1st Quarter Results
WPP Group PLC
20 April 2007
FOR IMMEDIATE RELEASE 20 April 2007
WPP
QUARTERLY TRADING UPDATE
CONSTANT CURRENCY REVENUES UP OVER 6%
LIKE-FOR-LIKE REVENUES UP OVER 4%
FIRST QUARTER OPERATING MARGIN IN LINE WITH BUDGET
FULL YEAR OPERATING MARGIN FORECAST TO INCREASE IN
LINE WITH TARGET OF 15%
Current Trading
Reportable revenues were £1.366 billion, down 0.7%, principally reflecting the
11% decline in the US dollar against sterling. In constant currencies, first
quarter revenues were up 6.3%. On a like-for-like basis, excluding acquisitions
and currency, revenues were up 4.3%. On the same basis, gross margin(1) was up
4.6%. This continues the mid-single digit organic growth rate of the last two
and a half years, which began with the second-half of 2004 and continued through
2005 and 2006. This also reflects the continued strong economic environment
across the world. Some softness in the United States in the last few months,
relative to the strong last half of 2006, has been largely counter-balanced by
improvements in Western Europe.
As shown in the appendix, on a constant currency basis, Asia Pacific, Latin
America, Africa and the Middle East, continue to be the fastest growing region,
with revenues up almost 12%. North America remains strong with revenues up over
6%. Continental Europe was up over 4% with Western Continental Europe continuing
the improvement seen in the second half of 2006. Although the United Kingdom
remained the slowest growing region, revenues were up over 2% and gross margin
up over 3%, reflecting the significance of market research revenues in the
United Kingdom. As more market research is executed on the web, both revenue and
direct costs are reduced. As a result, gross margin is probably the better
measure of performance.
The United States continues to grow, with like-for-like revenues up almost 4%.
The Middle East continues to be the fastest growing area, up almost 22%
like-for-like and Latin America continues the strong growth of 2006, with almost
10% like-for-like growth. Asia Pacific remains strong, with revenues up almost
9%. China and India continued the rapid growth seen in 2006, with first quarter
like-for-like revenues up 25% and over 16% respectively. Western Continental
Europe, although still relatively more difficult, has seen some improvement,
particularly in France, Germany and Italy. The United Kingdom, although better,
remains the slowest growing region in the Group.
By communications services sector, public relations & public affairs showed the
strongest growth with constant currency revenues up almost 13%, with branding &
identity, healthcare and specialist communications (including direct, internet
and interactive) up over 9% and advertising & media investment management up
over 4%. Information, insight & consultancy was up over 1% and gross margin was
up over 5%. Again, as mentioned before, gross margin is a better measure of
performance.
Media investment management and direct, internet and interactive continue to
show strong growth at almost 11% on a like-for-like basis.
Net new business billings of £516 million ($1.007 billion) were won during the
first quarter and the Group continues to benefit from consolidation trends in
the industry, winning several assignments from existing and new clients.
In the first quarter, both operating margins and profitability were in line with
budget. Full year margin forecasts are in line with the Group's margin target
for 2007 of 15.0%.
On a proforma basis, the number of people in the Group, excluding associates,
was up 5.0% or 3,837 at 31 March 2007 to 81,165, as compared to the previous
year. On the same basis, in the first quarter of 2007, the number of people in
the Group averaged 80,867, up 5.1% or 3,937. In line with our strategy,
approximately 70% of these increases were added in the faster growing geographic
markets of Asia Pacific, Latin America, Africa and the Middle East and Central
and Eastern Europe which now account for around 22% of Group revenues.
Balance Sheet and Cash Flow
The Group continues to implement its strategy of using free cash flow to enhance
share owner value through a judicious combination of capital expenditure,
acquisitions and share repurchases, whilst ensuring that these expenditures are
covered by free cash flow. In the twelve months to 31 March 2007, the Group's
free cash flow was £817 million. Over the same period, the Group's capital
expenditure, acquisitions, share repurchases and dividends were £741 million.
Average net debt in the first quarter of 2007 was up £39 million to £1,029
million, compared to £990 million in 2006, at 2007 exchange rates. Net debt at
31 March 2007 was £1,309 million compared to £1,133 million in 2006 (at constant
exchange rates) an increase of £176 million. The current net debt figure
compares with a market capitalisation of approximately £9.7 billion.
In the first quarter of 2007, the Group made acquisitions or increased equity
interests in advertising and media investment management in the United States,
France, Germany, the Netherlands, Russia, Brazil, Colombia, Australia and China;
in information, insight & consultancy in the United States and the United
Kingdom; in direct, internet and interactive in the United States and Mexico.
In the first quarter of 2007, 13.95 million ordinary shares, or over 1% of the
Group's share capital, were purchased at an average price of £7.54 per share and
total cost of £105.2 million. All of these shares were purchased in the market
and subsequently cancelled. As mentioned in the Group's 2006 Preliminary
Announcement, your Board 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. We are currently running at an annual rate of
over 4%.
Future Objectives
The Group continues to focus on its key objectives of improving operating
profits by 10% to 15% per annum; improving operating margins by a half to one
margin point per annum; improving staff cost to revenue ratios by up to 0.6
margin points per annum; growing revenue faster than industry averages;
continuing to improve our creative reputation and stimulating further
co-operation among Group companies.
For further information:
Sir Martin Sorrell ) +44 (0)20 7408 2204
Paul Richardson )
Feona McEwan )
Fran Butera (1) 212 632 2235
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.
Appendix: Revenue and revenue growth by region and communications services
sector
3 months ended 31 March 2007
Revenue Constant
Growth Currency
Region Reported Growth(1)
2007 % 2006 % 2007/2006 2007/2006
£m Total £m Total % %
North America 531.6 39 560.1 41 -5.1 6.5
United Kingdom 206.5 15 202.1 15 2.2 2.2*
Continental Europe 352.5 26 346.3 25 1.8 4.4
Asia Pacific, Latin
America, Africa
& Middle East 275.4 20 267.3 19 3.0 11.7
------- ------ ------- ------ --------- ---------
TOTAL GROUP 1,366.0 100 1,375.8 100 -0.7 6.3
------- ------ ------- ------ --------- ---------
*Gross margin up 3.1%
Communications Revenue Constant
Services Sector Growth Currency
Reported Growth1
2007 % 2006 % 2007/2006 2007/2006
£m Total £m Total % %
Advertising, Media
Investment
Management 630.5 46 644.5 47 -2.2 4.5
Information, Insight
& Consultancy 204.1 15 214.0 16 -4.6 1.4*
Public Relations
& Public Affairs 147.4 11 140.6 10 4.8 12.9
Branding & Identity,
Healthcare and
Specialist 384.0 28 376.7 27 1.9 9.6
Communications ------- ------ ------- ------ --------- ---------
TOTAL GROUP 1,366.0 100 1,375.8 100 -0.7 6.3
------- ------ ------- ------ --------- ---------
*Gross margin up 5.5%
--------------------------
(1) Gross margin is revenue less direct costs
This information is provided by RNS
The company news service from the London Stock Exchange