24th Feb 2006 07:01
WPP Group PLC24 February 2006 For Immediate Release 24 February 2006 WPP 2005 PRELIMINARY RESULTS IN ACCORDANCE WITH IFRS Billings up over 36% to £26.7 billion Revenue up 25% to £5.4 billion Like-for-like revenue up 5.5% Operating margin up 1.0 margin points to 14.0% Headline profits before tax up over 36% to £669.0 million Profits before tax up over 36% to £592.0 million crossing $1 billion for the first time Diluted headline earnings per share up 29% at 36.0p Final dividend up 20% to 6.34p per share • Billings up over 36% to £26.7 billion. • Revenue up 25% to £5.374 billion. • Like-for-like revenue up 5.5%. • Headline operating profits before interest and tax up almost 35% to £754.8 million from £560.2 million. • Operating margin up 1.0 margin points to 14.0% from 13.0%. • Headline profits before tax up over 36% to £669.0 million from £489.6 million. • Profit before tax up over 36% to £592.0 million from £434.4 million. • Diluted headline earnings per share up 29% to 36.0p from 27.9p. • Reported diluted earnings per share up almost 27% to 29.7p from 23.4p. • Final dividend up 20% to 6.34p per share making a total for the year of 9.34p up 20% over 2004. • Headline operating margin targets revised upwards to 14.5% from 14.2% in 2006 and to 15.0% from 14.7% in 2007. • Average net debt up £129 million to £1,212 million from £1,083 million, despite the gross cash payment for Grey of £376 million. • Estimated net new billings of over £2.8 billion ($5.2 billion). The Group's preliminary results have been prepared under International FinancialReporting Standards ("IFRS") which were adopted with effect from 1 January 2004,with the exception of IAS 39 'Financial Instruments: Recognition andMeasurement' and IAS 32 'Financial Instruments: Disclosure and Presentation'.As a result of continued amendments to IAS 39 the Group decided not to implementthis standard for statutory reporting from 1 January 2004. As a result theGroup has taken advantage of the option in IFRS 1 'First-time adoption ofInternational Reporting Standards' to implement IAS 39, together with IAS 32,from 1 January 2005 without restating its 2004 income statement and balancesheet. References to 2004 UK GAAP relate to UK Generally Accepted AccountingPrinciples extant in respect of 2004 - the basis of preparation of the Group'sconsolidated financial statements for the year ended 31 December 2004, aspreviously reported, prior to the implementation of IFRS. In this press release not all of the figures and ratios used are readilyavailable from the unaudited preliminary results included in Appendix I. Whererequired, 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 resultsfor the year ended 31 December 2005, the Group's twentieth year. These recordresults reflect the continued steady strength of the world economy positivelyimpacting almost all disciplines and geographies, and, in addition, include theresults of Grey Global Group ("Grey") with effect from 7 March 2005, which hasperformed particularly well and made a strong contribution to the Group'sresults. Billings were up over 36% at £26.674 billion. Reportable revenue was up 25% to £5.374 billion. Revenue including 100% ofassociates is estimated to total over £6.5 billion. On a constant currencybasis, revenue was up almost 23% and gross profit up almost 24%. Like-for-likerevenues, excluding the impact of acquisitions and on a constant currency basis,were up 5.5%. Like-for-like revenues were up 6% in the first half of 2005 andup 5% in the second half, continuing the strong organic growth of almost 6% inthe second half of 2004. Reported operating costs including direct costs (but excluding goodwillimpairment, amortisation of acquired intangibles and profits on disposal offixed asset investments), rose by over 23% and by over 21% in constant currency.Like-for-like total operating and direct costs rose over 4%. Reported staffcosts, excluding incentives (which includes the cost of share-basedcompensation), were up over 26%. Incentive payments (including the cost ofshare-based compensation) totalled £227.6 million (£189.5 million in 2004), anincrease of over 20%, which represents 24.0% (26.3% in 2004) of operating profitbefore bonuses, taxes and income from associates. Before these incentivepayments, operating margins increased by 0.9 margin points to 18.3% from 17.4%.On a reported basis, the Group's staff cost to gross margin ratio was flat withlast year at 62.1%. Part of the Group's strategy is to continue to increase variable staff costs asa proportion of total staff costs and revenue, as this provides flexibility todeal with volatility in revenues. In the 1990's, variable staff costs as aproportion of total staff costs increased, reaching a peak of 12.1% in 2000. Theimpact of the recession in 2001 and 2002 was to reduce this ratio to 9.2% andvariable staff costs as a proportion of revenue to 5.3% (calculated under 2004UK GAAP). In 2004, following the significant improvement in pre-bonus operatingprofit and incentives, variable staff costs as a proportion of staff costsincreased further. There was a slight deterioration in 2005, with the ratiodeclining by 0.4 percentage points, to 12.8% (under IFRS - which includes 1.0percentage points attributable to share-based compensation). The number of people in the Group averaged 70,936 against 57,788 in 2004, anincrease of 22.8%. On a like-for-like basis, average headcount was up to 70,936from 67,439, an increase of 5.2%. At the end of 2005, staff numbers were 74,631compared with 71,624 at the end of 2004 on a like-for-like basis, an increase of4.2%. Net interest payable and similar charges was £94.7 million up from £70.6 millionlast year, an increase of £24.1 million, largely reflecting additional chargesunder IFRS of £22.7m, relating to the treatment of convertible bonds andrevaluation of financial instruments (2004 - nil). The remaining increase of£1.4 million reflects higher interest rates, offset by the impact of improvedliquidity as a result of a reduction in working capital. Headline operating profit or profit pre-goodwill impairment, amortisation ofacquired intangibles, interest, tax and investment gains and write-downs was upalmost 35% to £754.8 million from £560.2 million and up over 31% in constantcurrencies. Reported profit before interest and tax was up 36% to £686.7million from £505.0 million and up over 32% in constant currencies. Headlineprofit before tax or profit pre-goodwill impairment, amortisation of acquiredintangibles, investment gains and write-downs, revaluation of financialinstruments and tax was up over 36% to £669.0 million from £489.6 million and upover 32% in constant currencies. Reported headline operating margin (includingincome from associates) increased a full margin point to a record 14.0% from13.0%, ahead of the revised target set in August 2005 of 13.7%. Our target atthe beginning of 2005 was 13.2%. The margin achieved in 2005 is equivalent toan operating margin of 15.0% under 2004 UK GAAP, which surpasses the previousrecord operating margin of 14.5% in 2000. Reported profit before tax rose by 36.3% to £592.0 million, well over $1billion, for the first time and up almost 32% in constant currencies. Dilutedearnings per share rose by almost 27% to 29.7p and up over 22% in constantcurrencies. The Group's tax rate on headline profits was 29%, an increase of 1.4 percentagepoints over 2004, reflecting the continuing positive impact of the Group's taxplanning initiatives, more than offset by the impact of Grey, which had a taxrate on acquisition in excess of 45%. Diluted headline earnings per share were up 29% at 36.0p. In constant currency,earnings per share on the same basis were up over 25%. The Board recommends an increase of 20% in the final dividend to 6.34p pershare, making a total of 9.34p per share for 2005, a 20% increase over 2004.The record date for this dividend is 2 June 2006, payable on 3 July 2006. Thedividend for 2005 is over four times covered by headline earnings. Further details of WPP's financial performance are provided in Appendix I. Reconciliation to 2004 UK GAAP The preliminary results for 2005 have been set out under IFRS. Note 19 ofAppendix I reconciles IFRS to 2004 UK GAAP. The principal reasons for the differences in headline operating profits,operating margins, headline profits before tax and diluted headline earnings pershare are twofold. Firstly, share-based payments, of £32.4 million, largelyreflecting the cost of options on a fully-retrospective basis, with an impact onoperating margins of 0.6 margin points. Secondly, accounting for associates,which reflects the deduction of tax from income from associates, previouslyincluded in taxation, amounting to £20.1 million and impacting operating marginsby 0.4 margin points. Review of operations The Group's financial performance in the year more than mirrored the continuingsteady strength in economic conditions across the globe, with even the weakestregion, Western Continental Europe, picking up in the second half. 2005, the softest year of the quadrennial 2005-2008 cycle, was surprisinglystrong. With no special political or sporting events to speak of, 2005reflected the steady growth seen throughout the world, with three geographicalspeeds - fastest in Asia Pacific, Latin America, Africa, the Middle East andEastern Europe; a steady speed in the United States; and slower speed in WesternEurope. 2005 also marked continued client focus on top-line growth, as corporateprofitability, margins and liquidity continued to improve significantly.Corporate profitability remains at historically high levels on both sides of theAtlantic. This resulted in unprecedented levels of new business activity, whichhave continued into 2006. Network television price inflation and declining audiences, fragmentation oftraditional media and rapid development of new technologies continued to driveexperimentation by our clients in new media and non-traditional alternatives.1998 was really the first year when WPP's marketing services activitiesrepresented over 50% of Group revenue. In 2004 these activities representedalmost 54% of Group revenue. In 2005, they represented 52%, as media investmentmanagement was again the fastest growing part of our business, following majorsuccess in winning media planning and buying consolidations, and the first timeinclusion of Grey Worldwide and MediaCom. In addition, in 2005, our narrowlydefined internet-related revenue was almost $500 million or over 5% of ourworldwide reported revenue. This is in line with 4 - 5% for on-line media'sshare of total advertising spend in the United States and approximately 4% shareworldwide. 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 givesdetails of revenue and revenue growth (on a constant currency basis includingthe impact of acquisitions) by region for 2005 as well as proportions ofoperating profits: Region Revenue as a% of Revenue growth% + Operating profit as Like-for-Like Total Group /(-) 05/04 a % of Total Group Revenue growth % +/(-) 05/04 North America 39.0 25.9 46.1 5.8United Kingdom 15.3 10.9 11.4 1.9Continental Europe 26.6 23.0 23.7 2.9Asia Pacific, LatinAmerica, Africa & theMiddle East 19.1 27.4 18.8 11.9 Total Group 100.0 22.9 100.0 5.5 On a constant currency basis all regions showed double digit revenue growth,with the Group at almost 23%. Like-for-like growth was 5.5%. The United States continues to grow, with like-for-like growth of almost 6%, upslightly on the first half. Latin America remains the fastest growing region,as it was in 2004. Asia Pacific remains strong across the region, with Chinaand India leading the way, with like-for-like growth rates of 23% and almost15%, an acceleration of the growth seen in the first half. Western ContinentalEurope, although relatively more difficult, improved slightly in the secondhalf. The United Kingdom was softer in the latter part of the year, reflectingweakness in the economy. As seen in the first half, rates of growth in Europecontinue to be two-paced, with Western Continental Europe remaining softer andCentral and Eastern Europe, Russia and the CIS countries, in particular, morebuoyant. Estimated net new billings of £2.8 billion ($5.2 billion) were won last year,reflecting in part strong media investment management new business. Revenue and operating profit by communications services sector and brand The pattern of revenue growth also varied by communications services sector andbrand. The table below gives details of revenue and revenue growth by communicationsservices sector for 2005 (on a constant currency basis including the impact ofacquisitions) as well as proportions of operating profits: Communications services Revenue as a % of Revenue Operating profit as Like-for-Like Total Group growth % =/(-) a % of Total Group Revenue growth 05/04 % +/(-) 05/04 Advertising, Media Investment Management 48.4 28.6 53.1 4.3Information, Insight &Consultancy 15.1 7.3 11.0 6.4Public Relations &Public Affairs 10.0 18.7 10.0 7.5Branding & Identity,Healthcare & SpecialistCommunications 26.5 24.7 25.9 6.4 Total Group 100.0 22.9 100.0 5.5 Media investment management continues to show the strongest growth of all ourcommunications services sectors, along with direct, internet and interactive andhealthcare communications. Direct, internet and interactive related activitiesnow account for over 15% of the Group's revenues, which are running at the rateof over $10 billion per annum. Brand advertising, particularly in the newfaster growing markets, along with information, insight & consultancy andbranding & identity, healthcare and specialist communications, show consistentgrowth. Public relations and public affairs also continues to show significantimprovement over last year, following a strong year in 2004. Media investmentmanagement and information, insight & consultancy combined, grew by almost 10%in the year. Advertising and Media Investment Management In constant currencies, advertising and media investment management revenue grewby almost 29%. Like-for-like revenue growth was well over 4%. The combinedoperating margin of this sector was over 15%. In 2005, Ogilvy & Mather Worldwide generated estimated net new billings of£87 million ($161 million), JWT £117 million ($216 million), Y&R Advertising£152 million ($280 million) and Grey Worldwide £398 million ($735 million). Also in 2005, MindShare, Mediaedge:cia and MediaCom generated estimated net newbillings of £1.6 billion ($2.9 billion). Information, Insight and Consultancy On a constant currency basis information, insight and consultancy revenues grewover 7%, with like-for-like revenues up over 6%. Overall margins improved by 1.1margin points to over 10%. Strong performances were recorded by Millward Brown (Greenfield ConsultingGroup, MaPs and Dynamic Logic in the United States, France, Germany, Spain,Poland, Centrum in the Netherlands, Hong Kong, Taiwan, Singapore, Firefly inThailand, the Philippines, Mexico, Brazil and Colombia); BMRB International inthe United Kingdom, KMR Group, Research International (in the United States,France, the Netherlands, Spain, SIFO in Sweden and Norway, South Africa, Brazil,Hong Kong, Indonesia and Australia); Center Partners and Ziment in the UnitedStates, IMRB in India, Lightspeed Research in the United States and Asia, DaVinci in the United States, Added Value/icon in the United Kingdom, Italy,Spain, Japan and India. Public Relations and Public Affairs Public relations and public affairs continued its recovery with constantcurrency growth of almost 19% and like-for-like growth of well over 7%.Particularly strong were Cohn & Wolfe, Ogilvy Public Relations Worldwide, Hill &Knowlton, Penn Schoen & Berland in the United States and Buchanan in the UnitedKingdom. Operating margins continued to improve and are now at 14%, an improvement ofover 0.8 margin points. Branding and Identity, Healthcare and Specialist Communications The Group's branding and identity, healthcare and specialist communicationsrevenues rose by over almost 25%. Like-for-like revenues rose by over 6%.Operating margins were up 1.2 margin points. The Group's healthcare anddirect, internet and interactive businesses showed particularly strong revenuegrowth. Several companies performed particularly well: • in branding and identity - Landor Associates in Cincinnati in theUnited States, the United Kingdom, Germany, Dubai, Mexico, Japan, Hong Kong andAustralia; Enterprise IG in the United Kingdom, Germany, France and Dubai; Fitchin Phoenix and Seattle in the United States, the United Kingdom, Peclers inFrance and Qatar. • in healthcare - Sudler & Hennessey in the United States includingHealthAnswers Education, Market Force Communications and Toronto in Canada, theUnited Kingdom, Germany and Australia; in Grey Healthcare Group in the UnitedStates, the United Kingdom, France and Germany; in Ogilvy Healthworld in MedicalEducation in the United States and Germany. • in promotion and direct marketing - OgilvyOne (in New York,Minneapolis, San Francisco and Eicoff in the United States, Canada, the UnitedKingdom, Italy and Brazil); 141 Worldwide in (Chicago and Boomerang in theUnited States, the United Kingdom, Brazil, Mexico, China and Korea); Wunderman(in RTC, Chicago and San Francisco in the United States, the United Kingdom,the Automotive Group in the United Kingdom, France, Germany, Italy, Greece,Argentina, Mexico, China, Thailand, Singapore and Australia) • specialist marketing resources - VML and Pace in the United Statesand EWA, Metro, BDGworkfutures and Premiere Sponsorship Marketing in the UnitedKingdom. Manufacturing Revenues and profits at the Group's manufacturing division were down in 2005. Balance sheet and cash flow An unaudited summary of the Group's consolidated balance sheet as at 31 December2005 is attached in Appendix I. As at 31 December 2005, the Group's net debtincreased by £249 million to £804 million compared with £555 million at 31December 2004 (which incorporates the IAS 39 adjustment as at 1 January 2005). Net debt averaged £1,212 million in 2005, up £129 million against £1,083 millionin 2004 (up £132 million at 2005 exchange rates). These net debt figurescompare with a current equity market capitalisation of approximately £8 billion,giving a total enterprise value of approximately £9 billion. Cash flow strengthened as a result of improved working capital management andcash flow from operations. In 2005, operating profit before goodwill impairment,amortisation of acquired intangible assets and charges for non-cash basedincentive plans was £794 million, capital expenditure £171 million, depreciation£122 million, tax paid £136 million, interest and similar charges paid £60million and other net cash inflows of £16 million. Free cash flow available fordebt repayment, acquisitions, share buybacks and dividends was therefore £565million. This free cash flow was partially absorbed by £508 million in netacquisition payments and investments, share repurchases and cancellations of£152 million and dividends of £100 million. This resulted in a net outflow of£195 million. The objective introduced in 2003 of covering outgoings by freecash flow was achieved, excluding the net cash element of the acquisition ofGrey. A summarised unaudited consolidated cash flow statement is included inAppendix I. In the first six weeks of 2006, up until 10 February, the last date for whichinformation is available prior to this announcement, net debt averaged £853million up £197 million versus £656 million for the same period last year at2006 exchange rates. Your Board continues to examine ways of deploying its substantial cash flow ofalmost £600 million or over $1 billion per annum to enhance share owner value.As necessary capital expenditure is expected to remain equal to or less than thedepreciation charge in the long-term, the Company has concentrated on examiningpotential acquisitions and on returning excess capital to share owners in theform of dividends or share buy-backs. In 2005, in addition to the completion of the acquisition of Grey, the Groupcontinued to make small to medium-sized acquisitions or investments in highgrowth geographical or functional areas. The net initial cost of allacquisitions was £378 million in cash, in advertising and media investmentmanagement in the United States, the United Kingdom, Denmark, the Netherlands,Spain, Russia, Israel, Argentina, Hong Kong and Australia; in information,insight & consultancy in the United States, the United Kingdom, Poland, China,Hong Kong, Korea and New Zealand; in public relations & public affairs in theUnited States, Denmark, Bahrain, Argentina, China and Australia; in healthcarein the United States, the Netherlands and Switzerland and in direct, internet &interactive in the United States. Last year, 25.4 million ordinary shares (of which 21.3 million were cancelled)or 2% of the share capital were repurchased at a total cost of £152 million andaverage price of £5.99 per share. As noted above, your Board has decided to increase the final dividend by 20% to6.34p per share, taking the full year dividend to 9.34p per share which is overfour times covered, at the headline earnings level. In addition, as the returnon capital criteria for investing in cash acquisitions have been raised,particularly in the United States, the Company will continue to commit torepurchasing up to 2% of its share base in the open market at an approximatecost of £150 million, when market conditions are appropriate. Such annualrolling share repurchases are believed to have a more significant impact inimproving share owner value than sporadic buy-backs. As outlined in the Group's 2005 interim results announcement, the Group proposeda change to its corporate structure which was approved at an ExtraordinaryGeneral Meeting on 26 September 2005. This has resulted in a significantincrease in the Group's distributable reserves. Developments in 2005 and 2006 There has been considerable press coverage in the last few weeks in relation tothe Group's operations in Italy. In January 2006, the contract of the Group'sItalian country manager was terminated and an investigation initiated intocertain aspects of the Group's operations there. Legal action against the formercountry manager has commenced. It is not expected that this will have asignificant effect on the Group's financial results. Including associates, the Group had over 92,000 full-time people in over 2,000offices in 106 countries at the year end. It services over 300 of the FortuneGlobal 500 companies, over one-half of Nasdaq 100, over 30 of the Fortune e-50,and approximately 333 national or multi-national clients in three or moredisciplines. More than 230 clients are served in four disciplines and theseclients account for over 50% of Group revenues. The Group also works with over200 clients in six or more countries. These statistics reflect the increasing opportunities for developing clientrelationships between activities nationally, internationally and by function.The Group estimates that well over 35% of new assignments in the year weregenerated through the joint development of opportunities by two or more Groupcompanies. New integration mechanisms, sensitive to global and localopportunities, including WPP global client leaders and country managers,continue to be developed. There is an increasing number of major clientcreative and integration opportunities at a Group level. Future prospects The world economy continued to grow in 2005, after the recovery in 2003 and2004, driven by the United States, Asia Pacific, Latin America, the Middle East,Russia and the CIS countries. As a result, your Company has performed at recordlevels. 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 significantly. In addition, givenimproved levels of operating profit and margin, incentive pools and variablestaff costs are now at record levels. This will improve operational gearing andflexibility in 2006 and beyond. The task of improving property utilisation continues to be a priority with aportfolio of approximately 18 million square feet worldwide. In December 2002,establishment cost as a percentage of revenue was 8.4%, with a goal of reducingthis ratio to 7.0% in the medium term. At the end of 2004 the establishmentcost to revenue ratio reduced to 7.6% and by December 2005 this ratio improvedfurther to 7.2%, driven by better utilisation and higher revenues. There shouldbe further opportunities to improve utilisation in the future, as the 3.2million square feet of property within Grey is integrated into the portfolio. As usual, the budgets for 2006 have been prepared on a prudent basis, largelyexcluding new business, particularly in advertising and media investmentmanagement. They predict improvements in like-for-like revenues in the range of4%, with balanced growth in the first and second half of the year. They alsoindicate marketing services revenues growing faster than advertising and mediainvestment management. We only have actual data for January in 2006, and thisshows revenue well above last year, with like-for-like revenues up 5.5%.Estimated net new business billings so far in 2006 were very strong with over$0.6 billion of net wins according to trade publications. Worldwide economic conditions seem set to continue to show steady growth in2006, although concerns remain over the Middle East, oil and commodity pricesand the twin deficits of the United States economy. This year's prospects,therefore, look okay, with worldwide advertising and marketing services spendingset to rise by at least 4% with your company expected to grow at 4-5% andtherefore increasing share. Although growth in the world economy continues tobe led by Asia Pacific, Latin America, Africa and the Middle East, Russia andthe CIS countries, even Western Continental Europe may continue the improvementseen in the second half of 2005, although the United Kingdom looks soft. 2006 should benefit from the mini-quadrennial impact of the mid-term UnitedStates Congressional elections, the FIFA World Cup and the Torino WinterOlympics. 2007 should also benefit from the build-up to the United States PresidentialElections and the Beijing Olympics in 2008, which, as a maxi-quadrennial year,should be a very strong one, buoyed by those events plus heavy United Statespolitical advertising and the European Football Championships. In the short-term, growth in advertising and marketing services expenditure mayremain in low to medium single digit territory, given the low inflationaryenvironment, concentrating distribution and consequent lack of pricing power.In this climate, procurement pressure continues (but not in new media) and thesignificant proportion of fee remuneration dampens revenue growth on cyclicalupturns (and moderates on downturns). However, there continues to besignificant opportunities in the area of outsourcing clients' marketingactivities, consolidating client budgets and capitalising on competitiveweaknesses. In addition, spending amongst the packaged goods, pharmaceutical,oil and energy, government (the government continues to be one of the largestadvertisers in the UK market) and price-value retail sectors, which remainedrelatively resilient in the recession of 2001 and 2002, have been buttressed byincreased 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 ofproduction in most sectors and the shortage of human capital, the developmentsin new technologies and media, the growth in importance of internalcommunications, the continued strength of the United States economy and the needto influence distribution, underpin the need for our clients to continue todifferentiate their products and services both tangibly and intangibly.Moreover, the growth of the BRICs (Brazil, Russia, India and China) economies,will add significant opportunities in Asia Pacific, Latin America, Africa andthe Middle East and Central and Eastern Europe. Advertising and marketingservices expenditure as a proportion of gross national products should resumeits growth and bust through the cyclical high established in 2000. Given these short-term and long-term trends, your Company has three strategicpriorities. In the short-term, having weathered the recession, to capitalise onthe 2004 and 2005 up-turn; in the medium-term, to continue to successfullyintegrate acquired companies; and finally, in the long-term, to continue todevelop its businesses in the faster-growing geographical areas of Asia Pacific,Latin America, Africa and the Middle East, and Central and Eastern Europe and inthe faster-growing functional areas of marketing services, particularly direct,internet, interactive and market research. Incentive plans for 2006 will again focus more on operating profit growth thanhistorically, in order to stimulate top-line growth, although objectives willcontinue to include operating margin improvement, improvement in staff costs torevenue ratios and qualitative Group objectives, including co-ordination, talentmanagement and succession planning. In these circumstances, there is no reason to believe that the Group cannotachieve the revised targets now being set with the announcement of theseresults, to achieve margins of 14.5% in 2006 and 15.0% in 2007. Budgets for2006 include this operating margin target. Neither is there any reason whyoperating margins could not be improved beyond this level by continued focus onrevenue growth and careful husbandry of costs. Our ultimate objective continuesto be to achieve a 19% margin over a period of time and to improve the return oncapital employed. Increasingly, WPP is concentrating on its mission of the "management of theimagination", and ensuring it is a big company with the heart and mind of asmall one. To aid the achievement of this objective and to develop the benefitsof membership in the Group for both clients and our people, the parent companycontinues to develop its activities in the areas of human resources, property,procurement, information technology and practice development. Ten practiceareas which span all our brands have been developed initially in mediainvestment management, healthcare, privatisation, new technologies, new fastergrowing markets, internal communications, retail, entertainment and media,financial services and hi-tech and telecommunications. And finally...a reminder. Those who hold shares in WPP quite rightly see it as a single entity, and rateit according to its overall achievements. And it is those achievements that thisannouncement features. It has been a very good year. But of course, what those aggregate numbers fail to reveal is the extraordinarynumber and range and diversity of quite separate achievements that go to make upthat impressive company total. By applying their brains, their talent and their experience to the service oftheir clients, all of our 74,000 talented people have contributed to theserecord results. It is those individual skills that our clients value, and pay for. Project byproject, as WPP company people helped make their clients more successful, so,project by project, they added inexorably to the final figures presented here. So it is entirely right that we should end this release by acknowledging thetrue source of our success and offering our wholehearted gratitude to all thosemany who made it happen. 2005 was a record year. 2006, WPP's 21st year, should be an even better one. Further information: Sir Martin Sorrell )Paul Richardson ) (44) 207 408 2204Feona McEwan )Fran Butera (1) 212 632 2235 www.wppinvestor.com This press release may contain forward-looking statements within the meaning ofthe federal securities laws. These statements are subject to risks anduncertainties that could cause actual results to differ materially includingadjustments arising from the annual audit by management and the company'sindependent auditors. For further information on factors which could impactthe company and the statements contained herein, please refer to public filingsby the company with the Securities and Exchange Commission. The statements inthis press release should be considered in light of these risks anduncertainties. This information is provided by RNS The company news service from the London Stock ExchangeMORE TO FOLLOWRelated Shares:
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