TIDMWPP
RNS Number : 0069Y
WPP PLC
26 August 2009
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| FOR IMMEDIATE RELEASE | 26 AUGUST 2009 |
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WPP
2009 INTERIM RESULTS
Billings up over 11% at GBP18.742 billion
Revenue up over 28% to GBP4.289 billion
Like-for-like revenue down over 8%
Headline operating profit down over 24% to GBP342 million
Headline profit before tax down over 35% to GBP252 million
Profit before tax down 47% to GBP179 million
Diluted headline earnings per share down almost 41% at 12.9p
First interim ordinary dividend flat at 5.19p per share
* Billings up 11.1% at GBP18.742 billion.
* Reported revenue up 28.4% to GBP4.289 billion and up 8.6% in constant
currencies.
* Like-for-like revenue down 8.3% and gross margin down less at 7.8%.
* Headline operating profit down 24.5% to GBP342.2 million from GBP453.4 million.
* Headline operating margins down 4.5 margin points to 8.0% on a like-for-like
basis.
* Headline operating margins pre-severance and one-off costs at 10.0%.
* Headline profit before tax down 35.2% to GBP252.2 million from GBP389.1
million.
* Profit before tax down 47.0% to GBP179.3 million from GBP338.5 million.
* Diluted headline earnings per share down 40.8% to 12.9p from 21.8p.
* Diluted earnings per share down 50.6% to 8.8p.
* First interim ordinary dividend flat at 5.19p per share.
* Significant improvement in working capital in first half and relative net debt
position in second quarter.
* Estimated net new business billings of GBP1.208 billion ($1.872 billion).
In this press release not all the figures and ratios used are readily
available from the unaudited interim results included in Appendix 1. Where
required, details of how these have been arrived at are shown in note 19 of
Appendix 1 or explained in the glossary.
Summary of Results
The Board of WPP announces its unaudited interim results for the six months
ended 30 June 2009, which include the acquisition of Taylor Nelson Sofres
("TNS"). The results continue to reflect the impact of the significant global
economic contraction on most regions and service sectors. The impact continued
to intensify in the second quarter, though results for July did indicate a
"less-worse" picture.
Billings were up 11.1% at GBP18.742 billion.
Reportable revenue was up 28.4% at GBP4.289 billion. Revenue on a constant
currency basis, was up 8.6% compared with last year, chiefly reflecting the
weakness of the pound sterling against the US dollar and Euro. As a number of
our competitors report in US dollars and inter-currency comparisons are
difficult, Appendix 2 shows WPP's interim results in reportable US dollars.
On a like-for-like basis, which excludes the impact of acquisitions and
currency, revenues were down 8.3% in the first half, with gross margin down less
at 7.8%.
Headline earnings before interest, depreciation and amortisation ("EBITDA") was
down 14.3% to GBP455.7 million and down 26.7% in constant currencies. Headline
operating profit was down 24.5% to GBP342.2 million from GBP453.4 million and
down 35.1% in constant currencies.
Headline operating margins were down 5.6 margin points to 8.0% compared with
13.6% in the first half of last year. On a like-for-like basis operating margins
were down 4.5 margin points. Before severance costs, operating margins were
9.6%, down 3.5 margin points on a like-for-like basis. Before severance costs
and one-off property and integration costs, headline operating margins were
10.0%, down 3.1 margin points on a like-for-like basis.
On a reported basis, the Group's staff cost to revenue ratio, including
incentives, deteriorated by 2.2 margin points to 62.1% compared with 59.9% in
the first half of 2008, partly as a result of additional severance costs, which
accounted for almost half of the increase and partly as a result of currency.
Short and long-term incentives and the cost of share-based incentives amounted
to GBP59.3 million or 15.5% of operating profits before bonus and taxes,
compared to GBP84.1 million last year, or 16.3%, down GBP24.8 million. Of these,
cash-based incentives almost halved. On a constant currency basis, the Group's
staff costs to revenue ratio, including incentives, rose by 1.9 margin points to
62.0% from 60.1%, 1.0 margin point resulting from incremental severance.
On a like-for-like basis, the average number of people in the Group, excluding
associates, was 108,973 in the first half of the year, compared to 112,105 in
2008, a decrease of 2.8%. On the same basis, the total number of people in the
Group, excluding associates, at 30 June 2009 was 106,683 compared to 113,208 at
30 June 2008, a decrease of 6,525 or 5.8%. As at 30 June 2009, the number of
people in the Group fell by over 5,800 or 5.2% compared to the pro-forma figure
at 31 December 2008. As at 31 July 2009, the number had fallen further to
105,393 or 6.3%.
Net finance costs (excluding the revaluation of financial instruments) were
GBP90.0 million, compared with GBP64.3 million in 2008, an increase of GBP25.7
million, reflecting higher levels of net debt as a result of the net acquisition
cost of TNS and other smaller acquisitions and debt acquired on the acquisition
of TNS.
Headline profit before tax was down 35.2% to GBP252.2 million from GBP389.1
million, or down 45.1% in constant currencies, primarily reflecting the impact
of higher GBP sterling translation of interest costs on Euro-denominated debt.
Reported profit before tax fell by 47.0% to GBP179.3 million from GBP338.5
million. In constant currencies, reported profit before tax fell by 55.8%,
again, primarily reflecting the impact of higher GBP sterling translation of
interest costs on Euro-denominated debt.
The tax rate on headline profit before tax was 24.8%, down 2.1 percentage points
on the first half rate in 2008 of 26.9%.
Profits attributable to share owners fell by 47.9% to GBP108.4 million from
GBP208.2 million.
Diluted headline earnings per share fell by 40.8% to 12.9p from 21.8p. In
constant currencies, earnings per share on the same basis fell by 51.0%. Diluted
reported earnings per share fell by 50.6% to 8.8p and fell 60.1% in constant
currencies.
The Board declares a maintained first interim ordinary dividend of 5.19p per
share. The record date for this first interim dividend is 9 October 2009,
payable on 9 November 2009.
Further details of WPP's financial performance are provided in Appendices 1 and
2.
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 by region for the first six
months of 2009:
+----------------------+--------------+--------------+--------------+----------------+
| Region | Constant | Reported | Constant | Like-for-like2 |
| | Currency1 | Revenue | Currency1 | Revenue Growth |
| | Revenue as a | Growth | Revenue | 09/08 |
| | % of Total | 09/08 | Growth | |
| | Group | | 09/08 | |
+----------------------+--------------+--------------+--------------+----------------+
| | | % | % | % |
+----------------------+--------------+--------------+--------------+----------------+
| North America | 35.8 | 29.6 | -1.2 | -10.1 |
+----------------------+--------------+--------------+--------------+----------------+
| United Kingdom | 12.3 | 13.1 | 13.1 | -5.3 |
+----------------------+--------------+--------------+--------------+----------------+
| Western Continental | 25.8 | 35.9 | 19.7 | -10.5 |
| Europe | | | | |
+----------------------+--------------+--------------+--------------+----------------+
| Asia Pacific, | 26.1 | 27.6 | 11.5 | -4.7 |
| Latin America, | | | | |
| Africa & Middle East | | | | |
| and Central & | | | | |
| Eastern Europe | | | | |
+----------------------+--------------+--------------+--------------+----------------+
| | | | | |
+----------------------+--------------+--------------+--------------+----------------+
| TOTAL GROUP | 100.0 | 28.4 | 8.6 | -8.33 |
| | | | | |
+----------------------+--------------+--------------+--------------+----------------+
1Constant currency growth excludes the effects of currency movement
2Like-for-like growth excludes the effects of currency movements and the impact
of acquisitions
3Gross margin -7.8%
As shown above, on a constant currency basis, the Group grew at 8.6%, with
like-for-like revenues down 8.3%. Geographically, the impact of the recession
was most keenly felt in the United States and Western Continental Europe in the
first six months, with the United Kingdom and Western Continental Europe more
affected in the second quarter, along with other regions. Only Latin America and
Africa remained relatively unscathed, the only region or continent showing
like-for-like growth in the first-half. April, May and June showed progressive
deterioration in like-for-like growth, although July showed some sequential
improvement. The United States, United Kingdom, Australia and New Zealand
continued to be most affected along with Spain, Italy, The Netherlands, Denmark
and Portugal in Western Continental Europe. In Central and Eastern Europe, only
Poland and Russia showed like-for-like growth over the first six months. In
Latin America, which was more affected in the second quarter, Brazil and
Argentina still showed like-for-like growth in the first six months. In Asia
Pacific, Australia and Japan continued to be difficult, although mainland China
and India were less affected.
In the first half of 2009, over 26% of the Group's revenues came from Asia
Pacific, Latin America, Africa and the Middle East and Central and Eastern
Europe, a similar percentage to last year and against the Group's strategic
objective of one-third.
Estimated net new business billings of GBP1.208 billion ($1.872 billion) were
won in the first half of the year and the Group continues to benefit from
consolidation trends in the industry, winning assignments from existing and new
clients and being ranked amongst the leaders in the net new business industry
tables.
Revenue by Communications Services Sector and Brand
The pattern of revenue growth also 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 for the first six months of
2009:
+----------------------+--------------+------------+---------------+----------------+
| Communications | Constant | Reported | Constant | Like-for-like2 |
| Services Sector | Currency1 | Revenue | Currency1 | Revenue Growth |
| | Revenue as a | Growth | Revenue | 09/08 |
| | % of Total | 09/08 | Growth | |
| | Group | | 09/08 | |
+----------------------+--------------+------------+---------------+----------------+
| | | % | % | % |
+----------------------+--------------+------------+---------------+----------------+
| Advertising, Media | 38.4 | 8.1 | -7.5 | -7.8 |
| Investment | | | | |
| Management | | | | |
+----------------------+--------------+------------+---------------+----------------+
| Consumer Insight | 26.3 | 131.0 | 97.4 | -10.33 |
+----------------------+--------------+------------+---------------+----------------+
| Public Relations & | 9.4 | 13.3 | -6.9 | -8.2 |
| Public Affairs | | | | |
+----------------------+--------------+------------+---------------+----------------+
| Branding & Identity, | 25.9 | 14.5 | -4.5 | -6.9 |
| Healthcare and | | | | |
| Specialist | | | | |
| Communications | | | | |
+----------------------+--------------+------------+---------------+----------------+
| | | | | |
+----------------------+--------------+------------+---------------+----------------+
| TOTAL GROUP | 100.0 | 28.4 | 8.6 | -8.34 |
| | | | | |
+----------------------+--------------+------------+---------------+----------------+
1Constant currency growth excludes the effects of currency movement
2Like-for-like growth excludes the effects of currency movements and the impact
of acquisitions
3Gross margin -7.9%
4Gross margin -7.8%
By communications services sector, branding & identity, healthcare and
specialist communications (including direct, internet and interactive) was least
affected, with continued improvement in the Group's healthcare businesses in the
second quarter. The pressure continued on the Group's advertising, media
investment management businesses, with clients, given the current economic
climate, seeking greater and greater value and economies. Media investment
management came under greater pressure in quarter two. Public relations and
public affairs also saw some deterioration compared with the first quarter.
Consumer insight, as in the first quarter, was most affected by the recession at
the revenue level, although not at gross margin.
Direct and digitally-related activities now account for 25%, or $1.7 billion (an
annual run rate of almost $3.5 billion) of the Group's total revenues, which are
running at the rate of over $13 billion per annum. Very pleasingly, a leading
Independent Research Firm recently cited three of the Group's interactive
agencies (OgilvyInteractive, VML and Wunderman) amongst seven interactive agency
"leaders".
In the first half of 2009, over 61% of the Group's revenues came from outside
advertising and media investment management, compared to almost 55% last year
and the Group's strategic objective of two-thirds.
Quantitative disciplines (digital and consumer insight), now account for 48% of
Group revenues, almost meeting the Group's strategic objective of one-half.
Advertising and Media Investment Management
On a constant currency basis, advertising and media investment management
revenues fell by 7.5%, with like-for-like revenues down 7.8%. Reported operating
margins fell by 5.7 margin points to 10.1%, as the Group's businesses were
impacted by and reacted to the worsening economic situation, with significant
severances in the first half, particularly in Western Continental Europe,
reducing operating margins by over 2.0 margin points.
These businesses generated estimated net new business billings of GBP934 million
($1.448 billion).
Consumer Insight (previously Information, Insight & Consultancy)
Following the acquisition of TNS in October 2008, the Group's consumer insight
revenues grew by over 97% in the first half, but fell by 10.3% like-for-like.
However, gross margin only fell by 7.9%. Reported operating margins fell by 3.9
margin points to 6.2%. As with other parts of the Group, like-for-like growth
was increasingly affected in the second quarter, particularly in North America,
Continental Europe and Asia Pacific. The worldwide integration of TNS custom
research and Research International, began in the second quarter and should be
substantially completed by the end of 2009. In addition, other operations of
both TNS and Kantar, in media, health, retail and their related panel activities
were consolidated and now operate on a joint basis for the benefit of clients.
Public Relations and Public Affairs
In constant currencies, the Group's public relations and public affairs revenues
fell by 6.9%, with like-for-like revenues down 8.2%. The increased pressure in
the second quarter was most marked in Continental Europe and Latin America.
Reported operating margins fell 4.4 margin points to 11.7%.
Branding and Identity, Healthcare and Specialist Communications
The Group's branding and identity, healthcare and specialist communications
(including direct, internet and interactive) constant currency revenues
fell by 4.5%, with like-for-like revenues down 6.9%. This service sector showed
relative improvement in the second quarter, primarily as a result of
improvements in the Group's healthcare businesses in the United States. Reported
operating margins were down by 5.1 margin points to 5.5%.
Cash Flow and Balance Sheet
A summary of the Group's unaudited cash flow statement and balance sheet and
notes as at 30 June 2009 are provided in Appendix 1.
In the first half of 2009, operating profit was GBP199 million, depreciation,
amortisation and impairment GBP242 million, non-cash share-based incentive
charges GBP31 million, net interest paid GBP105 million, tax paid GBP95 million,
capital expenditure GBP129 million and other net cash outflows GBP11 million.
Free cash flow available for working capital requirements, debt repayment,
acquisitions and share re-purchases was, therefore, GBP132 million. This free
cash flow was absorbed by GBP93 million in net cash acquisition payments and
investments (of which GBP18 million was for new net acquisition payments, GBP38
million was for earnout payments and GBP37 million for investments), and by GBP9
million in share re-purchases, a total outflow of GBP102 million. This resulted
in a net cash inflow of GBP30 million, before any changes in working capital.
Average net debt in the first six months of 2009 rose by GBP1.251 billion to
GBP3.507 billion, compared to GBP2.256 billion in 2008, at 2009 exchange rates.
On 30 June 2009 net debt was GBP3.447 billion, against GBP1.857 billion on 30
June 2008, an increase of GBP1.590 billion. These figures reflect the net
acquisition costs of TNS and other smaller acquisitions and earnout payments and
debt acquired on the acquisition of TNS. Your Board continues to examine ways of
deploying its EBITDA, (of over GBP1.2 billion or almost $2 billion for the
preceding twelve months) and substantial free cash flow (of almost GBP600
million or approximately $1.0 billion per annum, also for the previous twelve
months), to enhance share owner value. The cost of the acquisition of TNS was
funded principally by debt and at the time of the transaction it was announced,
that for the following two years, acquisitions would be limited up to GBP100
million per annum, the Group's share buy-back programme would be targeted up to
1% per annum and dividend growth at up to 15% per annum, using surplus cash
generated to reduce debt.
In the first half of 2009, the Group continued to make small-sized acquisitions
or investments in high growth geographical or functional areas. In the first six
months of this year, acquisitions and increased equity stakes have been focused
on advertising and media investment management in Italy, Portugal, South Africa
and Australia; on consumer insight in the United States, the United Kingdom and
Russia; on public relations and public affairs in Poland and on direct, internet
and interactive in the United States, France and Hong Kong.
The Company continues to focus on examining the relative merits of dividends and
share buy-backs and maintained the first interim dividend at 5.19p per share. In
the first half, 2.4 million ordinary shares, equivalent to 0.2% of the share
capital, were purchased at an average price of GBP3.92 per share and total cost
of GBP9.5 million. All of these shares were purchased in the market and held in
treasury.
Client Developments in the First Half of 2009
Including associates, the Group currently employs over 145,000 full-time people
in almost 2,400 offices in 107 countries. It services 345 of the Fortune Global
500 companies, 29 of the Dow Jones 30, 50 of the NASDAQ 100, 33 of the Fortune
e-50 and 642 national or multi-national clients in three or more disciplines.
387 clients are served in four disciplines and these clients account for 55% of
Group revenues. This reflects the increasing opportunities for co-ordination
between activities both nationally and internationally. The Group also works
with 295 clients in 6 or more countries. The Group estimates that more than 35%
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 impact of the recession on the Group's profitability in the first half was
severe. Although action was taken to reduce staff and discretionary costs, such
as travel, training and personal costs, as revenues came under pressure, this
reduction was insufficient as revenues fell faster than budgeted. Like-for-like
revenues were budgeted to fall by almost 4% in the first half of 2009 and fell,
in fact, by over 8% with the deterioration against budget even greater in the
second quarter, which was a surprise.
Further cost actions have been taken in the second quarter, which have also
impacted profitability in the first half, through additional severance costs,
but will improve the picture in the second half. As the recession has
increasingly impacted Western Continental Europe, these severance payments have
increased in a region where, statutory severance costs are customarily greater.
The Group's like-for-like headcount (down almost 6% compared with June 2008 and
over 7% compared with July 2008) is now better balanced in comparison to the
reduction in like-for-like revenues and the second-half is forecast to show a
marked improvement in profitability, both absolutely and in terms of maintaining
second half margins at prior years levels.
This relative improvement should be reinforced as we cycle easier like-for-like
revenue comparatives. Sequential quarter-to-quarter comparisons are forecast to
stabilise, as are year-to-year comparisons, just like recently released country
GDP figures. However, although there is little doubt that CEOs and CMOs feel
better about the general economic environment, Armageddon or Apocalypse now
having been averted, there is little evidence of better heads and stouter hearts
translating into stronger order-books or investments - at least, yet. Things
look better, as they naturally should, partly because of easier comparatives.
Although it is still very early to budget or forecast what may happen in 2010,
top line revenues will probably be "even Steven", despite the positive impact of
the Winter Olympics in Vancouver, the World Expo in Shanghai, the Asian Games in
Guangzhou, the FIFA World Cup in South Africa and the mid-term Congressional
elections in the United States.
Plans, budgets and forecasts will 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 remain strong in important parts of
the business. 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. Flexible staff costs
(incentives, freelancers and consultants), which remain at around 5% of
revenues,continue to position the Group well in this downturn.
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, corporate social responsibility, government,
new technologies, new markets, retailing, internal communications, financial
services and media and entertainment. The Group continues to lead the industry,
in co-ordinating investment geographically and functionally through parent
company initiatives and winning Group pitches. Increasing co-operation, although
more difficult to achieve in a multi-branded company, which has grown by
acquisition, than in an organically grown uni-branded one, remains a priority.
Despite the current environment, the Group also continues to concentrate on its
long-term targets and strategic objectives of improving operating profits by
10-15%; 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; growing revenue
faster than industry averages and encouraging co-operation among Group
companies.
As clients face an increasingly undifferentiated market place, particularly in
mature markets, the Group is competitively well positioned to offer them the
creativity they desire, along with the ability to deliver the most effective
co-ordinated communications in the most efficient manner. The Group's
performance this year at the Cannes Advertising Festival was particularly
pleasing - second as a Group for the second year in succession, but with the gap
to first place narrowing.
As the recession abates and relative performance becomes easier, the Group's
strategic focus on new markets, new media and consumer insight will become even
more important. Clients will be increasingly looking for growth, advice and
resources in the BRICS and Next 11, in digital communications and in
understanding consumer motivations.
For further information:
+-----------------------------------------+-----------------------------------------+
| Sir Martin Sorrell } | +44 20 7408 2204 |
| Paul Richardson } | |
| Feona McEwan } | |
| | |
+-----------------------------------------+-----------------------------------------+
| Fran Butera | +1 212 632 2235 |
+-----------------------------------------+-----------------------------------------+
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
END
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