28th Oct 2005 07:00
WPP Group PLC28 October 2005 For Immediate Release 28 October 2005 WPP QUARTERLY TRADING UPDATE THIRD QUARTER REPORTED REVENUE UP OVER 26% THIRD QUARTER LIKE-FOR-LIKE REVENUES UP ALMOST 5% REPORTED REVENUES UP OVER 23% IN FIRST NINE MONTHS LIKE-FOR-LIKE REVENUES UP 5.5% IN FIRST NINE MONTHS FULL YEAR OPERATING MARGIN IN LINE WITH REVISED TARGET Revenue Growth - Third Quarter In the third quarter, reported revenues rose by over 26% to £1.348 billion.Revenues, in constant currencies, were up almost 23%, the difference beingprimarily due to the strength of the dollar and the euro. On a like-for-likebasis, excluding the impact of acquisitions and currency fluctuations, revenuegrowth was up almost 5%. As shown in the appendix to this release, on a constant currency basis, thegeographical pattern of revenue growth varied in the third quarter although allregions performed well with the exception of Western Europe. In North America,revenues were up over 26%, with the United Kingdom up almost 10% and ContinentalEurope up almost 25%. Asia Pacific, Latin America, Africa and the Middle Eastcontinued to perform well, with revenues up over 25%. By communications services sector, advertising and media investment managementshowed the strongest growth, with revenue up almost 31%, followed by brandingand identity, healthcare and specialist communications up almost 27%. Publicrelations and public affairs was up over 16%, with information, insight andconsultancy up over 1%, as a result of the de-consolidation of AGB, followingthe formation of the joint company in television audience measurement with ACNielsen, effective 1 March 2005. Like-for-like revenues in this sector were upover 7%. Revenue Growth - Nine Months In the first nine months of 2005, reported revenues were up over 23%. Inconstant currencies, revenues were up over 22%. On a like-for-like basis,excluding the impact of acquisitions and currency fluctuations, revenues were up5.5%. As shown in the appendix to this release, on a constant currency basis, thegeographical pattern of revenue growth varied in the first nine months, althoughall regions showed double-digit revenue growth. In North America, revenues wereup over 24%, which marks the ninth consecutive quarter of growth. The UnitedKingdom and the western part of Continental Europe, which have been moredifficult markets, showed a slightly improved trend with revenue up 12% in theUnited Kingdom, and Continental Europe as a whole, up almost 24%. Asia Pacific,Latin America, Africa and the Middle East, have shown consistent growth in eachquarter of 2005, and for the first nine months of 2005 revenue across theseregions rose over 25%. By communications services sector, advertising and media investment managementcontinues to show strongest growth of all, with revenues up almost 28% in thefirst nine months. Direct, internet and interactive related activitiescontinued their strong growth seen in the first half of the year, with OgilvyOneand Wunderman gaining market share. Branding and identity, healthcare andspecialist communications revenues were up over 23%, with significantimprovement in the Group's healthcare businesses. Public relations and publicaffairs revenues continued the improvement over last year, with revenues up over15%, despite strong growth in 2004. Information, insight and consultancy was up10% for the first nine months of 2005. New Business New business billings of £597 million ($1,104 million) were won during the thirdquarter. Net new business billings won in the first nine months of 2005 were$4.635 billion, an increase of over 45% compared with the first nine months of2004. The Group continues to benefit from consolidation trends in theindustry, winning several large assignments from existing and new clients. Current Trading Like-for-like growth, in the third quarter, was slightly below that seen in thefirst half of the year, due in part to the strong comparative growth rate of 6%in the third quarter of 2004, which was the highest like-for-like quarterlygrowth since the first quarter of 2001. Third quarter revised forecasts indicate that the Group's operating margin forthe year is in line with the Group's recently increased headline operatingmargin target of 13.7% under IFRS (14.8% under 2004 UK GAAP). Prospects for improvements in trading performance remain good. The Group'smargin targets for both 2005 and 2006 were raised at the time of the interimannouncement and latest forecasts indicate the Group is on track to meet thetarget for this year. There are still concerns about the prospects for theUnited States economy, focused on the twin deficits and on the indebtedconsumer and the impact of increasing interest rates and rising commodityprices, including oil, on inflation. However, the first nine months of 2005 have seen strong like-for-like growth.Guidance for 2005 revenue growth has been raised to 4-5%, from previousestimates of 3-4%, although our view remains that the industry itself will grow2-3% in 2005. If industry growth rates this year are 2-3%, next year willprobably be at 3-4%, a slight increase in the growth rate, reflecting the impactof the "mini-quadrennial" events - including the Football World Cup in Germany,the Winter Olympics in Turin and mid-term Congressional elections in the UnitedStates. Balance Sheet and Cash Flow The Group continues to develop its strategy of using free cash flow to enhanceshare owner value through a balanced combination of necessary capitalexpenditure, strategic acquisitions, dividends and share purchases. In the first nine months of 2005, in addition to the completion of theacquisition of Grey, with effect from the beginning of March, the Companycontinued to make small to medium-sized acquisitions or investments in highgrowth geographical or functional areas. In the first nine months of this year,acquisitions and increased equity stakes have been concentrated in advertising &media investment management in the United States, the United Kingdom, Denmark,the Netherlands, Spain, Russia, Australia and Argentina; in information, insight& consultancy in the United States, Hong Kong, Korea and New Zealand; in publicrelations & public affairs in the United States, Denmark, Bahrain, Hong Kong andArgentina; in healthcare in the United States, the Netherlands and Switzerlandand in direct, internet & interactive in the United States. In the first nine months of 2005, 19.3 million shares (1.5% of the issued sharecapital) were purchased of which 16.6 million shares were cancelled at anaverage price of £5.85 per share and total cost of £113 million. The company'sobjective remains to repurchase up to 2% of its share base in the open market,at an approximate cost of £150 million when market conditions are appropriate. Average net debt for the first nine months of 2005 was £1,137 million, comparedto £1,117 million in the comparable period last year, at 2005 average exchangerates, a slight increase of £20 million, including the gross cash payment of£384 million for Grey on 7 March 2005. Net debt at 30 September 2005 was £1,326million against £1,120 million at the same time last year, at 2005 averageexchange rates, an increase of £206 million. The current net debt figurecompares with a market capitalisation of approximately £7 billion. Net debtfigures reflect £809 million spent on capital expenditure, acquisitions andearnout payments, share purchases and dividends in the previous 12 months, alarge part of which was funded by cash flow before capital expenditure,acquisitions and earnout payments, share purchases and dividends over the sameperiod of £660 million. The increase in liquidity has come primarily fromsignificant improvements in working capital management. 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; improving ourcreative reputation 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 informationon factors 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 lightof these risks and uncertainties. Appendix: Revenue and revenue growth by region and communications servicessector 3 months ended 30 September 2005 Revenue Revenue Revenue Constant 2005 2004 growth CurrencyRegion £m £m reported growth(1) 05/04 05/04 % % North America 539.3 416.9 29.4 26.4 United Kingdom 204.5 186.5 9.7 9.7 Continental Europe 333.4 262.0 27.3 24.7 Asia Pacific, LatinAmerica, Africa &Middle East 271.2 202.2 34.1 25.1 Total Group 1,348.4 1,067.6 26.3 22.8 Communications Revenue Revenue Revenue ConstantServices 2005 2004 Growth CurrencySector £m £m Reported growth(1) 05/04 05/04 % % Advertising & MediaInvestmentManagement 648.3 479.9 35.1 30.8 Information, Insight& Consultancy 203.5 195.6 4.0 1.5 Public Relations &Public Affairs 134.1 112.5 19.2 16.5 Branding & Identity,Healthcare andSpecialistCommunications 362.5 279.6 29.6 26.6 Total Group 1,348.4 1,067.6 26.3 22.8 (1) Constant currency revenue growth excludes the effect of currency movements. Appendix: Revenue and revenue growth by region and communications servicessector 9 months ended 30 September 2005 Revenue Revenue Revenue Constant 2005 2004 Growth CurrencyRegion £m £m Reported Growth(1) 05/04 05/04 % % North America 1,512.7 1,226.8 23.3 24.2 United Kingdom 593.4 529.9 12.0 12.0 Continental Europe 995.8 786.3 26.6 23.9 Asia Pacific, LatinAmerica, Africa &Middle East 714.0 550.2 29.8 25.3 Total Group 3,815.9 3,093.2 23.4 22.2 Communications Revenue Revenue Revenue ConstantServices 2005 2004 Growth CurrencySector £m £m Reported Growth(1) 05/04 05/04 % % Advertising & MediaInvestmentManagement 1,833.0 1,416.6 29.4 27.6 Information, Insight& Consultancy 591.0 532.0 11.1 10.0 Public Relations &Public Affairs 385.9 334.1 15.5 15.4 Branding & Identity,Healthcare andSpecialistCommunications 1,006.0 810.5 24.1 23.5 Total Group 3,815.9 3,093.2 23.4 22.2 (1) Constant currency revenue growth excludes the effect of currency movements. 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