Chairman's Statement
WPP Group PLC
26 June 2000
WPP GROUP PLC
ANNUAL GENERAL MEETING
TRADING UPDATE
The following statement was issued by the Chairman at the
Company's 28th Annual General Meeting held at 12.00 noon
today:
'First, a few comments on current trading over the first
five months of 2000.
Worldwide revenues were up by over 18% on a constant
currency basis. Sterling weakened against the dollar and
Japanese yen but strengthened less against the major
European countries and as a result, reportable revenues
were up almost 19%. On a constant currency basis,
revenues in North America were up 19%. In Europe, the UK
was up almost 11% and Continental Europe was up 20%. Asia
Pacific, Latin America, Africa and the Middle East grew by
over 24% reflecting the continuing economic recovery in
those regions.
By sector, advertising and media investment management was
up over 16%, information and consultancy up almost 23%,
public relations and public affairs up almost 45% and
branding and identity, healthcare and specialist
communications up almost 10% with gross margin up over 20%.
Combined revenues of Ogilvy & Mather Worldwide (including
OgilvyOne Worldwide), J. Walter Thompson Company, Conquest
and MindShare were up by over 20%. At Kantar revenues were
up by almost 23%. Hill and Knowlton - with revenues up over
28% - and Ogilvy Public Relations Worldwide - with revenues
up over 80% - saw excellent progress.
Our branding and identity, healthcare and specialist
communications activities, which are concentrated in the
United States and the United Kingdom, performed well as
mentioned above.
Companies that contributed strongly were: in branding,
identity and corporate consultancy, Enterprise IG, Coley
Porter Bell, Banner McBride, Brindfors and BPRI; in direct,
promotional and relationship marketing, OgilvyOne
Worldwide, PRISM and RTCdirect; in strategic marketing
consultancy, Management Ventures; in healthcare, Ferguson
Communications Group and Shire Hall; in demographic
marketing, The Geppetto Group and in media and technology
services, Savatar.
The Group as a whole is well ahead of last year and
operating margins are improving in line with our
objectives.
The Company continues to make significant progress in
winning new business from existing and new clients, with
major assignments, amongst others, from Clear Money,
Digital NY Times, ING Barings, iPlanet, Kellogg, KPMG,
Miller, NCR, Nestle, People PC, SAP, Seagrams, Sears,
Telefonica, Unilever, US Mint and Vision Express.
Trading margins continued to improve in the first five
months in line with the Group's business plan which calls
for an increase in operating margins of at least 0.6% in
2000, and following the merger of Young & Rubicam Inc.
('Y&R'), by a further 1% to 15% in 2001 and a further 0.5%
by the year 2002. Productivity increased as average staff
levels, excluding associates, on a like-for-like basis,
rose by 6.6% to 30,438 in the first five months of 2000
compared to 28,547 in 1999.
The Group's financial strategy continues to be focused on
four objectives: increasing operating profit by 15 - 20%
per annum; increasing operating margins by 0.6% or more per
annum depending on the level of revenue growth; reducing
staff cost to revenue ratios by 0.3% per annum or more
again depending on the level of revenue growth; and finally
converting 20 - 33 1/3% of incremental revenue to profit
whilst growing revenues at or above industry growth rates.
Currently surplus cash flow amounts to approximately £250
million per annum. Alternatives for the use of this cash
flow are capital expenditure, acquisitions, dividends and
share buy-backs. Capital expenditure, mainly on information
technology and property continues above depreciation.
Both before and after the announcement of the merger of Y&R
the company continues to make small to medium-sized
acquisitions or investments in high growth geographical or
functional areas. These have been concentrated
geographically in the United States, Europe and Latin
America, and functionally in advertising and media
investment management; information and consultancy; public
relations and public affairs; direct, promotional and
relationship marketing; sector marketing; and branding
identity and corporate consultancy. In addition, we seek
to strengthen our geographic market positions in countries
such as France.
Your Board also continues to focus on the options of
increasing the dividend pay-out ratio and share buy-backs,
and has continued a rolling share repurchase programme
aimed at buying in £50 - £100 million or approximately 1 -
2% of the outstanding share capital each year. Following
the merger of Y&R the amount allocated to the share
repurchase programme is planned to increase to £100-£150
million each year. So far this year this has resulted in
the cancellation or purchase of approximately 3,675,000
shares at a total cost of £34.5 million and an average cost
of £9.39 per share.
Professionally the parent company's two objectives continue
to be to encourage greater co-ordination and co-operation
between Group companies where this will benefit our clients
and our people and to improve our creative product. As
both multi-national and national clients seek to expand
geographically while at the same time seeking greater
efficiencies, the Group is uniquely placed to deliver added
value to clients with its coherent spread of functional and
geographic activities.
To these ends we continue to develop our parent company
talents in five areas: in human resources, with innovative
recruitment programmes, training and career development,
and incentive planning; in property, which includes radical
re-design of the space we use to improve communication as
well as the more mundane utilisation of surplus property;
in procurement, to ensure we are using the Group's
considerable buying power to the benefit of our clients; in
information technology, to ensure that the rapid
improvements in technology and capacity are deployed as
quickly and effectively as possible; and finally in
practice development where cross-brand or cross-tribe
approaches are being developed in a number of product or
service areas: media investment management, healthcare,
new technologies, new markets, privatisation, internal
communications, retailing, financial services,
entertainment and media and hi-tech.
In addition, we seek to improve our creative product, in as
broadly a defined sense as possible, by recruiting
excellent outside talent, acquiring outstanding creative
businesses, recognising and celebrating creative success
and pursuing creative awards.
The highlight of the first five months of 2000 was the
announcement of the agreement by the boards of directors of
WPP and Y&R to a merger of the two companies. This
combination creates the strongest marketing communications
company in the world with 1999 proforma capitalised
billings of $56 billion according to Advertising Age,
revenues of $5.2 billion and operating profits of over $700
million with over 55,000 people in 1,300 offices in 92
countries. The combined company has a strong philosophical,
cultural, client, functional and geographic fit. Moreover
the transaction is accretive even without the cost
synergies already identified. In the first quarter of 2000
revenues at Y&R were up almost 17% with operating profit up
28%.
And now a few words about two remarkable men: one who died
just a short while after our last year's annual meeting;
and one, I am delighted to say, who is alive and well and
with us today.
When he died last year, David Ogilvy was the subject of
countless affectionate and respectful tributes from around
the world. He had earned every one of them. He founded the
agency that became Ogilvy & Mather Worldwide in 1948. He
created and inspired advertising campaigns which set new
standards of style and effectiveness. To clients and
competitors alike, he swiftly came to epitomise the very
best of the advertising industry. He was Chairman of this
Board from 1989 until 1992 and was President Emeritus of
WPP until his death. His books are still widely read - and
the company he built has never been in better shape. We may
be absolutely certain that, together, they will serve as his
right and enduring monument.
To Gordon Sampson, here with us on the platform today for
the last time, we say thank-you - but not goodbye.
Gordon founded the original Wire and Plastic Products
company in 1958. That company is now the manufacturing
division of WPP, and Gordon still runs it - and will
continue so to do.
He retires from your Board at his own request. He has
served on it for 29 years, his last 11 as deputy chairman.
In the words of Martin Sorrell: 'None of us would have been
here but for Gordon. Friend, colleague, fellow warhorse - we
record his retirement from the parent board with deep
gratitude and affection. It's great to know that he'll still
be around.'
To speak of two remarkable men is to remind us, also, of our
debt to those 39,000 people who work for WPP companies and
associates around the world. It is to their talent and their
dedication that we owe the success we report today. I would
like - on behalf of you our share owners and of your Board -
to register our gratitude to them and our admiration for
their achievements.'
For further information, please contact:
Martin Sorrell
Feona McEwan Tel: 44 (0) 207408 2204
www.wpp.com