on £800 million ($1.3 billion) in the comparable period
last year.
Revenue by Communications Services Sector and Brand
The pattern of revenue growth varied by communications
services sector and company brand. The table below gives
details of the proportion of revenue and revenue growth
by communications services sector (on a constant currency
basis) for the first six months of 1999.
Communications Revenue as a Revenue growth
Services % of total group % 99/98
Advertising, media 47 3.9
planning, buying and
research
Information and 19 16.8
consultancy
Public relationsand 8 26.1
public affairs*
Branding and 26 18.2
identity, healthcare
and specialist
communications
___ ___
TOTAL GROUP 100 11.4
---- ----
* The revenue figures submitted to the ODwyer Report
reflect some public relations income which is included
here in advertising and specialist communications. Total
public relations and public affairs revenues grew almost
25% to $163 million.
Advertising, Media Planning, Buying and Research
On a constant currency basis, combined revenue at Ogilvy
& Mather Worldwide (including Cole & Weber and
OgilvyOne), J Walter Thompson Company, Conquest and
MindShare rose by almost 6%, whilst operating margins
continued to improve.
Ogilvy & Mather Worldwide, J Walter Thompson Company,
Conquest and MindShare generated net new business
billings of £700 million ($1.1 billion), double that
achieved in the first six months of 1998.
Information and Consultancy
The Groups information and consultancy businesses
continued their growth, with revenues increasing by
almost 17%, gross profit by 15% and operating profit up
over 17%.
Public Relations and Public Affairs
The Groups public relations and public affairs revenues
showed significant continued growth, rising over 26%,
with operating margins at 14% well beyond previous
objectives. 15% operating margins look feasible. Hill
and Knowltons revenues rose over 15% and the company
continued to improve its operating margin strongly.
Ogilvy Public Relations Worldwides revenues rose by over
60%, also with significant improvement in its operating
margin.
Branding and Identity, Healthcare and Specialist
Communications
The Groups branding and identity, healthcare and
specialist communications revenues grew over 18% over
last year with gross margin up 17% and operating margins
improved.
Cashflow and Balance Sheet
A summary of the Groups cashflow statement, balance
sheet and notes as at 30 June 1999 are attached as
Appendix I.
Improved profitability and cashflow have continued to
have a positive effect on the Groups balance sheet and
liquidity. In the first half of 1999, profit before
interest and tax was £129 million, depreciation £20
million and capital expenditure £22 million. As a result
of cash acquisition payments of £54 million and share
repurchases of £4 million (these totalling £149 million
for the last twelve months and the bulk of which was paid
in the third and fourth quarter of 1998), constant
currency net debt increased to average £177 million in
the first half against £126 million in the comparative
period last year.
On 30 June 1999 net bank borrowings were £52 million
against £29 million on 30 June 1998 on a constant
currency basis.
The Board continues to examine ways of deploying its
substantial cashflow of over £200 million per annum to
enhance share owner value particularly given that
interest cover is almost eight times. As necessary
capital expenditure normally approximates to 1-1.2x the
depreciation charge, the Company has concentrated on
examining possible acquisitions or returning excess
capital to share owners in the form of dividends or share
buy-backs.
In the first half of 1999, acquisitions have been
completed in advertising, media planning, buying and
research in Argentina, Brazil, France, Italy, Spain, the
UK and the USA; in information and consultancy in
Argentina, Mexico and the USA; in public relations and
public affairs in the USA; and in branding and identity,
healthcare and specialist communications, in Germany, the
UK and the USA. Particularly interesting functional
acquisitions and investments have been made in the
worlds leading loyalty marketing company (Brierley
Partners), hi-tech public relations and public affairs
(Blanc & Otus), sports sponsorship, marketing and public
relations (PRISM), corporate reputation research (BPRI),
multi-ethnic marketing (MSRC), call center marketing
(Center Partners), digital and new media (NoHo), on-line
technology advertising (Dazai), airline market research
(Jochems Ladendorf), television audience measurement
(ILASA) and financial services marketing consultancy
(PFour).
wpp.com
Given the growth of the Groups new media revenues and
investments it has been decided to form a new media
parent company, wpp.com. Like WPP itself and Kantar,
wpp.com will be a parent company seeking to add value in
the new technology area to clients and our people and
accelerate the development of our interactive
capabilities and revenues. wpp.com will co-ordinate all
our new media activities across our operating brands.
wpp.coms non-executive Chairman will be WPP non-
executive director, Esther Dyson, and its Chief Executive
will be Eric Salama, WPPs Strategy Director.
If it was a separate company wpp.coms revenues would be
estimated at $100 million in 1999 with interests spanning
three areas. First, minority investments which WPP has
previously made, either directly or indirectly through
West Coast based venture funds MTV and MTEP. Companies
in which WPP has invested include Peapod, BroadVision,
Talk City and Quokka as well as others some of which may
be listed shortly, such as Medscape. Investments have
totalled approximately $20 million so far. WPP does not
consolidate any revenues from these investments but may
liquidate the stakes at some stage in the future.
Secondly, minority investments in Internet and
interactive marketing services companies such as Syzygy,
UK Web Agency of the Year and United Media in Germany.
And thirdly, interactive revenues from wholly owned
operating companies, the most important of which include
OgilvyInteractive, the leading global web development
company and recent winner of the majority of the first
Cyber Lions at Cannes and AdAges International
Interactive Agency of the Year; JWT Connect; MindShare,
which in combination with OgilvyInteractive is the
largest buyer of Internet media in the world;
MBInteractive, widely regarded as the most advanced
Internet-based research company; AlexanderOgilvy and
Blanc & Otus, two of the leading hi-tech and web public
relations firms in the United States; and Bravant, an
Internet-based recruitment company recently spun out of
JWT Specialized Communications.
Major clients of wpp.com will include IBM, Ford, Qwest,
Mindspring, WebMD, DrKoop, etoys, Ameritrade, Ziff Davis
and Double Click. wpp.coms Board will include
management from OgilvyInteractive, JWT Digital
Communications, Kantar, MBInteractive, Hill and Knowlton,
Blanc & Otus, Ogilvy Public Relations Worldwide,
AlexanderOgilvy, Bravant and Clever Media. The CEOs of
wholly owned new media operating companies will continue
to report into their existing management but will have a
dotted line responsibility to wpp.com.
In addition to increasing the interim dividend by 19% to
£7.8 million or 1.0p per share, the Company has continued
its rolling share buy-back programme in the first half of
the year by repurchasing 803,000 shares at an average
price of £5.13 per share and total cost of £4.1 million.
The companys objective remains to buy-back approximately
£50 million of shares each year, equivalent to 1-2% of
the ordinary share capital.
Client Developments in the First Half of 1999
At the end of the half year, the Group worked with over
330 major national or multi-national clients in three or
more functions. This reflects the increasing
opportunities for co-ordination between activities both
nationally and internationally. The Group also works
with well over 100 clients in 6 or more countries. The
Group now serves more than 300 of the Fortune 500 and
including associates employs over 33,000 people in 950
offices in 92 countries.
The Group estimates that more than 20% of new assignments
in the first half of the year were generated through the
joint development of opportunities by two or more Group
companies.
Current Progress and Future Prospects
The Groups performance has continued to improve in the
first half of 1999.
Geographically the United States, United Kingdom and
Continental Europe have done particularly well with
significant improvements in revenue, operating profits
and margins. Whilst Asia Pacific has begun to recover,
Latin America continues to be weak.
Functionally, advertising has continued to improve its
operating profits and margins, whilst information and
consultancy, public relations and public affairs and
branding and identity, healthcare and specialist
communications have continued to improve operating
profits or margins at higher levels of revenue growth.
By brand, Ogilvy & Mather Worldwide, Conquest, Millward
Brown, Goldfarb Consultants, Kantar Media Research, Hill
and Knowlton, Ogilvy Public Relations Worldwide,
RTCdirect, Mando Marketing, Coley Porter Bell, Enterprise
IG Europe, BDG McColl, Scott Stern, CommonHealth,
Management Ventures, The Henley Centre, Savatar,
WalkerGroup/CNI, The Geppetto Group, Windi Winderlich,
The Food Group, PRISM Group and The Farm all have
performed particularly well.
Underlying revenue trends are sound with the Group
growing faster than the market and therefore increasing
market share. Prospects for the latter half of 1999 look
similar to the first half (early indications are that
July revenues are up almost 9% on a constant currency
basis) and projections for advertising market growth in
2000 look better than 1999 in the range of 5-6%.
Continual concerns about stock market valuations and
economic over-heating on both sides of the Atlantic are
more than balanced by the focus by governments on
interest rate policy, the stimulative effects of the 2000
US Presidential Election, the 2000 Olympics and the
Millennium itself.
Although market conditions are reasonable, plans, budgets
and forecasts of revenues will continue to be made on a
conservative basis and considerable attention is still
being focused on achieving margin and staff cost to
revenue targets. Continued progress is being made in
these areas. For example, on a comparable basis, the
combined operating margins of Ogilvy & Mather Worldwide,
J Walter Thompson Company and MindShare rose to 14.6%
from 14.0% in the first half of 1999 compared to the same
period in 1998.
In addition to influencing absolute levels of cost, the
initiatives taken by the parent company in the areas of
human resources, property, procurement, information
technology and practice development have improved the
flexibility of the Groups cost base.
This will become increasingly important if and when
economic activity stalls. Over the last five years fixed
staff and property costs have fallen to 51.5% from 56.9%
of revenue. The Group continues to improve co-operation
and co-ordination between companies in order to add value
to our clients businesses and our peoples careers, an
objective which has been specifically built into short-
term incentive plans. Particular emphasis and success
has been achieved in the areas of media planning, buying
and research, healthcare, privatisation, new
technologies, new markets, retailing, internal
communications, hi-tech, financial services and media and
entertainment.
The Group continues to concentrate on the six objectives
of improving operating profits by 15-20% per annum;
improving operating margins by 1% per annum or more
depending on revenue growth; improving staff cost to
revenue ratios by 0.6% per annum or more depending on
revenue growth; converting 20-33 1/3% of incremental
revenue to profit and growing revenue faster than
industry averages; encouraging co-operation between Group
companies and improving the quality of the Groups
creative product through recruitment, training, career
development and acquisition.
As mentioned in the annual report your Board continues to
review the competitive environment in relation to
compensation for key executives. Plans are being
developed internally and in discussion with major share
owners. Details will be sent in due course to share
owners for their review and approval.
In addition to introducing greater flexibility into its
cost structure, the Group is competitively well
positioned to weather any economic uncertainty because of
its stronger financial position, its geographic spread,
its consistent new business record and its competitive
strength in information and consultancy, public relations
and public affairs and identity and branding, healthcare
and specialist communications - particularly as clients
decide to spend an increasing proportion of their
marketing budgets on 'below-the-line' activities.
The Group is in line to achieve its third margin plan
targets of 13.4% in 1999 and 14% in 2000. Given the
achievement of this plan, consideration is being given to
developing a fourth margin plan for further improvement
in margin profitability.
Given a stable or improving economic climate the Group
should make further progress as operating margins still
remain below the achievements of the very best performing
competition. The strong start to the first half of 1999
has been further strengthened by significant new business
wins since 30 June totalling more than $700 million from
Ford (Brazil), Mattel, Miller Brewing, Northwest
Airlines, Unilever, WebMD and Wings Alliance.
The only sad piece of news to report so far in 1999 was
the death of David Ogilvy, the founder of The Ogilvy
Group, which became a part of WPP in 1989. David was
Chairman of WPP itself from 1989-1992. He died
peacefully at his home, Chateau Touffou at Bonnes, France
on July 21 aged 88 and is survived by his wife Herta and
son David. There are very few people in the world who
made such an impact on our industry. David ranks with
the very greatest - Bill Bernbach, Raymond Rubicam, Leo
Burnett, Stanley Resor, James Webb Young and perhaps a
very few others. No other Briton has made or will make
such an impact on our business as David did; not only
because of his thinking in relation to advertising and
the importance of strategic analysis, creative execution
and effective work - but also because there, in his
remarkable books, is further evidence of his breadth of
vision and foresight. He was amongst the first, if not
the first, to identify the importance of recruiting and
training the best and brightest young people, the value
of effective market research and the significance of
direct marketing. In many ways, David foresaw the
development of the new technologies which are having such
an important influence on our business today.
Perhaps the best way to remember David is the way he
wanted to be remembered. In December 1996, at the age of
85, he wrote, 'Horace wrote my epitaph, and Dryden
translated it into English:
Happy the man, and happy he alone,
He who can call today his own;
He who, secure within, can say,
Tomorrow, do thy worst, for I have liv'd today.'
This announcement has been filed at the Company
Announcements Office of the London Stock Exchange and is
being distributed to all owners of Ordinary shares and
American Depository Receipts. Copies are available to
the public at the Companys registered office.
The following cautionary statement is included for safe
harbour purposes in connection with the Private
Securities Litigation Reform Act of 1995 introduced in
the United States of America. This announcement may
contain forward-looking statements within the meaning of
the US federal securities laws. These statements are
subject to risks and uncertainties that could cause
actual results to differ materially including adjustments
arising from the annual audit by management and the
companys independent auditors. For further information
on factors which could impact the company and the
statements contained herein, please refer to public
filings by the company with the Securities and Exchange
Commission. The statements in this announcement should
be considered in light of these risks and uncertainties.
For further information:
Martin Sorrell ) 44-20-7408-2204
Feona McEwan )
Andrew Hall ) 1-212-632-2314
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