27th Oct 2006 07:01
WPP Group PLC27 October 2006 FOR IMMEDIATE RELEASE 27 October 2006 WPP QUARTERLY TRADING UPDATE REPORTED REVENUES UP 12% IN FIRST NINE MONTHS LIKE-FOR-LIKE REVENUES AND GROSS MARGIN UP ALMOST 5% IN FIRST NINE MONTHS THIRD QUARTER REPORTED REVENUE UP 4.6% THIRD QUARTER LIKE-FOR-LIKE REVENUES UP OVER 4% AND GROSS MARGIN UP 4.6% FULL YEAR OPERATING MARGIN IN LINE WITH REVISED TARGET Revenue Growth - Nine Months In the first nine months of 2006, reported revenues were up 12%. In constantcurrencies, revenues were up 11%, with currency having little overall impact. Ona like-for-like basis, excluding the impact of acquisitions and currencyfluctuations, revenues were up 4.7% and gross margin up 4.9%. As shown in the appendix to this release, on a constant currency basis, thegeographical pattern of revenue growth varied in the first nine months. In NorthAmerica, revenues were up over 10%, which marks the thirteenth consecutivequarter of growth. The United Kingdom and the western markets of ContinentalEurope remain more challenging, although the latter improved over the secondquarter. The United Kingdom and Continental Europe as a whole, were up over 7%,with the United Kingdom up almost 5%. Asia Pacific, Latin America, Africa andthe Middle East, have shown consistent growth in each quarter of 2006, and forthe first nine months of 2006 revenue across these regions rose over 20%. By communications services sector, Branding and identity, healthcare andspecialist communications showed the strongest growth with revenues up almost16%, including significant improvement in the Group's direct, internet andinteractive related activities across the major brands at OgilvyOne, RMGConnect, Wunderman and G2 and, as a result, gained market share. Publicrelations and public affairs revenues continued the improvement over last year,with revenues up over 12%, despite strong comparable growth in 2005.Information, insight and consultancy was up 10% for the first nine months of2006, with the Group's advertising and media investment management up over 8%. Revenue Growth - Third Quarter In the third quarter, reported revenues rose by 4.6% to £1.411 billion.Revenues, in constant currencies were up 7.8%, the difference being primarilydue to the weakness of the US dollar against sterling. On a like-for-like basis,excluding the impact of acquisitions and currency fluctuations, revenue growthwas up over 4% and gross margin up 4.6%. As shown in the appendix to this release, on a constant currency basis, thegeographical pattern of revenue growth varied in the third quarter, although allmarkets performed well with the exception of Western Europe. In North America,revenues were up over 8%, with the United Kingdom up over 1% and WesternContinental Europe up over 3%. Asia Pacific, Latin America, Africa and theMiddle East continued to perform well, with revenues up almost 16%. By communications services sector, public relations and public affairs showedthe strongest growth, with revenue up almost 14%, followed by branding andidentity, healthcare and specialist communications up almost 12%. Information,insight and consultancy was up over 8%, and advertising and media investmentmanagement up over 4%. New Business Net new business billings of £1,431 million ($2,647 million) were won during thethird quarter. Net new business billings won in the first nine months of 2006were $5.5 billion, an increase of almost 19% compared with the first nine monthsof 2005 - which was itself a record. The Group was rated number 1 in two of thethree major new business surveys and number 2 in the third. The Group continuesto benefit from consolidation trends in the industry, winning several largeassignments from existing and new clients. Current Trading Like-for-like growth, in the third quarter, was marginally below that seen inthe first half of the year, due in part to pressure in the United Kingdom and aslower rate of growth in Eastern Europe in the third quarter. Third quarter revised forecasts indicate that the Group's operating margin forthe year is in line with the Group's headline operating margin target of 14.5%,as compared to 14% in 2005. Prospects for improvements in trading performance remain good. The Group'smargin targets for both 2006 and 2007 were last raised at the time of the 2005annual results announcement. As indicated above, the latest forecasts show thatthe Group is on track to meet its target for this year, despite continuingconcerns amongst some commentators about the prospects of the United Stateseconomy, its twin deficits, the indebted consumer and the direction of interestrates and commodity prices, and their impact on inflation. The first nine months of 2006 have seen strong like-for-like growth of almost5%. Industry experts are still forecasting that advertising and marketingservices will grow at 4% this year, which for the first nine months, the Grouphas exceeded, therefore growing market share. 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 increased share purchases. In the first nine months of 2006, the Group continued to make small tomedium-sized acquisitions or investments in high growth geographical orfunctional areas. In the first nine months of this year, acquisitions andincreased equity stakes have been concentrated in advertising & media investmentmanagement in the United States, the United Kingdom, Germany, South Africa,Israel, China, Singapore, New Zealand and Brazil; in information, insight &consultancy in the United States, Spain, Hong Kong and China; in publicrelations & public affairs in the United States, Canada and India; in healthcarein the United States, the Netherlands and Switzerland and in direct, internet &interactive in the United States, Germany and China. Consistent with the recently announced objective of increasing the sharebuy-back programme, in the first nine months of 2006, 33.6 million ordinaryshares were purchased, equivalent to 2.7% of the share capital. Of these shares5.7 million were acquired by the WPP ESOP in connection with restricted stockawards, and 27.9 million were cancelled. These shares were acquired at anaverage price of £6.63 per share and total cost of £222.5 million. Also, in thefirst nine months 16.4 million shares, equivalent to 1.3% of the share capital,were issued as a result of option exercises by our people. Average net debt for the first nine months of 2006 was £1,222 million, comparedto £1,088 million in the comparable period last year, at 2006 average exchangerates. This represents an increase of £134 million, a slight improvement overthe increase of £150 million in the first six months of 2006, and reflected theacquisition of Grey Global Group. Net debt at 30 September 2006 was up slightlyat £1,332 million against £1,283 million at the same time last year, at 2006average exchange rates, an increase of £49 million. Net debt figures reflect£840 million spent on capital expenditure, acquisitions and earnout payments,share purchases and dividends in the previous 12 months, approximately matchedby cash flow before capital expenditure, acquisitions and earnout payments,share purchases and dividends over the same period of £855 million. 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 (0)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: Revenue and revenue growth by region and communications servicessector 9 months ended 30 September 2006 --------------- ---------- --------- --------- ---------- Revenue Revenue Revenue Constant 2006 2005 Growth CurrencyRegion £m £m Reported Growth(*) 06/05 06/05 % % North America 1,692.4 1,512.7 11.9 10.3 United Kingdom 622.3 593.4 4.9 4.9 Continental Europe 1,087.5 995.8 9.2 9.2 Asia Pacific, LatinAmerica, Africa &Middle East 872.8 714.0 22.2 20.2--------------- ---------- --------- --------- ---------- Total Group 4,275.0 3,815.9 12.0 11.0--------------- ---------- --------- --------- ---------- --------------- ---------- --------- --------- ----------Communications Revenue Revenue Revenue ConstantServices 2006 2005 Growth CurrencySector £m £m Reported Growth(1) 06/05 06/05 % % Advertising & MediaInvestmentManagement 2,010.5 1,833.0 9.7 8.5 Information, Insight& Consultancy 652.7 591.0 10.4 10.0 Public Relations &Public Affairs 438.1 385.9 13.5 12.3 Branding & Identity,Healthcare andSpecialistCommunications 1,173.7 1,006.0 16.7 15.9--------------- ---------- --------- --------- ---------- Total Group 4,275.0 3,815.9 12.0 11.0--------------- ---------- --------- --------- ---------- (*) Constant currency revenue growth excludes the effect of currency movements. Appendix: Revenue and revenue growth by region and communications servicessector 3 months ended 30 September 2006 --------------- ---------- --------- --------- ---------- Revenue Revenue Revenue Constant 2006 2005 growth CurrencyRegion £m £m reported growth(1) 06/05 06/05 % % North America 557.0 539.3 3.3 8.3 United Kingdom 207.2 204.5 1.3 1.3 Continental Europe 346.1 333.4 3.8 4.6 Asia Pacific, LatinAmerica, Africa &Middle East 300.3 271.2 10.7 15.8--------------- ---------- --------- --------- ---------- Total Group 1,410.6 1,348.4 4.6 7.8--------------- ---------- --------- --------- ---------- --------------- ---------- --------- --------- ----------Communications Revenue Revenue Revenue ConstantServices 2006 2005 Growth CurrencySector £m £m Reported growth(*) 06/05 06/05 % % Advertising & MediaInvestmentManagement 656.1 648.3 1.2 4.3 Information, Insight& Consultancy 213.8 203.5 5.1 8.2 Public Relations &Public Affairs 147.8 134.1 10.2 13.7 Branding & Identity,Healthcare andSpecialistCommunications 392.9 362.5 8.4 11.9--------------- ---------- --------- --------- ---------- Total Group 1,410.6 1,348.4 4.6 7.8--------------- ---------- --------- --------- ---------- (*) Constant currency revenue growth excludes the effect of currency movements. 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