Interim Results - PART 1
WPP Group PLC
20 August 2002
PART 1
FOR IMMEDIATE RELEASE 20 AUGUST 2002
WPP
2002 INTERIM RESULTS
Revenue down almost 2% to £1.96 billion
Constant currency revenues flat
Profit before tax, goodwill and impairment down almost 17% to £210.4 million
Diluted headline earnings per share down 12% at 13.2p
Interim ordinary dividend up 20% to 1.73p per share
• Revenue down almost 2% to £1.96 billion and flat in constant currencies
• Profit before interest, tax, goodwill and impairment down almost 11% to
£253.9 million and down over 9% in constant currencies
• Operating margin pre-goodwill and impairment of 13.0%
• Profit before tax, goodwill and impairment down almost 17% to £210.4
million and down over 15% in constant currencies
• Diluted headline earnings per share down 12% to 13.2p from 15.0p and
down 7% in constant currencies
• Interim ordinary dividend up 20% to 1.73p per share
• Net new business billings of almost £1.2 billion ($1.8 billion).
Ranked number two advertising and marketing services group for the
first five months of 2002
Summary of Results
The Board of WPP announces its results for the six months ended 30 June 2002,
which reflect the continuing difficult economic conditions, particularly in the
United States.
Turnover was down 2.0% to £8.78 billion in the first six months of 2002.
Reportable revenue down 1.9% at £1.96 billion. On a constant currency basis
revenue was flat compared with last year. Excluding all acquisitions, constant
currency revenues were down over 8%.
Profit before interest, tax, goodwill and impairment was down 10.8% to £253.9
million from £284.7 million and down 9.4% in constant currencies.
Pre-goodwill and impairment, reported operating margins fell to 13.0% from
14.3%. On the same basis, before short-term and long-term incentives, operating
margins fell to 14.4% from 16.3%. Short and long-term incentives amounted to
£27 million or 9.8% of operating profits before bonus and taxes.
The Group's staff cost to revenue ratio, including severance costs, improved 0.1
margin points to 57.0% in the first half of 2002, compared with the same period
last year. On a like-for-like basis the average number of people in the Group
was 50,909 in the first half of the year, compared to 56,134 in 2001, a decrease
of over 9%. On a like-for-like basis, the total number of people in the Group
at the half-year end was 50,582, compared to 52,238 at the end of 2001, a
decrease of over 3% and compared to 55,393 in June 2001, a decrease of almost
9%.
Net interest payable and similar charges (including a notional charge of £2.5
million for FRS17) increased to £43.5 million from £32.1 million, reflecting
lower interest rates more than offset by the impact of share repurchases and
acquisitions.
Reported profit before tax fell by almost 30% to £173.7 million from £247.8
million. In constant currency pre-tax profits fell by over 29%.
The tax rate on profit on ordinary activities, before impairment, reduced to 27%
compared with 30% last year, reflecting the impact of further improvements in
tax planning.
Profits attributable to ordinary share owners fell by over 31% to £114.3 million
from £167.3 million.
Diluted earnings per share before goodwill and impairment, or headline earnings
per share, fell 12.0% to 13.2p from 15.0p. In constant currency, earnings per
share on the same basis fell 7%.
The Board declares an increase of 20% in the interim ordinary dividend to 1.73p
per share. The record date for this interim dividend is 13 September 2002,
payable on 18 November 2002.
Further details of WPP's financial performance are provided in Appendix I (in
sterling) and Appendix II (in euros).
As indicated previously, WPP intends to expense the cost of executive options in
its income statement. Under United Kingdom GAAP, there is no clear guidance on
how this can be implemented. However, Note 13 in Appendix I details the impact
of expensing executive options using a Black Scholes valuation model and
applying United States transitional guidelines contained in FAS 123. On this
basis, executive options issued would only be expensed from the beginning of
this year. As few options have been granted over the first half of this year,
the resulting reduction in headline earnings per share would be less than 1%.
Fully expensing all executive options granted over the last three years would
reduce headline earnings per share by approximately 5% to 12.6p. Appendix III
shows a pro-forma unaudited income statement for the first half of 2002, on the
basis of adopting United States transitional guidelines.
Review of Operations
Revenue by Region
The pattern of revenue growth differed regionally. The table below gives
details of the proportion of revenue and revenue growth (on a constant currency
basis) by region for the first six months of 2002:
Region Revenue as a % Revenue growth%
of total Group 02/01
North America 44.7 - 6.3
United Kingdom 16.3 3.9
Continental Europe 22.7 7.6
Asia Pacific, Latin America, Africa
& Middle East 16.3 3.3
___ ___
TOTAL GROUP 100 - 0.3
As can be seen, North America has been most affected by the recession, with
Continental Europe least affected. The United Kingdom and Asia Pacific, Latin
America, Africa and the Middle East have also been less affected, although Latin
America has become more so recently, given instability in Argentina.
Net new business billings of almost £1.2 billion ($1.8 billion) were won in the
first half of the year. The Group was ranked second for net new business gains
in the latest available Credit Suisse First Boston survey for the first five
months of 2002.
Revenue by Communications Services Sector and Brand
The pattern of revenue growth varied by communications services sector and
company brand. The table below gives details of the proportion of revenue and
revenue growth by communications services sector (on a constant currency basis)
for the first six months of 2002:
Communications Services Revenue as a Revenue growth%
% of total Group 02/01
Advertising, Media Investment
Management 45.8 0.5
Information & Consultancy 15.3 6.8
Public Relations & Public
Affairs* 11.8 -11.2
Branding & Identity,
Healthcare & Specialist
Communications 27.1 0.1
___ ___
TOTAL GROUP 100 - 0.3
* The revenue figures submitted to the O'Dwyer Report reflect some public
relations income which is included here in advertising and media investment
management, and branding and identity, healthcare and specialist communications.
Total public relations and public affairs revenues fell over 13% to $361.5
million.
As can be seen, public relations and public affairs have continued to be most
affected by the recession. Advertising and media investment management and
branding and identity, healthcare and specialist communications have been less
affected and information and consultancy continues to be least affected.
Advertising and Media Investment Management
On a constant currency basis, combined revenue at Ogilvy & Mather (including
OgilvyOne), J Walter Thompson Company, Y&R Advertising, Red Cell, MindShare and
mediaedge:cia fell by over 2%, with operating margins down.
These businesses generated net new business billings of £884 million ($1.3
billion).
Information and Consultancy
The Group's information and consultancy businesses continued their growth,
despite global economic conditions, with revenues increasing by almost 7%, but
operating margins were down, as the recession started to have some impact.
Public Relations and Public Affairs
In constant currencies, the Group's public relations and public affairs revenues
fell by over 11%. The continuing recession has affected this sector the most,
particularly in the United States, reflecting the slowdown in technology, media
and telecommunications in particular. Operating margins, however, began to
improve.
Branding and Identity, Healthcare and Specialist Communications
The Group's branding and identity, healthcare and specialist communications
revenues were up slightly over last year with operating margins down over one
margin point. Particularly good performances were registered by several
companies in this sector in the first half, including, in promotion and direct
marketing by EWA, High Co, Imaginet, Mando Marketing, Maxx Marketing, The Grass
Roots Group and VML; in branding and identity by CB'a and MJM Creative; in
healthcare by CommonHealth; and in specialist marketing services by Forward, The
Bravo Group and The Geppetto Group.
Cashflow and Balance Sheet
A summary of the Group's cashflow statement and balance sheet and notes as at 30
June 2002 are provided in Appendices I and II.
In the first half of 2002, operating profit was £201 million, depreciation,
amortisation and impairment £96 million, interest paid £43 million and tax paid
£44 million. This resulted in net cash generation of £210 million for the first
six months of 2002, (excluding a comparative improvement in working capital)
compared to £255 million in the comparable period last year. The Group invested
£34 million in capital expenditure, £201 million (of which £110 million was for
initial acquisition payments and £45 million was for earnout payments and the
balance related to prior year loan note redemptions) in net cash acquisition
payments and investments and £68 million in share repurchases and dividends, a
total outflow of £303 million.
For the twelve months ended 30 June 2002 the net cash generation was
£462 million which was invested in capital expenditure of £90 million, cash
acquisition payments and investments of £623 million and share repurchases and
dividends of £145 million, a total expenditure of £858 million. Net debt
averaged £1,173 million for the twelve months ended 30 June 2002, versus £589
million for the comparable period ended 30 June 2001. Primarily due to
acquisition payments last year, on 30 June 2002 net bank borrowings were £1,160
million, against £620 million on 30 June 2001.
The Board continues to examine ways of deploying the Group's substantial
cashflow of approximately £400 million to £500 million per annum to enhance
share owner value given that interest cover remains strong at over five times.
As necessary capital expenditure normally approximates to 1-1.2x the
depreciation charge, the Company has continued to concentrate on examining
possible acquisitions or returning excess capital to share owners in the form of
dividends or share buy-backs.
In the first half of 2002, acquisitions have been completed in advertising and
media investment management in the United Kingdom, China and Finland; in
information and consultancy in the United States, Ireland and Thailand; in
public relations and public affairs in Australia, Japan and Taiwan; in sports
marketing in Germany.
In addition to increasing the interim dividend by 20% to 1.73p per share, at a
total cost of £20.0 million compared to £16.4 million last year, the Company has
continued its rolling share buy-back programme in the first half of the year by
repurchasing 10.75 million shares at an average price of £6.32 per share and
total cost of £68 million. The Company's objective remains to buy-back
approximately £150 million - £200 million of shares each year, currently
equivalent to 3-31/2% of the ordinary share capital.
Client Developments in the First Half of 2002
Including associates, the Group currently employs over 64,000 full-time people
in over 1,400 offices in 103 countries. It services over 300 of the Fortune
Global 500 companies, over one-half of the Nasdaq 100, over 30 of the Fortune
e-50, and approximately 333 national or multi-national clients in three or more
disciplines. This reflects the increasing opportunities for co-ordination
between activities both nationally and internationally. The Group also works
with well over 100 clients in 6 or more countries.
The Group estimates that more than 20% of new assignments in the first half of
the year were generated through the joint development of opportunities by two or
more Group companies.
Current Progress and Future Prospects
The Group's financial performance in the first half of the year mirrored the
difficult economic conditions. Like-for-like revenue decline in the first half
of 2002, of over 8% (July like-for-like revenues were down over 4%), exceeded
the budgeted decline of almost 5%. However, a pre-goodwill and impairment
operating margin of 13% was achieved, better than a budgeted 12.5%, due
principally to the reduction in and the variability of staff costs.
Functionally, information and consultancy and advertising and media investment
management continued to be less affected, although information and consultancy
has been affected more recently. Public relations and public affairs, branding
and identity, healthcare and specialist communications have been most affected,
although some branding and identity, direct and healthcare operations have held
up better and public relations and public affairs have started to improve their
operating margins.
The recession, which seemed to start in the United States in the fourth quarter
of 2000, has now been in existence for almost two years. It was materially
heightened by the tragic events of 11 September 2001, almost a year ago. Given
the impact of the terrorist attack in New York on the second half of last year,
most people felt that the second half of this year would witness an improvement
in general market conditions, particularly given easier comparative figures.
Recent stockmarket declines in the past few months have heightened concerns
about corporate profitability and consumer confidence and have raised the
possibility of an economic "double-dip". It has become apparent that any
significant improvement could be delayed still further and that even
improvements in comparative performance could be relatively mild. It seems
unlikely that significantly improved performance will occur in 2002 and that
any recovery will have to await 2003 or, perhaps, even more likely 2004, when
the US Presidential Election and the Athens Olympics will begin to have a
positive effect, at least on media markets. Given these conditions, even
achieving last year's operating margins of 14% in 2002 will be difficult.
Plans, budgets and forecasts of revenues will continue to be made on a
conservative basis and considerable attention is still being focused on
achieving margin and staff cost to revenue or gross margin targets. Margins
continue to be strong in important parts of the business. For example, the
combined operating margins of our advertising and media investment management
sector, are still almost 16%. Geographically, North American operating margins
are also 16%. In addition to influencing absolute levels of cost, the
initiatives taken by the parent company in the areas of human resources,
property, procurement, information technology and practice development continue
to improve the flexibility of the Group's cost base. This has become
increasingly important as economic activity stalls.
The Group continues to improve co-operation and co-ordination between companies
in order to add value to our clients' businesses and our people's careers, an
objective which has been specifically built into short-term incentive plans.
Particular emphasis and success has been achieved in the areas of media
investment management, healthcare, privatisation, new technologies, new markets,
retailing, internal communications, hi-tech, financial services and media and
entertainment.
The Group continues to concentrate on its strategic objectives of improving
operating profits by 10-15% per annum; improving operating margins by half to
one margin point per annum or more depending on revenue growth; improving staff
cost to revenue or gross margin ratios by 0.6 margin points per annum or more
depending on revenue growth; converting 25-33% of incremental revenue to profit
and growing revenue faster than industry averages and encouraging co-operation
among Group companies.
In addition to introducing greater flexibility into its cost structure, the
Group is competitively well positioned to weather current economic uncertainty
because of its strong and stable financial position, its geographic spread, its
consistent new business record and its competitive strength in information and
consultancy, public relations and public affairs, branding and identity,
healthcare and specialist communications - particularly as clients decide to
spend an increasing proportion of their marketing budgets on "below-the-line"
activities.
For further information:
Sir Martin Sorrell )
Paul Richardson ) 44-20-7408-2204
Feona McEwan ) 1-212-632-2301
www.wppinvestor.com
This announcement has been filed at the Company Announcements Office of the
London Stock Exchange and is being distributed to all owners of Ordinary shares
and American Depository Receipts. Copies are available to the public at the
Company's registered office.
The following cautionary statement is included for safe harbour purposes in
connection with the Private Securities Litigation Reform Act of 1995 introduced
in the United States of America. This announcement may contain forward-looking
statements within the meaning of the US 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 announcement should be considered in light
of these risks and uncertainties.
This information is provided by RNS
The company news service from the London Stock Exchange
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