19th Oct 2007 07:01
WPP Group PLC19 October 2007 FOR IMMEDIATE RELEASE 19 October 2007 WPP QUARTERLY TRADING UPDATE THIRD QUARTER REPORTED REVENUES UP ALMOST 5% THIRD QUARTER LIKE-FOR-LIKE REVENUES UP ALMOST 5% REPORTED REVENUES UP 3% IN FIRST NINE MONTHS LIKE-FOR-LIKE REVENUES AND GROSS MARGIN UP OVER 5% IN FIRST NINE MONTHS OPERATING MARGIN IN FIRST NINE MONTHS UP 0.5 MARGIN POINTS Revenue Growth - Third Quarter In the third quarter, as shown in appendix 1, reported revenues rose by 4.9% to£1.480 billion. Revenues, in constant currencies were up 8.1%, with the strengthof the £ sterling against the US dollar, the chief factor in reducing theGroup's revenue growth by just over 3%. On a like-for-like basis, excluding theimpact of acquisitions and currency fluctuations, revenue growth was almost 5%,continuing the trend seen in the first half of the year. As shown in appendix 1, on a constant currency basis, the geographical patternof revenue growth varied in the third quarter, although all markets were at orabove 5%. The United Kingdom improved over the first half with constant currencygrowth of 5.0%, compared to 3.7%. Asia Pacific, Latin America, Africa and theMiddle East also strengthened with growth of 13.8%, compared to 11.9%. NorthAmerican revenues were up 8.0%, a slight reduction on the first half at 8.3%.Continental Europe grew at 5.2%, with Central and Eastern Europe up over 26%. By communications services sector, branding and identity, healthcare andspecialist communications showed the strongest growth, with revenues up over16%, driven by growth in direct, internet and interactive in the United Statesand Europe, followed by public relations and public affairs up almost 11%.Information, insight and consultancy was up almost 5%, an improvement over the3.3% growth in the first half. Advertising and media investment management wasup almost 4%. Revenue Growth - Nine Months In the first nine months of 2007, reported revenues were £4.401 billion, up3.0%. In constant currencies, revenues were up 7.8%, a slight increase on thefirst half, chiefly reflecting the strength of the £ sterling against the USdollar, which reduced the Group's revenue growth by almost 5%. On alike-for-like basis, excluding the impact of acquisitions and currencyfluctuations, revenues were up 5.1% and gross margin up 5.4%. As shown in appendix 2, on a constant currency basis, the geographical patternof revenue growth varied in the first nine months. Overall revenue growth wasalmost 8%, a slight increase on the first half, reflecting some improvement inboth the United Kingdom and the faster growing markets of Asia Pacific, LatinAmerica, Africa and the Middle East. North America continues to grow, withrevenues up over 8% on a constant currency basis, similar to the first half.Asia Pacific, Latin America, Africa and the Middle East, continues to be thefastest growing region, as it was in the first half, with revenue up well over12%, and with third quarter revenue growth stronger than the first half. TheUnited Kingdom also improved, with revenue growth of over 4% compared with 3.7%in the first half. Continental Europe as a whole, was up almost 6%, similar tothe first half. By communications services sector, media investment management continues to showthe strongest growth, as it did in the first half. Public relations and publicaffairs also continues to show significant growth over last year, with constantcurrency revenues up over 13%. Branding and identity, healthcare and specialistcommunications showed a marked increase in revenue growth in the third quarter,with revenues in the first nine months up 12.5%, compared with 10.5% in thefirst half. In the Group's interim results, additional information was provided showing thefirst half results in reportable US dollars, to allow for better comparison witha number of our competitors which report in US dollars. Appendix 3 shows revenuegrowth by geography and communications services sector in reportable US dollarsfor the first nine months. This shows, for example, that US dollar reportablerevenues were up 12.6% in the first nine months, with UK revenues growing atalmost 14% and Continental Europe up almost 15%. By communications servicessector it shows advertising and media investment management grew by over 10%,public relations and public affairs was up over 17% and branding and identity,healthcare and specialist communications grew by over 16%. New Business Net new business billings of £703 million ($1.371 billion) were won during thethird quarter. Net new business billings won in the first nine months of 2007were $4.422 billion. The Group continues to benefit from consolidation trends inthe industry, winning several large assignments from existing and new clients. Current Trading In the first nine months, the Group's headline operating margin was up 0.5margin points, which is in line with the full year targeted improvement from14.5% in 2006 to 15.0% in 2007. The first nine months of 2007 have seen strong like-for-like growth of over 5%.Industry forecasts are predicting that advertising and marketing services willgrow at 4 - 5% this year, which for the first nine months, the Group hasexceeded, therefore growing market share. Despite concerns about the impact of the recent liquidity crisis on levels ofclient spending, there has, as yet, been little or any effect on spending levelsacross the board, both functionally and geographically. Any possible impact is unlikely to be reflected anyway, until the Group'sbudgets for 2008 are finalised, at the beginning of next year. In any event, wecontinue to believe that 2008 will be a good year for the industry, better than2007, reflecting the positive combined impact of the maxi-quadrennial events ofthe US presidential election, the 2008 Olympics in Beijing and, on a relativelymore modest basis, of the European football championships. We also continue to believe that a more important concern should be the impactthat any new US administration will have on 2009 - when they have seen thegovernment's books and will be tempted to dispense any politically unpleasantmedicine to the electorate, early in the potential eight year political cycle. Whilst the new rapidly-growing parts of the world are no longer as dependent onthe US for growth, as they used to be, it is still true that when the US sneezesthe rest of the world catches a cold. Balance Sheet and Cash Flow The Group continues its strategy of using free cash flow to enhance share ownervalue through a combination of necessary capital expenditure, strategicacquisitions, dividends and share buy-backs. In the first nine months of 2007, in addition to the acquisition of 24/7 RealMedia Inc., the Group continued to make small to medium-sized acquisitions orinvestments in high growth geographical or functional areas. In the first ninemonths of this year, acquisitions and increased equity stakes have beenconcentrated in advertising & media investment management in the United States(including digital), the United Kingdom, Austria, France, Germany (includingdigital), Hungary, the Netherlands (including digital), Russia, Spain, SouthAfrica, Brazil, Colombia, Australia, China and Japan; in information, insight &consultancy in the United States and the United Kingdom; in public relations &public affairs in the United States; in healthcare in the United Kingdom; inbranding and identity in Ireland and Dubai and in direct, internet & interactivein the United States, Belgium, Germany, South Africa, the Middle East, Brazil,Chile, Mexico, Korea and Singapore. With its clear strategic focus on faster-growing geographic and digital sectors,WPP remains an attractive destination, particularly for first-generationmanagements in these fast growing regions and sectors, often aligning closelywith our well-established operating brands to explore client and geographicopportunities. As a result, the competitive gap has widened, not narrowed,despite noises to the contrary. There is still a good quality pipeline ofadditional small-sized acquisitions in these faster growing areas. Acquisition pricing remains satisfactory, particularly in the private markets,with 5 year average earn-out structures and projected single-figureprice-earnings exit multiples remaining the norm. There is, it is true, keenerpricing particularly in the digital area, more perhaps in the US than outside,with the exception of recent excesses in the French digital market. So far this year, up-front and exit multiples paid by WPP remain as before. Forprivate company acquisitions, initial payments average around one times revenuesand around ten times after-tax profits, and average a significantly lowermultiple of after-tax profits on an exit basis, using profit projections to theend of the relevant earnout period. Faster growing geographical markets and thedigital sector, have accounted for 75% of the revenues of newly acquiredbusinesses in private transactions so far this year. Consistent with the objective, announced in 2006, of increasing the sharebuy-back programme to 4-5% of the Group's share capital in 2007 and 2008, 43.95million ordinary shares, equivalent to 3.5% of the share capital, were purchasedat an average price of £7.32 and total cost of £322 million in the first ninemonths. All of these shares were purchased in the market and subsequentlycancelled. Average net debt for the first nine months of 2007 was £1,369 million, comparedto £1,161 million in the comparable period last year, at 2007 average exchangerates. This represents an increase of £208 million, largely reflecting the threemonths impact of the net acquisition cost of £300 million for 24/7 Real MediaInc., which was completed on 2 July. Net debt at 30 September 2007 was £1,845million, against £1,261 million at the same time last year, at 2007 averageexchange rates. Net debt figures reflect £1,294 million spent on capitalexpenditure, acquisitions and earnout payments, (including 24/7 Real MediaInc.), and share buy-backs and dividends in the previous 12 months, partlyoffset by operating cash flow before these items, over the same period, of £854million. Future Objectives The Group continues to focus on its strategic objectives of improving operatingprofits by 10 to 15% per annum; improving operating margins by half to onemargin point per annum; improving staff cost to revenue ratios by 0.6 marginpoints per annum; growing revenue faster than industry averages; developingcreative leadership and stimulating co-operation among Group companies. For further information: Sir Martin Sorrell )Paul Richardson ) + 44 207-408-2204Feona McEwan )Fran Butera + 1 212-632-2235 www.wppinvestor.com This announcement has been filed at the Company Announcements Office of theLondon Stock Exchange and is being distributed to all owners of Ordinary sharesand American Depository Receipts. Copies are available to the public at theCompany's registered office. The following cautionary statement is included for safe harbour purposes inconnection with the Private Securities Litigation Reform Act of 1995 introducedin the United States of America. This announcement may contain forward-lookingstatements within the meaning of the US federal securities laws. Thesestatements are subject to risks and uncertainties that could cause actualresults to differ materially including adjustments arising from the annual auditby management and the Company's independent auditors. For further information onfactors which could impact the Company and the statements contained herein,please refer to public filings by the Company with the Securities and ExchangeCommission. The statements in this announcement should be considered in light ofthese risks and uncertainties. Appendix 1: Revenue and revenue growth by region and communications servicessector 3 months ended 30 September 2007 Revenue Revenue Revenue Constant 2007 2006 growth CurrencyRegion £m £m reported growth(1) 07/06 07/06 % % North America 557.1 557.0 0.0 8.0 United Kingdom 217.6 207.2 5.0 5.0 Continental Europe 366.2 346.1 5.8 5.2 Asia Pacific, LatinAmerica, Africa &Middle East 339.2 300.3 13.0 13.8 Total Group 1,480.1 1,410.6 4.9 8.1 Communications Revenue Revenue Revenue ConstantServices 2007 2006 Growth CurrencySector £m £m Reported growth(*) 07/06 07/06 % % Advertising & MediaInvestmentManagement 663.2 656.1 1.1 3.7 Information, Insight& Consultancy 218.5 213.8 2.2 4.8 Public Relations &Public Affairs 157.3 147.8 6.5 10.8 Branding & Identity,Healthcare andSpecialistCommunications 441.1 392.9 12.3 16.1 Total Group 1,480.1 1,410.6 4.9 8.1 (*) Constant currency revenue growth excludes the effect of currency movements. Appendix 2: Revenue and revenue growth by region and communications servicessector 9 months ended 30 September 2007 Revenue Revenue Revenue Constant 2007 2006 Growth CurrencyRegion £m £m Reported Growth(1) 07/06 07/06 % % North America 1,668.9 1,692.4 -1.4 8.2 United Kingdom 648.0 622.3 4.1 4.1 Continental Europe 1,137.7 1,087.5 4.6 5.7 Asia Pacific, LatinAmerica, Africa &Middle East 946.6 872.8 8.4 12.6 Total Group 4,401.2 4,275.0 3.0 7.8 Communications Revenue Revenue Revenue ConstantServices 2007 2006 Growth CurrencySector £m £m Reported Growth(*) 07/06 07/06 % % Advertising & MediaInvestmentManagement 2,023.6 2,010.5 0.7 5.2 Information, Insight& Consultancy 650.3 652.7 -0.4 3.8 Public Relations &Public Affairs 470.3 438.1 7.3 13.4 Branding & Identity,Healthcare andSpecialistCommunications 1,257.0 1,173.7 7.1 12.5 Total Group 4,401.2 4,275.0 3.0 7.8 (*) Constant currency revenue growth excludes the effect of currency movements. Appendix 3: Revenue and revenue growth by region and communications servicessector in Reportable US Dollars 9 months ended 30 September 2007 Revenue Revenue Revenue 2007 2006 GrowthRegion $m $m Reported 07/06 % North America 3,317.6 3,064.0 8.3 United Kingdom 1,288.1 1,132.0 13.8 Continental Europe 2,267.6 1,976.7 14.7 Asia Pacific, LatinAmerica, Africa &Middle East 1,883.2 1,604.4 17.4 Total Group 8,756.5 7,777.1 12.6 Communications Revenue Revenue RevenueServices 2007 2006 GrowthSector $m $m Reported 07/06 % Advertising & MediaInvestmentManagement 4,029.0 3,648.7 10.4 Information, Insight& Consultancy 1,292.7 1,187.0 8.9 Public Relations &Public Affairs 935.0 795.4 17.6 Branding & Identity,Healthcare andSpecialistCommunications 2,499.8 2,146.0 16.5 Total Group 8,756.5 7,777.1 12.6 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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