Preliminary Results - Part 1
WPP Group PLC
23 February 2007
For Immediate Release 23 February 2007
WPP
2006 PRELIMINARY RESULTS
Billings up 13% to £30.1 billion
Reported revenue up almost 10% to £5.9 billion
Like-for-like revenue up 5.4%
Headline operating margin up 0.5 margin points to 14.5%
EBITDA crosses £1 billion for first time
Headline operating profit before interest and tax up almost 14% to £859 million
Headline Profit before tax up over 14% to £766 million
Profit before tax up over 15% to £682 million
Diluted headline earnings per share up almost 17% at 42.0p
Final dividend up 20% to 7.61p per share
• Billings up 13.0% to £30.141 billion.
• Revenue up 9.9% to £5.908 billion.
• Like-for-like revenue up 5.4%.
• Second half like-for-like revenue growth accelerates to 5.7% and
quarter four to 7.2%.
• Headline operating profits before interest and tax up 13.8% to
£859.0 million from £754.8 million.
• Operating margin up 0.5 margin points to 14.5% from 14.0%.
• Headline profits before tax up 14.5% to £766.3 million from
£669.0 million.
. 0p from 36.0p.
• Reported diluted earnings per share up 18.5% to 35.2p from 29.7p.
• Final dividend up 20% to 7.61p per share making a total for the year
of 11.21p up 20% over 2005.
• Average net debt up £121 million to £1,214 million from £1,093 million
(at 2006 exchange rates).
• Estimated net new billings of over £3.562 billion ($6.411 billion).
• Operating margin targets of 15.5% and 16.0% set for 2008 and 2009.
• Target percentage for rolling share-buyback programme increased to
4-5% of share capital for 2007 and 2008.
In this press release not all of the figures and ratios used are readily
available from the unaudited preliminary results included in Appendix I. Where
required, details of how these have been arrived at are shown in the Appendix.
Summary of results
The Board of WPP Group plc ("WPP") announces the unaudited preliminary results
for the year ended 31 December 2006, the Group's twenty-first year. These
record results again reflect the continued steady strength of the world economy
positively impacting almost all disciplines and geographies and the strength of
the Group's operating brands and franchise.
Billings were up 13.0% at £30.141 billion, around $55 billion.
Reportable revenue was up 9.9% to £5.908 billion. Revenue, including 100% of
associates, is estimated to total over £7.010 billion. On a constant currency
basis, revenue was up 10.9% and gross margin up 10.3%. Like-for-like revenues,
excluding the impact of acquisitions and on a constant currency basis, were up
5.4%. On the same basis, gross margin was up 5.7%. Like-for-like revenues were
up 5.0% in the first half of 2006 and up 5.7% in the second half, continuing the
strong organic growth of 5.5% in 2005, with the fourth quarter of 2006,
accelerating to 7.2%. The fourth quarter was the Company's first $3 billion
revenue quarter.
Headline earnings before interest, depreciation and amortisation ("EBITDA") was
up 14.2% to £1.002 billion and up 16.0% in constant currencies. Headline
operating profit was up 13.8% to £859 million and up 15.7% in constant
currencies.
Reported operating costs together with direct costs (but excluding goodwill
impairment, amortisation of acquired intangibles and profits on disposal of
fixed asset investments), rose by 9.3% and by 10.1% in constant currency.
Like-for-like total operating and direct costs rose 4.3%. Reported staff costs,
excluding incentives (which includes the cost of share-based compensation), were
up 9.1%. Incentive payments (including the cost of share-based compensation)
totalled £246.9 million (£227.6 million in 2005), an increase of 8.4%, which
represents 23.1% (24.0% in 2005) of headline operating profit before bonuses,
taxes and income from associates. Before these incentive payments, operating
margins increased by 0.4 margin points to 18.7% from 18.3%. On a reported
basis, the Group's staff cost to revenue ratio improved 0.5 margin points to
58.8% compared with 59.3% in 2005.
Part of the Group's strategy is to continue to increase variable staff costs as
a proportion of total staff costs and revenue, as this provides flexibility to
deal with volatility in revenues. Through the cyclical upswing of the 1990s,
variable staff costs as a proportion of total staff costs increased, reaching a
peak of 12.1% in 2000. The impact of the recession in 2001 and 2002 was to
reduce this ratio to 9.2% and variable staff costs as a proportion of revenue to
5.3% (calculated under 2004 UK GAAP). In 2004, following the significant
improvement in pre-bonus operating profit and incentives, variable staff costs
as a proportion of staff costs increased further. There was a slight
deterioration in 2005, with the ratio declining slightly by 0.4 percentage
points, to 12.8% (under IFRS - which includes 1.0 percentage points attributable
to share-based compensation), but in 2006 the ratio strengthened again to 13.0%.
The number of people in the Group averaged 77,686 against 70,936 in 2005, an
increase of 9.5%. On a like-for-like basis, average headcount was up to 77,686
from 74,971, an increase of 3.6%. At the end of 2006, staff numbers were 79,352
compared with 76,532 at the end of 2005 on a like-for-like basis, an increase of
3.7%.
Net finance costs (excluding the revaluation of financial instruments) were
£92.7 million up from £85.8 million last year, an increase of £6.9 million,
largely reflecting higher interest rates, offset by the impact of improved
liquidity as a result of a reduction in average working capital.
Headline operating profit or profit pre-goodwill impairment, amortisation of
acquired intangibles, interest, tax and investment gains and write-downs was up
13.8% to £859.0 million from £754.8 million and up 15.7% in constant currencies.
Reported profit before interest and tax was up 14.0% to £782.7 million from
£686.7 million and up 15.9% in constant currencies. Headline profit before tax
or profit pre-goodwill impairment, amortisation of acquired intangibles,
investment gains and write-downs, revaluation of financial instruments and tax
was up 14.5% to £766.3 million from £669.0 million and up 16.8% in constant
currencies. Reported headline operating margin (including income from
associates) increased 0.5 margin points to a record 14.5% from 14.0%, in line
with the revised target set in February 2006.
Reported profit before tax rose by 15.2% to £682.0 million, and by 17.6% in
constant currencies.
The Group's tax rate on headline profits was 26.0%, a reduction of 3.0
percentage points over 2005. This reflects the continuing positive impact of
the Group's tax planning initiatives, particularly in relation to Grey which had
a tax rate on acquisition in excess of 45%.
Diluted headline earnings per share were up 16.7% at 42.0p. In constant
currency, earnings per share on the same basis were up 18.9%. Diluted earnings
per share rose by 18.5% to 35.2p and by 21.0% in constant currencies.
The Board recommends an increase of 20% in the final dividend to 7.61p per
share, making a total of 11.21p per share for 2006, a 20% increase over 2005.
The record date for this dividend is 8 June 2007, payable on 9 July 2007. The
dividend paid in 2006 is over four times covered by headline earnings.
Further details of WPP's financial performance are provided in Appendix I.
Review of operations
The Group's financial performance in the year more than mirrored the continuing
steady strength in economic conditions across the globe, with even the weakest
geographical region, Western Europe, picking up in the second half.
2006, a mid-year of the quadrennial 2005-2008 cycle, was strong, to some extent
reflecting the positive impact of events such as the winter Olympics in Turin,
the FIFA World Cup in Germany and the mid-term congressionals in the United
States. Three geographical growth speeds remain though - fastest growth in Asia
Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe;
a surprisingly steady speed in the United States; and a slower speed in Western
Europe.
2006 also marked continued client focus on top-line growth, as corporate
profitability, margins and liquidity continued to improve significantly.
Corporate profitability remains at historically high levels on both sides of the
Atlantic. This resulted in continued high levels of new business activity.
Network television price inflation and declining audiences, fragmentation of
traditional media and rapid development of new technologies continued to drive
experimentation by our clients in new media and non-traditional alternatives.
1998 was really the first year when WPP's marketing services activities
represented over 50% of Group revenue. By 2004, these activities represented
almost 54% of Group revenue. In 2005, they represented 52%, as media investment
management was again the fastest growing part of our business, following major
success in winning media planning and buying consolidations, and reflected the
first time inclusion of Grey Worldwide and MediaCom. In 2006, the underlying
relative strength of the inaptly named "below-the-line" services re-asserted
itself, as marketing services grew to 52.5% of revenues. In addition, in 2006,
our narrowly defined internet-related revenue was almost $1 billion or over 9%
of our worldwide reported revenue. This is more than the 6-7% for on-line
media's share of total advertising spend both in the United States and
worldwide. The new media continue to build their share of client spending.
Revenue and operating profit by region
The pattern of revenue growth differed regionally. The table below gives
details of revenue and revenue growth (on a constant currency basis including
the impact of acquisitions) by region for 2006 as well as proportions of
operating profits:
Region Revenue as a % of Revenue growth % + Operating profit as Like-for-Like Revenue
Total Group /(-) 06/05 a % of Total Group growth
% +/(-)
06/05
North America 39.1 10.3 45.5 4.6
United Kingdom 14.3 6.0 11.1 1.8 *
Continental Europe 25.5 9.0 22.2 5.1
Asia Pacific, Latin
America, Africa & the Middle
East 21.1 18.3 21.2 9.6
_____ ____ _____ ____
Total Group 100.0 10.9 100.0 5.4
_____ ____ _____ ____
* Gross margin up 3.3%
The United States continues to surprise positively, with like-for-like growth of
4.6%, up slightly on the first half. Latin America remained one of the fastest
growing regions, as it was in 2004 and 2005. Asia Pacific remained strong
across the region, with Mainland China and India fastest growing, with
like-for-like growth rates of 23% and 19% respectively. Western Continental
Europe, although relatively more difficult, improved slightly in the second
half. The United Kingdom was stronger in the latter half of the year, reflecting
some improvement in the media economy, particularly in the fourth quarter. As
seen in the first half, rates of growth in Europe continue to be two-paced, with
Western Continental Europe remaining softer and Central and Eastern Europe,
Russia and the other CIS countries, in particular, more buoyant. Of the big
five Western European markets, Spain remains a standout growth market, although
the United Kingdom, France, Germany and Italy all began to show some renewed
signs of life.
Estimated net new billings of £3.562 billion ($6.411 billion) were won last
year, reflecting in part strong media investment management new business. The
Group was ranked second in the two major new business surveys for 2006.
Revenue and operating profit by communications services sector and brand
The pattern of revenue growth also varied by communications services sector and
brand. The table below gives details of revenue and revenue growth by
communications services sector for 2006 (on a constant currency basis including
the impact of acquisitions) as well as proportions of operating profits:
Communications services Revenue as a % of Revenue growth % + Operating profit as Like-for-Like
Total Group /(-) 06/05 a % of Total Group Revenue growth
% +/(-)
06/05
Advertising, Media
Investment Management 47.5 8.5 51.6 4.3
Information, Insight &
Consultancy 15.1 11.2 11.5 4.1 *
Public Relations & Public
Affairs 10.1 12.4 10.4 5.9
Branding & Identity,
Healthcare & Specialist
Communications 27.3 14.6 26.5 7.8
______ _____ _____ _____
Total Group 100.0 10.9 100.0 5.4
______ _____ _____ _____
* Gross margin up 6.1%
Media investment management continued to show the strongest growth of all our
communications services sectors, along with direct, internet and interactive and
specialist communications. Direct and digitally-related activities now account
for over 20% of the Group's revenues, which are running at the rate of over $11
billion per annum. Brand advertising, particularly in the new faster growing
markets, along with information, insight & consultancy and branding & identity,
healthcare and specialist communications, show consistent growth. Public
relations and public affairs also continues to show significant improvement over
last year, following a strong year in 2005. The new technologies have
demonstrated the power of editorial publicity through fast-growing new
applications of new technology such as MySpace, YouTube, Facebook, Flickr and
Second Life. Media investment management and information, insight & consultancy
combined, grew by 10% in the year on a like-for-like basis, well ahead of
independent competitors.
Advertising and Media Investment Management
In constant currencies, advertising and media investment management revenue grew
by over 8%. Like-for-like revenue growth was over 4%. The combined operating
margin of this sector is almost 16%.
In 2006, Ogilvy & Mather Worldwide generated estimated net new billings of
£187 million ($336 million), JWT £155 million ($279 million), Y&R Advertising
£111 million ($200 million) and Grey Worldwide £130 million ($235 million).
Also in 2006, GroupM, the Group's media investment management company, which
includes MindShare, Mediaedge:cia, MediaCom and MAXUS generated estimated net
new billings of £2.423 billion ($4.361 billion).
The Group was ranked first and second respectively in the Gunn Report awards
rankings for media and creative in 2006.
Information, Insight and Consultancy
On a constant currency basis information, insight and consultancy revenues grew
over 11%, with like-for-like revenues up over 4%. Gross margin grew by over 6%
on a like-for-like basis. Overall margins improved by 0.9 margin points to
11.1%.
Strong performances were recorded by Millward Brown (Millward Brown, Greenfield
Consulting Group and Dynamic Logic in the United States, IMS in Ireland, MFR in
France, Germany, Hungary, Turkey, Impact in South Africa, ACSR in China, Japan,
Korea, Mexico, Brazil and Colombia); BMRB International in the United Kingdom,
KMR Group; Research International (in Belgium, Germany, Spain, SIFO in Sweden
Poland, South Africa, Mexico, China, Malaysia, Indonesia, Singapore and
Australia); Center Partners and Ziment in the United States; IMRB in India;
Lightspeed Research in the United States and the United Kingdom; Icon Added
Value in Germany, South Africa and China; Management Ventures and Cannondale
Associates in the United States, BPRI in the United Kingdom and Glendinning in
the United States and the United Kingdom.
Public Relations and Public Affairs
Public relations and public affairs continued its strong growth with constant
currency growth of over 12% and like-for-like growth of almost 6%. Particularly
strong were Ogilvy Public Relations Worldwide, Hill & Knowlton,
Burson-Marsteller, Cohn & Wolfe, Finsbury and Buchanan.
Operating margins continued to improve and are now over 15.0%, an improvement of
1.1 margin points over the previous year.
Branding and Identity, Healthcare and Specialist Communications
The Group's branding and identity, healthcare and specialist communications
revenues rose by over 14%. Like-for-like revenues rose by almost 8%. Operating
margins were up 0.6 margin points. The Group's healthcare and direct, internet
and interactive businesses showed particularly strong revenue growth.
Several companies performed particularly well:
• in branding and identity - Landor Associates in New York and Chicago in the
United States, Germany, Spain, Dubai, Japan, Greater China and Australia;
Enterprise IG in the United States, the United Kingdom, France and Brindfors
in Sweden; Fitch in Phoenix and Columbus in the United States, the United
Kingdom and Qatar.
• in healthcare - Sudler & Hennessey in New York and HealthAnswers Education
in the United States, Transart in the United Kingdom, Germany, Italy,
Sydney in Australia and India; Grey Healthcare Group in the United States,
the United Kingdom, France and Germany; in Ogilvy Healthworld in the
United States, Canada, France, Italy and the Netherlands, Mexico and
Australia.
• in promotion and direct marketing - OgilvyOne (in New York, Minneapolis,
San Francisco, Leopard and Neo@Ogilvy in the United States, Canada, Germany,
France, the Netherlands, Portugal, Italy, Brazil, Argentina, Malaysia,
Singapore, Greater China, India and Korea); 141 Worldwide (in Boomerang in
the United States, the United Kingdom, Chile, Japan, Malaysia and the
Philippines); Wunderman (in Seattle, RTC, KBM, Fortelligent, Studiocom and
ZAAZ in the United States, Canada, Burrows and Good Technology in the
United Kingdom, Greece, South Africa, Argentina, Chile and Brazil);
RMG Connect (in Canada, France, Italy, Spain, Germany, Brazil, Mexico, India
and Singapore); G2 (in the United States, MDS in the United Kingdom, France,
Denmark, Sweden, Brazil, Argentina, Colombia and Korea).
• in specialist marketing resources - VML, Bridge, MJM, Pace and The Food
Group in the United States, EWA, the Forward Group, Mando, BDGworkfutures,
Dovetail and Headcount in the United Kingdom and Global Sportnet in Germany.
Manufacturing
Revenues and profits at the Group's manufacturing division were down in 2006.
Balance sheet and cash flow
The unaudited preliminary Group consolidated balance sheet as at 31 December
2006 is attached in Appendix I. As at 31 December 2006, the Group's net debt
increased slightly to £815 million compared with £804 million at 31 December
2005.
Net debt averaged £1,214 million in 2006, flat against 2005 (up £121 million at
2006 exchange rates). These net debt figures compare with a current equity
market capitalisation of approximately £9.5 billion, giving a total enterprise
value of approximately £10.5 billion, market values which lead the industry.
Cash flow strengthened as a result of improved working capital management and
cash flow from operations. In 2006, operating profit before goodwill impairment,
amortisation of acquired intangible assets and charges for non-cash based
incentive plans was £893 million, capital expenditure £185 million, depreciation
£143 million, tax paid £162 million, interest and similar charges paid £58
million and other net cash inflows of £85 million. Free cash flow available for
debt repayment, acquisitions, share buybacks and dividends was therefore £716
million. This free cash flow was partially absorbed by £216 million in net
acquisition payments and investments, share repurchases and cancellations of
£258 million and dividends of £119 million. This resulted in a net inflow of
£123 million, well in excess of the objective introduced in 2003 of covering
outgoings by free cash flow. An unaudited consolidated cash flow statement is
included in Appendix I.
In the first seven weeks of 2007, up until 16 February, the last date for which
information is available prior to this announcement, net debt averaged £853
million down £160 million versus £1,013 million for the same period last year at
2007 exchange rates.
Your Board continues to examine ways of deploying its EBITDA of over £1 billion
(over $1.9 billion) and substantial cash flow of over £700 million or over $1.3
billion per annum to enhance share owner value. As necessary capital
expenditure, spent mainly on information technology and property, is expected to
remain approximately equal to the depreciation charge in the long-term, the
Company has concentrated on examining potential acquisitions and on returning
excess capital to share owners in the form of dividends and/or share buy-backs.
In 2006, the Group continued to make small to medium-sized acquisitions and/or
investments in high growth geographical or functional areas. The net initial
cost of all acquisitions was £112 million in cash, in advertising and media
investment management in the United States, the United Kingdom, the Netherlands,
Germany, South Africa, Israel, China, Singapore, New Zealand and Brazil; in
information, insight & consultancy in the United States, Spain, Argentina, Hong
Kong and China; in public relations & public affairs in the United States,
Canada and India; in branding and identity in India; in healthcare in the United
States, the Netherlands, Spain and Switzerland and in direct, internet &
interactive in the United States, Germany, China and Korea.
As outlined in the Group's 2006 Interim Announcement, the Group carried out a
review of its share repurchase programme earlier in 2006 with the aim of
increasing the buy-back of shares to 2-3% of its share capital each year, as
compared with 1-2% historically. Consistent with this objective, in 2006, 38.874
million ordinary shares were purchased, equivalent to 3.1% of the share capital,
including 5.717 million ordinary shares acquired by the WPP ESOP in connection
with restricted stock awards. These shares were acquired at an average price of
£6.64 per share and total cost of £258.2 million. Of these shares, 33.157
million were purchased in the market and subsequently cancelled. Such annual
rolling share repurchases are believed to have a more significant impact in
improving share owner value than sporadic buy-backs.
Following a further recent review of the Company's capital structure with its
financial advisers, your Board has decided to further increase the target
percentage for rolling share buy-backs on the open market, from 2-3% of its
share capital each year, or approximately £200-300 million, to 4-5%, or
approximately £400-500 million in each of 2007 and 2008, when market conditions
are appropriate.
As noted above, your Board has also decided to increase the final dividend by
20% to 7.61p per share, taking the full year dividend to 11.21p per share.
Developments in 2006 and 2007
Including associates, the Group had over 98,000 full-time people in over 2,000
offices in 106 countries at the year end. It services over 340 of the Fortune
Global 500 companies, over one-half of the Nasdaq 100, over 30 of the Fortune
e-50, and approximately 400 national or multi-national clients in three or more
disciplines. More than 280 clients are served in four disciplines and these
clients account for over 57% of Group revenues. The Group also works with
nearly 230 clients in six or more countries.
These statistics reflect the increasing opportunities for developing client
relationships between activities nationally, internationally and by function.
The Group estimates that over 35%. of new assignments in the year were generated
through the joint development of opportunities by two or more Group companies.
New integration mechanisms, sensitive to global and local opportunities,
including WPP global client leaders and country managers, continue to be
developed. There is an increasing number of major client creative and
integration opportunities at a Group level.
Future prospects
The world economy continued to grow in 2006, after the recovery in both 2003 and
2004, driven by the United States, Asia Pacific, Latin America, the Middle East,
Russia and the other CIS countries. As a result, your Company has performed at
record levels. In addition, Africa also showed significant signs of growth, no
doubt stimulated by Chinese interest and investment and is becoming a continent
of opportunity. The FIFA World Cup in South Africa in 2010 will have a
significant impact in focusing further attention on the African continent.
Whilst like-for-like revenues have grown beyond market expectations,
like-for-like average headcount has grown less. Following this productivity
improvement, the Group's margins at both the pre- and post-incentive levels have
improved. In addition, given improved levels of operating profit and margin,
incentive pools and variable staff costs are now at record levels. This will
improve operational gearing and flexibility in 2007 and beyond.
The task of improving property utilisation continues to be a priority with a
portfolio of approximately 18.4 million square feet worldwide. In December
2002, establishment cost as a percentage of revenue was 8.4%, with a goal of
reducing this ratio to 7.0% in the medium term. At the end of 2004 the
establishment cost to revenue ratio reduced to 7.6% and by December 2005 this
ratio improved further to 7.2%, driven by better utilisation and higher
revenues. In 2006 further improvements were made and this ratio reduced slightly
to 7.1%.
As usual, the budgets for 2007 have been prepared on a prudent basis, largely
excluding new business, particularly in advertising and media investment
management. They predict improvements in like-for-like revenues in the range of
4.0-4.5%, with balanced growth in the first and second half of the year. They
also indicate marketing services revenues growing faster than advertising and
media investment management. We have only preliminary data for January in 2007
and this shows like-for-like revenues up over 4%.
Worldwide economic conditions seem set to continue to show steady growth in
2007, although concerns remain over the Middle East, oil and commodity prices
and the twin deficits of the United States economy. This year's prospects,
therefore, again look good, with worldwide advertising and marketing services
spending set to rise by at least 4% with your company expected to grow at 4-5%
and therefore increasing share. Although growth in the world economy continues
to be led by Asia Pacific, Latin America, Africa and the Middle East, Russia and
the other CIS countries, even Western Continental Europe may continue the
improvement seen in the second half of 2006 together with the United Kingdom,
where growth in the second half of 2006 was almost double that of the first
half.
2007 should also benefit from the build-up to the United States Presidential
elections and the Beijing Olympics in 2008, which, as a maxi-quadrennial year,
should be a very strong one, buoyed by heavy United States political advertising
as the multiple candidates slug it out and by the European Football
Championships.
In the short-term, growth in advertising and marketing services expenditure may
remain in low to medium single digit territory, given the low inflationary
environment, concentrating distribution and consequent lack of pricing power.
In this climate, procurement pressure continues (but not in new media) and the
significant proportion of fee remuneration dampens revenue growth on cyclical
upturns (and moderates on downturns). However, there continues to be
significant opportunities in the area of outsourcing clients' marketing
activities, consolidating clients' budgets and capitalising on competitive
weaknesses. In addition, spending amongst the packaged goods, pharmaceutical,
oil and energy, government (the government continues to be one of the largest
advertisers in the UK market) and price-value retail sectors, which remained
relatively resilient in the recession of 2001 and 2002, have been buttressed by
increased activity in previously recession-affected sectors like technology,
financial services, media and entertainment and telecommunications.
In the long-term, the outlook appears very favourable. Overcapacity of
production in most sectors and the shortage of human capital, the developments
in new technologies and media, the growth in importance of internal
communications, the continued strength of the United States economy, the need to
influence distribution, and the new focus on corporate responsibility issues
such as climate change, underpin the need for our clients to continue to
differentiate their products and services both tangibly and intangibly.
Moreover, the continuing growth of BRICs (Brazil, Russia, India and China) and
other faster-growing geographical markets, will add significant opportunities in
Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern
Europe - along with the growth of "new-BRICs" such as Vietnam, Pakistan,
Indonesia and Bangladesh. Advertising and marketing services expenditure as a
proportion of gross national product should resume its growth and burst through
the cyclical high established in 2000.
Given these short-term and long-term trends, your Company has three strategic
priorities. In the short-term, having weathered the recession, to capitalise on
the 2004 to 2006 up-turn; in the medium-term, to continue to successfully
integrate acquired companies; and finally, in the long-term, to continue to
develop its businesses in the faster-growing geographical areas of Asia Pacific,
Latin America, Africa and the Middle East, and Central and Eastern Europe and in
the faster-growing functional areas of marketing services, particularly direct,
internet, interactive and market research.
Incentive plans for 2007 will again focus more on operating profit growth than
historically, in order to stimulate top-line growth, although objectives will
continue to include operating margin improvement, improvement in staff costs to
revenue ratios and qualitative Group objectives, including co-ordination, talent
management and succession planning.
In these circumstances, there is no reason to believe that the Group cannot
achieve the revised targets now being set with the announcement of these record
results, to achieve margins of 15.5% in 2008 and 16.0% in 2009. Budgets for
2007 include the operating margin target of 15.0% previously set for 2007.
Neither is there any reason why operating margins could not be improved beyond
these levels by continuing focus on revenue growth and careful husbandry
of costs. Our ultimate objective continues to be to achieve a 19% margin over a
period of time and to continue to improve the return on capital employed.
Increasingly, WPP is concentrating on its mission of the "management of the
imagination", and ensuring it is a big company with the heart and mind of a
small one. To aid the achievement of this objective and to develop the benefits
of membership in the Group for both clients and our people, the parent company
continues to develop its activities in the areas of human resources, property,
procurement, information technology and practice development. Ten practice
areas which span all our brands have been developed initially in media
investment management, healthcare, privatisation, new technologies, new faster
growing markets, internal communications, retail, entertainment and media,
financial services and hi-tech and telecommunications.
And finally, some thoughts on size ...
Companies can get very confused. When companies start out, investors and
financial commentators often express concern about their lack of scale; about
their ability to take on more established competition and survive the inevitable
cyclical downturns. It seems that companies can be too small.
Twenty years or so later, when those same companies have prospered, investors
and financial commentators often express concern about their size; about their
ability to respond with speed to new challenges; about the diminishing share of
markets still available to them. It seems that companies can be too big.
That's why we need to look beneath the figures in this announcement at the
reality of how they were derived.
WPP is no single, monolithic entity. WPP has some 100 different companies, each
with its own specialist skills, each staffed by its own committed professionals.
The biggest of these companies employs 15,174 people; the smallest, 17. They
all operate between them in 106 countries.
The figures we report today are the sum of the painstaking work of 98,000
talented individuals working for all of those 100 or so WPP companies and
associates around the world. In the course of 2006, they undertook many tens of
thousands of totally separate projects: some ongoing and substantial; some
providing fast and inventive solutions to immediate problems. And all were won
against open and highly respected competition.
That is the reality behind our figures and it gives us great satisfaction to
register the fact; and above all, publicly to recognise the individual brains
and talents of those many thousands of men and women who made those figures
possible. We thank them all for another record year; and wish them every
success in the year ahead. It should be another good one.
Further information:
Sir Martin Sorrell ) (+44) 20 7408 2204
Paul Richardson )
Feona McEwan )
Fran Butera (+1) 212 632 2235
www.wppinvestor.com
This press release may contain forward-looking statements within the meaning of
the 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 company's
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 press release should be considered in light of these risks and
uncertainties.
This information is provided by RNS
The company news service from the London Stock Exchange
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