3rd Quarter & 9 Mths Results
WPP Group PLC
25 October 2001
For Immediate Release 25 October 2001
WPP
QUARTERLY TRADING UPDATE
REPORTED REVENUES UP OVER 56% IN FIRST NINE MONTHS
COMBINED WPP & Y&R CONSTANT CURRENCY REVENUES
UP OVER 2% IN SAME PERIOD
LIKE-FOR-LIKE REVENUES FLAT IN SAME PERIOD
THIRD QUARTER REPORTED REVENUES UP ALMOST 41%
2001 OPERATING MARGIN TARGET VERY DIFFICULT TO ACHIEVE AFTER INCLUDING IMPACT
OF EXCEPTIONAL REVENUE LOSSES AND COSTS
Revenue Growth
In the first nine months of 2001, reported revenues were up over 56%,
primarily reflecting the contribution of Young & Rubicam, Inc. ('Y&R') and
other acquisitions and the strength of the dollar and major Continental
European currencies against sterling. In constant currencies, revenues were up
over 52% in the first nine months. Combined WPP and Y&R constant currency
revenues were up over 2% and on a like-for-like basis, excluding all
acquisitions and currency fluctuations, revenues were flat.
As shown in the appendix to this release, on a constant currency basis, the
geographical pattern of revenue growth varied in the first nine months. In
North America, revenues were up almost 52%. In Europe, the UK was up over 27%
and Continental Europe up over 78%. Asia Pacific, Latin America, Africa and
the Middle East grew over 55%. On a combined WPP and Y&R constant currency
basis, North America was down over 3%. In Europe, the UK was up over 4% and
Continental Europe up over 10%, Asia Pacific, Latin America, Africa and the
Middle East grew almost 9%.
By communications services sector, advertising and media investment management
was up almost 53%, information and consultancy up over 11%, public relations
and public affairs up over 90% and branding and identity, healthcare and
specialist communications up over 70%. Again on a combined WPP and Y&R
constant currency basis, advertising and media investment management was up
almost 3%, information and consultancy up over 11%, public relations and
public affairs down almost 5% and branding and identity, healthcare and
specialist communications up almost 1%.
In the third quarter, reported revenues grew almost 41%, with constant
currency revenues up over 41% reflecting the weakness of the dollar. Combined
WPP and Y&R constant currency revenues declined over 3% mainly reflecting the
impact of the tragic events on 11 September 2001 and subsequent developments
in the United States. On a like-for-like basis, excluding acquisitions and
currency fluctuations, revenues fell by over 6%.
As shown in the appendix to this release, on a constant currency basis, the
geographical pattern of revenue growth varied in the third quarter. In North
America, revenues were up almost 38%. In Europe, the UK was up over 26% and
Continental Europe up over 63%. Asia Pacific, Latin America, Africa and the
Middle East grew over 42%. On a combined WPP and Y&R constant currency basis,
North America was most affected with revenue down over 11%. Revenue growth in
the UK was almost 3% with Continental Europe up over 4%. Asia Pacific and
Latin America were up over 1%.
By communications services sector, advertising and media investment management
was up almost 43%, information and consultancy up over 5%, public relations
and public affairs up over 63% and branding and identity, healthcare and
specialist communications over 60%. Again on a combined WPP and Y&R constant
currency basis, information and consultancy was up over 5%. Advertising and
media investment management fell by 3%, public relations and public affairs
fell over 15% and branding and identity, healthcare and specialist
communications fell over 4%.
Net new business billings of £390 million ($600 million) were won during the
third quarter, making a total of £1.3 billion ($2.0 billion) for the first
nine months. The Group continues to benefit from consolidation trends in the
industry, winning several large assignments from existing and new clients. The
Group was ranked first for net new business gains in the Credit Suisse First
Boston survey for the first nine months of 2001.
Current Trading
The lack of organic revenue growth in the third quarter and so far this year
continues to reflect the sharp deceleration in the growth rate of the world
economy, that seems to have started in the United States in the fourth quarter
of 2000. The impact of this slowdown initially impacted the technology, media
and telecommunications sectors of the economy, although there is some spill
over into the 'old' economy. This deceleration has been further materially
affected by the tragic events of 11 September and beyond in the United States,
the effects of which are being felt throughout the world.
So far, by region, it has most materially affected North America, with
proportionately less though material impact on the UK and Continental Europe
and proportionately even less though material impact on Asia Pacific and Latin
America.
By communications services sector, it has impacted public relations and public
affairs the most, branding and identity, healthcare and specialist
communications next, advertising and media investment management less so, and
information and consultancy the least.
As a result our operating companies continue to review their costs closely and
make adjustments where necessary. On a pro-forma basis, the total number of
people in the Group (excluding associates) has fallen almost 6% from 52,980 on
1 January 2001 to 49,834 on 30 September 2001. However, the average
headcount is up 1% at 50,727 in the first nine months of 2001 from 50,273 in
the same period last year.
WPP estimates that the impact of the events of 11 September and beyond on the
last three weeks of that month alone reduced revenues by at least $30 million,
without any opportunity to reduce operating costs. If the last three months
of the year were impacted in the same way like-for-like revenues for the whole
of 2001 could be down 2%.
Third quarter revised forecasts for the year indicate that it will be very
difficult to achieve the Group's operating margin objective of 15% in 2001 on
a 'clean' basis - that is including the impact of exceptional revenue losses
and operating costs. However, the position would be different, if the impact
of the events of September and beyond is excluded as exceptional items, as
some companies within and outside our sector are doing or planning to do.
Operating margins after exceptional revenue losses and costs are likely to be
similar to last year.
Balance Sheet and Cash Flow
The Group continues to implement its strategy of using free cash flow to
enhance share owner value through a combination of strategic acquisitions and
share purchases.
In the third quarter of 2001 the Group completed acquisitions in advertising
and media investment management in Finland; in information and consultancy in
France and Puerto Rico; in public relations and public affairs in France; and
in branding and identity, healthcare and specialist communications in the
United States.
6.3 million WPP shares were purchased during the third quarter at an average
price of £5.60 per share and total cost of over £35 million. In the first
nine months of 2001 the Group has purchased 15.3 million WPP shares at an
average price of £6.88 per share and total cost of £105.3 million. The
rolling buy-back program continues at an increased target level of £150 to £
200 million per annum, equivalent to approximately 2% of the current market
capitalisation.
Net debt averaged £757 million for the first nine months of 2001 (including Y&
R's convertible debt of £195 million) compared to £389 million in the same
period in constant currency (which excluded the Y&R convertible) and to a
market capitalisation of approximately £6 billion. This reflects £787 million
spent on capital expenditure, acquisitions, share purchases and dividends in
the previous 12 months. Free cash flow over the same period was £440
million. The Group has now achieved A - ratings with Standard & Poor's and
Fitch, and Baa 1 at Moody's.
Future Objectives
The Group continues to focus on its key objectives of improving operating
profits and margins, increasing cost flexibility (particularly in the areas of
staff and property costs), using free cash flow to enhance share owner value,
continuing to develop the role of the parent company in adding value to our
clients and people, developing our portfolio in high revenue growth,
geographical and functional areas and improving our creative quality and
capabilities.
For further information:
Sir Martin Sorrell )
Paul Richardson ) + 44 20 7408 2204
Feona McEwan )
This press release may contain forward-looking statements within the meaning
of the federal securities laws. These statements are subject to risks and
uncertainties that could cause actual results to differ materially including
adjustments arising from the annual audit by management and the company's
independent auditors. For further information on factors which could impact
the company and the statements contained herein, please refer to public
filings by the company with the Securities and Exchange Commission. The
statements in this press release should be considered in light of these risks
and uncertainties.
Appendix: Revenue and revenue growth by region and communications services
sector
9 months ended 30 September 2001
Revenue Revenue Revenue Constant
2001 2000 growth Currency
Region £m £m reported Growth(1)
01/00 01/00
% %
North America 1,393.8 863.1 61.5 51.8
United Kingdom 455.6 357.4 27.5 27.5
Continental Europe 611.1 340.8 79.3 78.2
Asia Pacific, Latin
America, Africa &
Middle East 492.8 327.2 50.6 55.2
Total Group 2,953.3 1,888.5 56.4 52.5
Communications Revenue Revenue Revenue Constant
Services 2001 2000 growth currency
Sector £m £m reported growth(1)
01/00 01/00
% %
Advertising & Media
Investment
Management 1,341.0 858.6 56.2 52.9
Information &
Consultancy 431.8 383.1 12.7 11.2
Public Relations &
Public Affairs(2) 381.5 192.6 98.1 90.1
Branding & Identity,
Healthcare and
Specialist
Communications 799.0 454.2 75.9 70.4
Total Group 2,953.3 1,888.5 56.4 52.5
(1) Constant currency revenue growth excludes the effect of currency
movements.
(2) The revenue figures submitted to the Council of Public Relations Firms
reflect some public relations income which is included here in advertising
and media investment management, branding and identity, healthcare and
specialist communications. Total public relations and public affairs revenues
grew 78% to $610 million.
Appendix: Revenue and revenue growth by region and communications services
sector
3 months ended 30 September 2001
Revenue Revenue Revenue Constant
2001 2000 growth currency
Region £m £m reported growth(1)
01/00 01/00
% %
North America 436.0 309.5 40.9 37.9
United Kingdom 155.1 122.6 26.5 26.6
Continental Europe 198.8 122.1 62.8 63.2
Asia Pacific, Latin
America, Africa &
Middle East 166.4 125.2 32.9 42.7
Total Group 956.3 679.4 40.8 41.3
Communications Revenue Revenue Revenue Constant
Services 2001 2000 growth Currency
Sector £m £m reported growth(1)
01/00 01/00
% %
Advertising & Media
Investment
Management 427.2 302.0 41.5 42.8
Information &
Consultancy 149.9 143.6 4.4 5.5
Public Relations &
Public Affairs 117.0 70.8 65.3 63.3
Branding & Identity,
Healthcare and
Specialist
Communications 262.2 163.0 60.9 60.4
Total Group 956.3 679.4 40.8 41.3
(1) Constant currency revenue growth excludes the effect of currency
movements.
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