23rd Feb 2007 07:02
WPP Group PLC23 February 2007 For Immediate Release 23 February 2007 WPP 2006 PRELIMINARY RESULTS Billings up 13% to £30.1 billion Reported revenue up almost 10% to £5.9 billion Like-for-like revenue up 5.4% Headline operating margin up 0.5 margin points to 14.5% EBITDA crosses £1 billion for first time Headline operating profit before interest and tax up almost 14% to £859 million Headline Profit before tax up over 14% to £766 million Profit before tax up over 15% to £682 million Diluted headline earnings per share up almost 17% at 42.0p Final dividend up 20% to 7.61p per share • Billings up 13.0% to £30.141 billion. • Revenue up 9.9% to £5.908 billion. • Like-for-like revenue up 5.4%. • Second half like-for-like revenue growth accelerates to 5.7% and quarter four to 7.2%. • Headline operating profits before interest and tax up 13.8% to £859.0 million from £754.8 million. • Operating margin up 0.5 margin points to 14.5% from 14.0%. • Headline profits before tax up 14.5% to £766.3 million from £669.0 million. . 0p from 36.0p. • Reported diluted earnings per share up 18.5% to 35.2p from 29.7p. • Final dividend up 20% to 7.61p per share making a total for the year of 11.21p up 20% over 2005. • Average net debt up £121 million to £1,214 million from £1,093 million (at 2006 exchange rates). • Estimated net new billings of over £3.562 billion ($6.411 billion). • Operating margin targets of 15.5% and 16.0% set for 2008 and 2009. • Target percentage for rolling share-buyback programme increased to 4-5% of share capital for 2007 and 2008. 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 2006, the Group's twenty-first year. Theserecord results again reflect the continued steady strength of the world economypositively impacting almost all disciplines and geographies and the strength ofthe Group's operating brands and franchise. Billings were up 13.0% at £30.141 billion, around $55 billion. Reportable revenue was up 9.9% to £5.908 billion. Revenue, including 100% ofassociates, is estimated to total over £7.010 billion. On a constant currencybasis, revenue was up 10.9% and gross margin up 10.3%. Like-for-like revenues,excluding the impact of acquisitions and on a constant currency basis, were up5.4%. On the same basis, gross margin was up 5.7%. Like-for-like revenues wereup 5.0% in the first half of 2006 and up 5.7% in the second half, continuing thestrong organic growth of 5.5% in 2005, with the fourth quarter of 2006,accelerating to 7.2%. The fourth quarter was the Company's first $3 billionrevenue quarter. Headline earnings before interest, depreciation and amortisation ("EBITDA") wasup 14.2% to £1.002 billion and up 16.0% in constant currencies. Headlineoperating profit was up 13.8% to £859 million and up 15.7% in constantcurrencies. Reported operating costs together with direct costs (but excluding goodwillimpairment, amortisation of acquired intangibles and profits on disposal offixed asset investments), rose by 9.3% and by 10.1% in constant currency.Like-for-like total operating and direct costs rose 4.3%. Reported staff costs,excluding incentives (which includes the cost of share-based compensation), wereup 9.1%. Incentive payments (including the cost of share-based compensation)totalled £246.9 million (£227.6 million in 2005), an increase of 8.4%, whichrepresents 23.1% (24.0% in 2005) of headline operating profit before bonuses,taxes and income from associates. Before these incentive payments, operatingmargins increased by 0.4 margin points to 18.7% from 18.3%. On a reportedbasis, the Group's staff cost to revenue ratio improved 0.5 margin points to58.8% compared with 59.3% in 2005. 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. Through the cyclical upswing of the 1990s,variable staff costs as a proportion of total staff costs increased, reaching apeak of 12.1% in 2000. The impact of the recession in 2001 and 2002 was toreduce this ratio to 9.2% and variable staff costs as a proportion of revenue to5.3% (calculated under 2004 UK GAAP). In 2004, following the significantimprovement in pre-bonus operating profit and incentives, variable staff costsas a proportion of staff costs increased further. There was a slightdeterioration in 2005, with the ratio declining slightly by 0.4 percentagepoints, to 12.8% (under IFRS - which includes 1.0 percentage points attributableto share-based compensation), but in 2006 the ratio strengthened again to 13.0%. The number of people in the Group averaged 77,686 against 70,936 in 2005, anincrease of 9.5%. On a like-for-like basis, average headcount was up to 77,686from 74,971, an increase of 3.6%. At the end of 2006, staff numbers were 79,352compared with 76,532 at the end of 2005 on a like-for-like basis, an increase of3.7%. Net finance costs (excluding the revaluation of financial instruments) were£92.7 million up from £85.8 million last year, an increase of £6.9 million,largely reflecting higher interest rates, offset by the impact of improvedliquidity as a result of a reduction in average working capital. Headline operating profit or profit pre-goodwill impairment, amortisation ofacquired intangibles, interest, tax and investment gains and write-downs was up13.8% to £859.0 million from £754.8 million and up 15.7% in constant currencies.Reported profit before interest and tax was up 14.0% to £782.7 million from£686.7 million and up 15.9% in constant currencies. Headline profit before taxor profit pre-goodwill impairment, amortisation of acquired intangibles,investment gains and write-downs, revaluation of financial instruments and taxwas up 14.5% to £766.3 million from £669.0 million and up 16.8% in constantcurrencies. Reported headline operating margin (including income fromassociates) increased 0.5 margin points to a record 14.5% from 14.0%, in linewith the revised target set in February 2006. Reported profit before tax rose by 15.2% to £682.0 million, and by 17.6% inconstant currencies. The Group's tax rate on headline profits was 26.0%, a reduction of 3.0percentage points over 2005. This reflects the continuing positive impact ofthe Group's tax planning initiatives, particularly in relation to Grey which hada tax rate on acquisition in excess of 45%. Diluted headline earnings per share were up 16.7% at 42.0p. In constantcurrency, earnings per share on the same basis were up 18.9%. Diluted earningsper share rose by 18.5% to 35.2p and by 21.0% in constant currencies. The Board recommends an increase of 20% in the final dividend to 7.61p pershare, making a total of 11.21p per share for 2006, a 20% increase over 2005.The record date for this dividend is 8 June 2007, payable on 9 July 2007. Thedividend paid in 2006 is over four times covered by headline earnings. Further details of WPP's financial performance are provided in Appendix I. 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 weakestgeographical region, Western Europe, picking up in the second half. 2006, a mid-year of the quadrennial 2005-2008 cycle, was strong, to some extentreflecting the positive impact of events such as the winter Olympics in Turin,the FIFA World Cup in Germany and the mid-term congressionals in the UnitedStates. Three geographical growth speeds remain though - fastest growth in AsiaPacific, Latin America, Africa, the Middle East and Central and Eastern Europe;a surprisingly steady speed in the United States; and a slower speed in WesternEurope. 2006 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 continued high levels of new business activity. 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. By 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 reflected thefirst time inclusion of Grey Worldwide and MediaCom. In 2006, the underlyingrelative strength of the inaptly named "below-the-line" services re-asserteditself, as marketing services grew to 52.5% of revenues. In addition, in 2006,our narrowly defined internet-related revenue was almost $1 billion or over 9%of our worldwide reported revenue. This is more than the 6-7% for on-linemedia's share of total advertising spend both in the United States andworldwide. 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 2006 as well as proportions ofoperating profits: Region Revenue as a % of Revenue growth % + Operating profit as Like-for-Like Revenue Total Group /(-) 06/05 a % of Total Group growth % +/(-) 06/05 North America 39.1 10.3 45.5 4.6United Kingdom 14.3 6.0 11.1 1.8 *Continental Europe 25.5 9.0 22.2 5.1Asia Pacific, LatinAmerica, Africa & the Middle East 21.1 18.3 21.2 9.6 _____ ____ _____ ____ Total Group 100.0 10.9 100.0 5.4 _____ ____ _____ ____ * Gross margin up 3.3% The United States continues to surprise positively, with like-for-like growth of4.6%, up slightly on the first half. Latin America remained one of the fastestgrowing regions, as it was in 2004 and 2005. Asia Pacific remained strongacross the region, with Mainland China and India fastest growing, withlike-for-like growth rates of 23% and 19% respectively. Western ContinentalEurope, although relatively more difficult, improved slightly in the secondhalf. The United Kingdom was stronger in the latter half of the year, reflectingsome improvement in the media economy, particularly in the fourth quarter. Asseen in the first half, rates of growth in Europe continue to be two-paced, withWestern Continental Europe remaining softer and Central and Eastern Europe,Russia and the other CIS countries, in particular, more buoyant. Of the bigfive Western European markets, Spain remains a standout growth market, althoughthe United Kingdom, France, Germany and Italy all began to show some renewedsigns of life. Estimated net new billings of £3.562 billion ($6.411 billion) were won lastyear, reflecting in part strong media investment management new business. TheGroup was ranked second in the two major new business surveys for 2006. 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 bycommunications services sector for 2006 (on a constant currency basis includingthe impact of acquisitions) as well as proportions of operating profits: Communications services Revenue as a % of Revenue growth % + Operating profit as Like-for-Like Total Group /(-) 06/05 a % of Total Group Revenue growth % +/(-) 06/05Advertising, MediaInvestment Management 47.5 8.5 51.6 4.3 Information, Insight &Consultancy 15.1 11.2 11.5 4.1 * Public Relations & PublicAffairs 10.1 12.4 10.4 5.9 Branding & Identity,Healthcare & SpecialistCommunications 27.3 14.6 26.5 7.8 ______ _____ _____ _____ Total Group 100.0 10.9 100.0 5.4 ______ _____ _____ _____ * Gross margin up 6.1% Media investment management continued to show the strongest growth of all ourcommunications services sectors, along with direct, internet and interactive andspecialist communications. Direct and digitally-related activities now accountfor over 20% of the Group's revenues, which are running at the rate of over $11billion per annum. Brand advertising, particularly in the new faster growingmarkets, along with information, insight & consultancy and branding & identity,healthcare and specialist communications, show consistent growth. Publicrelations and public affairs also continues to show significant improvement overlast year, following a strong year in 2005. The new technologies havedemonstrated the power of editorial publicity through fast-growing newapplications of new technology such as MySpace, YouTube, Facebook, Flickr andSecond Life. Media investment management and information, insight & consultancycombined, grew by 10% in the year on a like-for-like basis, well ahead ofindependent competitors. Advertising and Media Investment Management In constant currencies, advertising and media investment management revenue grewby over 8%. Like-for-like revenue growth was over 4%. The combined operatingmargin of this sector is almost 16%. In 2006, Ogilvy & Mather Worldwide generated estimated net new billings of£187 million ($336 million), JWT £155 million ($279 million), Y&R Advertising£111 million ($200 million) and Grey Worldwide £130 million ($235 million). Also in 2006, GroupM, the Group's media investment management company, whichincludes MindShare, Mediaedge:cia, MediaCom and MAXUS generated estimated netnew billings of £2.423 billion ($4.361 billion). The Group was ranked first and second respectively in the Gunn Report awardsrankings for media and creative in 2006. Information, Insight and Consultancy On a constant currency basis information, insight and consultancy revenues grewover 11%, with like-for-like revenues up over 4%. Gross margin grew by over 6%on a like-for-like basis. Overall margins improved by 0.9 margin points to11.1%. Strong performances were recorded by Millward Brown (Millward Brown, GreenfieldConsulting Group and Dynamic Logic in the United States, IMS in Ireland, MFR inFrance, Germany, Hungary, Turkey, Impact in South Africa, ACSR in China, Japan,Korea, Mexico, Brazil and Colombia); BMRB International in the United Kingdom,KMR Group; Research International (in Belgium, Germany, Spain, SIFO in SwedenPoland, South Africa, Mexico, China, Malaysia, Indonesia, Singapore andAustralia); Center Partners and Ziment in the United States; IMRB in India;Lightspeed Research in the United States and the United Kingdom; Icon AddedValue in Germany, South Africa and China; Management Ventures and CannondaleAssociates in the United States, BPRI in the United Kingdom and Glendinning inthe United States and the United Kingdom. Public Relations and Public Affairs Public relations and public affairs continued its strong growth with constantcurrency growth of over 12% and like-for-like growth of almost 6%. Particularlystrong were Ogilvy Public Relations Worldwide, Hill & Knowlton,Burson-Marsteller, Cohn & Wolfe, Finsbury and Buchanan. Operating margins continued to improve and are now over 15.0%, an improvement of1.1 margin points over the previous year. Branding and Identity, Healthcare and Specialist Communications The Group's branding and identity, healthcare and specialist communicationsrevenues rose by over 14%. Like-for-like revenues rose by almost 8%. Operatingmargins were up 0.6 margin points. The Group's healthcare and direct, internetand interactive businesses showed particularly strong revenue growth. Several companies performed particularly well: • in branding and identity - Landor Associates in New York and Chicago in the United States, Germany, Spain, Dubai, Japan, Greater China and Australia; Enterprise IG in the United States, the United Kingdom, France and Brindfors in Sweden; Fitch in Phoenix and Columbus in the United States, the United Kingdom and Qatar. • in healthcare - Sudler & Hennessey in New York and HealthAnswers Education in the United States, Transart in the United Kingdom, Germany, Italy, Sydney in Australia and India; Grey Healthcare Group in the United States, the United Kingdom, France and Germany; in Ogilvy Healthworld in the United States, Canada, France, Italy and the Netherlands, Mexico and Australia. • in promotion and direct marketing - OgilvyOne (in New York, Minneapolis, San Francisco, Leopard and Neo@Ogilvy in the United States, Canada, Germany, France, the Netherlands, Portugal, Italy, Brazil, Argentina, Malaysia, Singapore, Greater China, India and Korea); 141 Worldwide (in Boomerang in the United States, the United Kingdom, Chile, Japan, Malaysia and the Philippines); Wunderman (in Seattle, RTC, KBM, Fortelligent, Studiocom and ZAAZ in the United States, Canada, Burrows and Good Technology in the United Kingdom, Greece, South Africa, Argentina, Chile and Brazil); RMG Connect (in Canada, France, Italy, Spain, Germany, Brazil, Mexico, India and Singapore); G2 (in the United States, MDS in the United Kingdom, France, Denmark, Sweden, Brazil, Argentina, Colombia and Korea). • in specialist marketing resources - VML, Bridge, MJM, Pace and The Food Group in the United States, EWA, the Forward Group, Mando, BDGworkfutures, Dovetail and Headcount in the United Kingdom and Global Sportnet in Germany. Manufacturing Revenues and profits at the Group's manufacturing division were down in 2006. Balance sheet and cash flow The unaudited preliminary Group consolidated balance sheet as at 31 December2006 is attached in Appendix I. As at 31 December 2006, the Group's net debtincreased slightly to £815 million compared with £804 million at 31 December2005. Net debt averaged £1,214 million in 2006, flat against 2005 (up £121 million at2006 exchange rates). These net debt figures compare with a current equitymarket capitalisation of approximately £9.5 billion, giving a total enterprisevalue of approximately £10.5 billion, market values which lead the industry. Cash flow strengthened as a result of improved working capital management andcash flow from operations. In 2006, operating profit before goodwill impairment,amortisation of acquired intangible assets and charges for non-cash basedincentive plans was £893 million, capital expenditure £185 million, depreciation£143 million, tax paid £162 million, interest and similar charges paid £58million and other net cash inflows of £85 million. Free cash flow available fordebt repayment, acquisitions, share buybacks and dividends was therefore £716million. This free cash flow was partially absorbed by £216 million in netacquisition payments and investments, share repurchases and cancellations of£258 million and dividends of £119 million. This resulted in a net inflow of£123 million, well in excess of the objective introduced in 2003 of coveringoutgoings by free cash flow. An unaudited consolidated cash flow statement isincluded in Appendix I. In the first seven weeks of 2007, up until 16 February, the last date for whichinformation is available prior to this announcement, net debt averaged £853million down £160 million versus £1,013 million for the same period last year at2007 exchange rates. Your Board continues to examine ways of deploying its EBITDA of over £1 billion(over $1.9 billion) and substantial cash flow of over £700 million or over $1.3billion per annum to enhance share owner value. As necessary capitalexpenditure, spent mainly on information technology and property, is expected toremain approximately equal to the depreciation charge in the long-term, theCompany has concentrated on examining potential acquisitions and on returningexcess capital to share owners in the form of dividends and/or share buy-backs. In 2006, the Group continued to make small to medium-sized acquisitions and/orinvestments in high growth geographical or functional areas. The net initialcost of all acquisitions was £112 million in cash, in advertising and mediainvestment management in the United States, the United Kingdom, the Netherlands,Germany, South Africa, Israel, China, Singapore, New Zealand and Brazil; ininformation, insight & consultancy in the United States, Spain, Argentina, HongKong and China; in public relations & public affairs in the United States,Canada and India; in branding and identity in India; in healthcare in the UnitedStates, the Netherlands, Spain and Switzerland and in direct, internet &interactive in the United States, Germany, China and Korea. As outlined in the Group's 2006 Interim Announcement, the Group carried out areview of its share repurchase programme earlier in 2006 with the aim ofincreasing the buy-back of shares to 2-3% of its share capital each year, ascompared with 1-2% historically. Consistent with this objective, in 2006, 38.874million ordinary shares were purchased, equivalent to 3.1% of the share capital,including 5.717 million ordinary shares acquired by the WPP ESOP in connectionwith restricted stock awards. These shares were acquired at an average price of£6.64 per share and total cost of £258.2 million. Of these shares, 33.157million were purchased in the market and subsequently cancelled. Such annualrolling share repurchases are believed to have a more significant impact inimproving share owner value than sporadic buy-backs. Following a further recent review of the Company's capital structure with itsfinancial advisers, your Board has decided to further increase the targetpercentage for rolling share buy-backs on the open market, from 2-3% of itsshare capital each year, or approximately £200-300 million, to 4-5%, orapproximately £400-500 million in each of 2007 and 2008, when market conditionsare appropriate. As noted above, your Board has also decided to increase the final dividend by20% to 7.61p per share, taking the full year dividend to 11.21p per share. Developments in 2006 and 2007 Including associates, the Group had over 98,000 full-time people in over 2,000offices in 106 countries at the year end. It services over 340 of the FortuneGlobal 500 companies, over one-half of the Nasdaq 100, over 30 of the Fortunee-50, and approximately 400 national or multi-national clients in three or moredisciplines. More than 280 clients are served in four disciplines and theseclients account for over 57% of Group revenues. The Group also works withnearly 230 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 over 35%. of new assignments in the year were generatedthrough the joint development of opportunities by two or more Group companies.New integration mechanisms, sensitive to global and local opportunities,including WPP global client leaders and country managers, continue to bedeveloped. There is an increasing number of major client creative andintegration opportunities at a Group level. Future prospects The world economy continued to grow in 2006, after the recovery in both 2003 and2004, driven by the United States, Asia Pacific, Latin America, the Middle East,Russia and the other CIS countries. As a result, your Company has performed atrecord levels. In addition, Africa also showed significant signs of growth, nodoubt stimulated by Chinese interest and investment and is becoming a continentof opportunity. The FIFA World Cup in South Africa in 2010 will have asignificant impact in focusing further attention on the African continent.Whilst like-for-like revenues have grown beyond market expectations,like-for-like average headcount has grown less. Following this productivityimprovement, the Group's margins at both the pre- and post-incentive levels haveimproved. In addition, given improved levels of operating profit and margin,incentive pools and variable staff costs are now at record levels. This willimprove operational gearing and flexibility in 2007 and beyond. The task of improving property utilisation continues to be a priority with aportfolio of approximately 18.4 million square feet worldwide. In December2002, establishment cost as a percentage of revenue was 8.4%, with a goal ofreducing this ratio to 7.0% in the medium term. At the end of 2004 theestablishment cost to revenue ratio reduced to 7.6% and by December 2005 thisratio improved further to 7.2%, driven by better utilisation and higherrevenues. In 2006 further improvements were made and this ratio reduced slightlyto 7.1%. As usual, the budgets for 2007 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 of4.0-4.5%, with balanced growth in the first and second half of the year. Theyalso indicate marketing services revenues growing faster than advertising andmedia investment management. We have only preliminary data for January in 2007and this shows like-for-like revenues up over 4%. Worldwide economic conditions seem set to continue to show steady growth in2007, although concerns remain over the Middle East, oil and commodity pricesand the twin deficits of the United States economy. This year's prospects,therefore, again look good, with worldwide advertising and marketing servicesspending set to rise by at least 4% with your company expected to grow at 4-5%and therefore increasing share. Although growth in the world economy continuesto be led by Asia Pacific, Latin America, Africa and the Middle East, Russia andthe other CIS countries, even Western Continental Europe may continue theimprovement seen in the second half of 2006 together with the United Kingdom,where growth in the second half of 2006 was almost double that of the firsthalf. 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 heavy United States political advertisingas the multiple candidates slug it out and by the European FootballChampionships. 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 clients' 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, the need toinfluence distribution, and the new focus on corporate responsibility issuessuch as climate change, underpin the need for our clients to continue todifferentiate their products and services both tangibly and intangibly.Moreover, the continuing growth of BRICs (Brazil, Russia, India and China) andother faster-growing geographical markets, will add significant opportunities inAsia Pacific, Latin America, Africa and the Middle East and Central and EasternEurope - along with the growth of "new-BRICs" such as Vietnam, Pakistan,Indonesia and Bangladesh. Advertising and marketing services expenditure as aproportion of gross national product should resume its growth and burst throughthe 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 to 2006 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 2007 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 these recordresults, to achieve margins of 15.5% in 2008 and 16.0% in 2009. Budgets for 2007 include the operating margin target of 15.0% previously set for 2007. Neither is there any reason why operating margins could not be improved beyond these levels by continuing focus on revenue growth and careful husbandryof costs. Our ultimate objective continues to be to achieve a 19% margin over aperiod of time and to continue to improve the return on capital 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, some thoughts on size ... Companies can get very confused. When companies start out, investors andfinancial commentators often express concern about their lack of scale; abouttheir ability to take on more established competition and survive the inevitablecyclical downturns. It seems that companies can be too small. Twenty years or so later, when those same companies have prospered, investorsand financial commentators often express concern about their size; about theirability to respond with speed to new challenges; about the diminishing share ofmarkets still available to them. It seems that companies can be too big. That's why we need to look beneath the figures in this announcement at thereality of how they were derived. WPP is no single, monolithic entity. WPP has some 100 different companies, eachwith its own specialist skills, each staffed by its own committed professionals.The biggest of these companies employs 15,174 people; the smallest, 17. Theyall operate between them in 106 countries. The figures we report today are the sum of the painstaking work of 98,000talented individuals working for all of those 100 or so WPP companies andassociates around the world. In the course of 2006, they undertook many tens ofthousands of totally separate projects: some ongoing and substantial; someproviding fast and inventive solutions to immediate problems. And all were wonagainst open and highly respected competition. That is the reality behind our figures and it gives us great satisfaction toregister the fact; and above all, publicly to recognise the individual brainsand talents of those many thousands of men and women who made those figurespossible. We thank them all for another record year; and wish them everysuccess in the year ahead. It should be another good one. Further information: Sir Martin Sorrell ) (+44) 20 7408 2204Paul Richardson )Feona McEwan )Fran Butera (+1) 212 632 2235www.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 ExchangeRelated Shares:
WPP