Wpp Plc · LSE:WPP
Wpp — H1 2005 Earnings Presentation
63 slides from Wpp's earnings presentation, August 2005
Slide 1: Interim results for 2005
WPP Interim results for 2005 London August 2005 1
Slide 2: Agenda
WPP 1 Interim results for 2005 2 International Accounting Standards 3 Key Priorities, Objectives and Strategy 4 Conclusions 2
Slide 3: Interim results for 2005
WPP 1 Interim results for 2005 3
Slide 4: Interim results for 2005
Interim results for 2005 • Reported and constant currency revenues up almost 22%. • First half like-for-like revenues up 6%. • July like-for-like revenue up almost 3%. • Headline PBIT1 up over 31% to £299.6m from £228.1m, up over 30% in constant currencies. • Headline operating margin1 up 0.8 margin
Slide 5: Interim results for 2005
Interim results for 2005 • Headline PBT1 up 32% to £254.8m from £193.0m, up almost 31% in constant currencies. • Diluted headline EPS up almost 28% to 13.8p from 10.8p, up over 26% in constant currencies. • Interim dividend up 20% to 3.00p per share. • 12.6 million shares repurchased (of which 10.0m
Slide 6: Unaudited IFRS Income Statement
Interim results for 2005 Unaudited IFRS Income Statement Six months to 30 June Constant 2005 2004 Change Currency £m £m % % Revenue 2,467.5 2,025.6 21.8 21.9 Operating Profit pre-goodwill/ intangibles 285.9 215.9 32.4 31.8 Goodwill/ intangibles charges (33.3) (31.0) (7.4) (6.8) Net loss on disposal
Slide 7: Unaudited Headline IFRS Income Statement
Interim results for 2005 Unaudited Headline¹ IFRS Income Statement Six months to 30 June 2005 2004 Change Constant £m £m % Currency % Revenue 2,467.5 2,025.6 21.8 21.9 Operating Profit pre-goodwill/ intangibles 285.9 215.9 32.4 31.8 Income from associates 13.7 12.2 12.3 8.6 PBIT pre investment gains
Slide 8: Summary of IFRS & UK GAAP performance
Interim results for 2005 Summary of IFRS & UK GAAP performance June 2005 June 2004 Actual Actual Change IFRS Headline Margin 12.1% 11.3% +0.83 PBIT £m 300 228 +32% PBT £m 255 193 +32% Fully diluted EPS (p) 13.8 10.8 +28% 2004 UK GAAP Headline1 Margin 13.7% 13.1% +0.63 PBIT £m 338 265 +28% PBT £m 301
Slide 9: Revenue by Discipline
Interim results for 2005 Revenue by Discipline Revenue 2005 2004 % Change £m £m Reported Constant Like-for- Currency like Advertising, Media Investment Management 1,185.9 936.7 26.6 26.1 6.1 Information, Insight & Consultancy 387.5 336.4 15.2 15.0 6.7 Public Relations & Public Affairs 251.8 221.6 13
Slide 10: Revenue by Region
Interim results for 2005 Revenue by Region Revenue 2005 2004 % Change £m £m Reported Constant Like-for- Currency like North America 973.4 809.8 20.2 23.0 5.9 UK 389.0 343.4 13.3 13.3 2.7 Continental Europe 662.3 524.3 26.3 23.5 4.0 Asia Pacific, Latin America, Africa & Middle East 442.8 348.1 27.2 2
Slide 11: Headline PBIT and Margin by Discipline
Interim results for 2005 Headline1 PBIT and Margin by Discipline Headline1 PBIT Headline1 margin 2005 2004 2005 2004 £m £m % % Advertising, Media Investment 158.6 119.9 13.4 12.8 Management Information, Insight & Consultancy 36.1 22.5 9.3 6.7 Public Relations & Public Affairs 35.0 29.4 13.9 13.3 Bra
Slide 12: Headline PBIT and Margin by Region
Interim results for 2005 Headline1 PBIT and Margin by Region Headline1 PBIT Headline1 margin 2005 2004 2005 2004 £m £m % % North America 151.9 123.3 15.6 15.2 UK 31.3 26.4 8.0 7.7 Continental Europe 68.9 45.5 10.4 8.7 Asia Pacific, Latin America, 47.5 32.9 10.7 9.5 Africa & Middle East Total 299.6 2
Slide 13: Revenue Growth by Country
Interim results for 2005 Revenue Growth by Country Revenue Growth1 Countries >20% Australia, Brazil, Canada, China, Denmark, Germany, Hong Kong, Mexico, Sweden, Taiwan, USA 15-20% India, Italy, Singapore, Spain 10-15% France, Japan, Netherlands, UK 5-10% - 0-5% Belgium 1 Constant currency 13
Slide 14: Revenue Growth by Category
Interim results for 2005 Revenue Growth by Category Revenue Growth1 Categories >20% Computer, Electrical, Financial Services, Personal Care & Drugs 15-20% Drinks 10-15% Food, Telecommunications 5-10% Automotive, Retail 0-5% Oil 1 Constant currency 14
Slide 15: Effects of Strength of Sterling
Interim results for 2005 Effects of Strength of Sterling • Currency had negligible impact in the first half, as the US $ stabilised against the euro and sterling. • Impact of currency reduced revenue by 0.1%, from 21.9% constant currency to 21.8% on a reportable basis. • Headline PBT¹ of £255m would
Slide 16: Major New Business Wins
Interim results for 2005 Major New Business Wins Agency Account Office Billings ($m) MediaCom VW USA 500 mec Cingular USA 200 1 mec Novartis Global 200 MediaCom Time Warner France 135 GroupM Shell Global 120 Ogilvy Lenovo Global 100 Maxus Church & Dwight USA 80 JWT Texas Instruments USA 79 MindShare
Slide 17: Major New Business Losses
Interim results for 2005 Major New Business Losses Agency Account Office Billings ($m) Y&R Sony USA 125 1 MediaCom Novartis Global 100 Y&R Jaguar Global 100 LOSSES MindShare/ mec Mattel USA 80 Ogilvy AEFA USA 55 mec Cencosud Chile 40 MindShare Western Union USA 30 (All billings figures are based on
Slide 18: Net new business wins in the first six months of 2005
Interim results for 2005 Net new business wins in the first six months of 2005¹ US $ millions Creative Media Total Advertising 937 2,065 3,002 Other Businesses 528 - 528 Total 1,465 2,065 3,530 ¹ Estimated billings 18
Slide 19: Major New Business Wins/Losses Since July
Interim results for 2005 Major New Business Wins/ Losses Since 1 July Agency Account Office Billings ($m) Mediacom/ mec Ikea Global 175 Y&R Hilton Hotels USA 45 WINS Ogilvy Nectar UK 34 Grey Manpower Global 30 LOSSES mec Richemont Europe 30 (All billings figures are based on trade press estimates, w
Slide 20: Cash Flow
Interim results for 2005 Cash Flow 2005 2004 £m £m Operating profit (pre-goodwill & impairment) 286 216 Non cash compensation 30 23 Depreciation 51 48 Net interest paid & similar charges (36) (38) Tax paid (57) (48) Net cash generation 274 201 20
Slide 21: Uses of Cash Flow
Interim results for 2005 Uses of Cash Flow 2005 2004 £m £m Net cash generation 274 201 Capital expenditure (70) (32) Acquisition payments: − Net initial payments - Grey (243) - - Other (21) (63) − Earnout payments (69) (66) − Loan note redemptions (3) (15) (336) (144) Share repurchases (75) (71) Oth
Slide 22: Net Debt – 30th June 2005
Interim results for 2005 Net Debt (including A/R) – 30th June 2005 2005 2004 % £m £m Variance YTD average net debt on constant (1,028) (1,115) 8% currency basis Net debt at 30 June (1,242) (1,015) (22%) Net interest1 (45) (35) (29%) 1 The £45m charge for 2005 includes an additional £7m due to accoun
Slide 23: Ordinary Shares – Diluted
Interim results for 2005 Ordinary Shares – Diluted June Dec Dec 2005 2004 2003 No. of Shares (million) Actual Actual Actual Average Basic 1,193 1,136 1,115 WPP Options and LEAP 25 26 30 Grey Options 3 - - Convertibles: Y&R $288m 1 repaid 16 anti-dilutive WPP £450m 2 anti-dilutive 42 anti-dilutive Gr
Slide 24: International Accounting Standards
WPP 2 International Accounting Standards 24
Slide 25: IFRS Overview
IFRS Overview • WPP’s first IFRS results are its interim results for the six months ended 30 June 2005. • WPP’s first Annual Report under IFRS will be for the year ending 31 December 2005. Full 2004 IFRS non statutory accounts will be included in the forthcoming prospectus in connection with the rec
Slide 26: Summary Headline Income Statement June 2005
Summary Headline Income Statement June 2005 % Change Excluding IFRS Change UK GAAP1 Total Holiday Pay £m £m £m % % Revenue 2,468 - 2,468 - - Headline Operating Profit 286 28 314 9.8 4.3 Headline PBIT 300 38 338 12.7 7.3 2 2 Headline PBIT margin 12.1% - 13.7% 1.6 1.0 Headline PBT 255 46 301 18.0 11.5
Slide 27: Headline Profit Reconciliation June 2005
Headline Profit Reconciliation June 2005 Operating £m Profit PBIT PBT Headline (IFRS) 286 300 255 Share-based compensation 14 14 14 Income from associates - tax - 10 10 Additional interest on convertible debt - - 7 Rounding (1) (1) - Total excluding holiday pay 13 23 31 Holiday pay accrual1 15 15 15
Slide 28: Summary Headline Income Statement June 2004
Summary Headline Income Statement June 2004 % Change Excluding IFRS Change UK GAAP1 Total Holiday Pay £m £m £m % % Revenue 2,025 - 2,025 - - Headline Operating Profit 216 28 244 13.0 5.6 Headline PBIT 228 37 265 16.2 9.1 2 2 Headline PBIT margin 11.3% - 13.1% 1.8 1.1 Headline PBT3 193 37 230 19.2 10
Slide 29: Headline Profit Reconciliation June 2004
Headline Profit Reconciliation June 2004 Operating £m Profit PBIT PBT Headline (IFRS) 216 228 193 Share-based compensation 13 13 13 Income from associates - tax - 9 9 Additional interest on convertible debt - - - Total excluding holiday pay 13 22 22 Holiday pay accrual1 15 15 15 Headline (2004 UK GA
Slide 30: Headline Margin Reconciliation
Headline Margin Reconciliation Jun 2005 Jun 2004 £m Margin £m Margin Revenue 2,468 2,025 Headline PBIT (IFRS) 300 12.1% 228 11.3% Holiday pay accrual 2 15 0.7% 15 0.7% Headline PBIT (IFRS) ex. 315 12.8% 243 12.0% holiday pay Share-based payments 13 0.5% 13 0.6% Income from associates 10 0.4% 9 0.5%
Slide 31: IFRS Impact
IFRS Impact June 2005 • Holiday pay accounting charge is timing only with limited full year impact (margin effect and earnings effect will reverse by year end). • IFRS headline EPS of 13.8p would be 14.7p excluding holiday pay. • IFRS changes (excluding holiday pay timing) lowers PBIT by 7%, PBT by
Slide 32: Key Priorities, Objectives and Strategy
WPP 3 Key Priorities, Objectives and Strategy 32
Slide 33: Strategic Priorities
Key Priorities, Objectives and Strategy Strategic Priorities • Short term: successfully integrate Y&R Advertising and Grey Worldwide into the group • Medium term: continue to focus on like-for-like top line growth and enhancing creative capabilities • Long term: develop our businesses in the faster
Slide 34: Y&R revenue performance 2000-2004
Key Priorities, Objectives and Strategy Y&R revenue performance 2000-2004 2005 Constant US$’ billions 2.5 Advertising, Media Investment Management Public Relations & Public Affairs Branding & Identity, Healthcare & Specialist Communications 2.0 1.5 1.0 0.5 0.0 2000 2001 2002 2003 2004 34
Slide 35: WPP/Y&R Margins & Returns on Capital Employed
Key Priorities, Objectives and Strategy WPP/ Y&R Margins1 & Returns on Capital Employed 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2000 2001 2002 2003 2004 Y&R margins Y&R ROCE WPP Margins WPP ROCE 1 Margins are on a UK GAAP basis 35
Slide 36: Short-term factors
Key Priorities, Objectives and Strategy Short-term factors • US fiscal deficit, trade deficit, interest rate policies and commodity price inflation • Outsourcing pressures check labour cost increases • Pressure on the consumer and lack of strong corporate capital spending • Lack of strength in Weste
Slide 37: Short-term factors
Key Priorities, Objectives and Strategy Short-term factors • Move from commission to fees, procurement and outsourcing • “Super agencies” • Network pricing, media fragmentation and pressure on traditional media • PVRs, VOIP, mobile and “search” 37
Slide 38: Long-term factors
Key Priorities, Objectives and Strategy Long-term factors • Globalisation / Americanisation / BRICs • Overcapacity, shortage of human capital • The Web • Internal communications • Retail concentration 38
Slide 39: 2005-2007 Financial Model: 2005 Outlook
Key Priorities, Objectives and Strategy 2005 - 2007 Financial Model 2005 Previous and Revised Outlook (2004 UK GAAP) • Industry growth of 2-3% • Former WPP headline operating margin improves from 14.1% to 14.8% • Grey headline operating margin targeted at 10.5% post synergies of $20m • Combined head
Slide 40: 2005-2007 Financial Model: 2006 and 2007 Outlook
Key Priorities, Objectives and Strategy 2005 - 2007 Financial Model 2006 Previous and Revised Outlook (2004 UK GAAP) • Former WPP headline operating margin improves from 14.8% to 15.3% • Grey headline operating margin improves from 10.5% to 11.5% • Combined headline operating margin target of a mini
Slide 41: Full Year Margin Prospects
Key Priorities, Objectives and Strategy Full Year Margin1 Prospects Old Forecast New Forecast UK UK IFRS GAAP2 IFRS GAAP2 2004 13.0% 14.1% 13.0% 14.1% 2005 13.2% 14.3% 13.7% 14.8% 2006 13.7% 14.8% 14.2% 15.3% 2007 - - 14.7% 15.8% Long term target - 20% 19% 20% 1 Headline operating margin excludes go
Slide 42: Historic headline PBIT and margins
Key Priorities, Objectives and Strategy PBIT1 Historic headline PBIT¹ and margins £’m PBIT1 margin 700 % 20% Long- Long-term IFRS target 19% 608 600 561 534 16% 14.5% 14.1% 14.0% 480 500 13.4% 13.7% 12.8% 13.0% 13.1% 431 12.3% 12.1% 12% 400 11.3% 338 291 300 265 245 8% 200 4% 100 0 0% 1998 1999 2000
Slide 43: Faster Growing Markets To Be One Third of Total Group
Key Priorities, Objectives and Strategy Faster Growing Markets To Be One Third of Total Group WPP Today WPP Today Incl. Associates WPP Tomorrow incl. Associates Asia Pacific, Latin America, Africa & Asia Pacific, Latin M iddle East America, Africa & 18% M iddle East Asia Pacific, Latin 24% America,
Slide 44: BRICs Assumptions
Key Priorities, Objectives and Strategy BRICs Assumptions • Brazil, Russia, India and Greater China (BRIC) account for approximately 6% of WPP revenue today • According to Goldman Sachs research, “Dreaming with BRICs”1, these countries will grow at a 10.4% CAGR through 2015 • According to Zenith, ad
Slide 45: BRIC markets will drive substantial revenue growth
Key Priorities, Objectives and Strategy BRIC markets will drive substantial revenue growth Today 2015 ROW (2) ROW (2) 9% 12% Europe (1) 14% Europe(1) 26% N. America 35% N. America BRIC 39% 28% BRIC UK 6% 14% UK 17% 1 Europe excludes Russia 2 Asia Pacific, Latin America, Africa & Middle East excludin
Slide 46: WPP's performance strong in BRIC markets
Key Priorities, Objectives and Strategy WPP’s performance strong in BRIC markets Revenue $’m in Select BRIC markets 300 250 200 1994 150 1999 2004 100 50 0 China (including Hong India Brazil Kong and Taiwan) 46
Slide 47: Marketing Services To Be Two Thirds of Total Group
Key Priorities, Objectives and Strategy Marketing Services To Be Two Thirds of Total Group Today Today including associates Tomorrow 33% 46% 47% 54% 53% 67% Advertising & Media Investment Management Marketing Services 47
Slide 48: Quantitative Disciplines To Be One Half of Total Group
Key Priorities, Objectives and Strategy Quantitative Disciplines To Be One Half of Total Group Today Today including associates Tomorrow 35% 35% 50% 50% 65% 65% Information, Insight & Consultancy and Direct, Internet & Interactive Advertising, Media Investment Management & Other Marketing Services 4
Slide 49: We continue to focus on our key objectives
Key Priorities, Objectives and Strategy We continue to focus on our key objectives • Improving operating margins • Increasing flexibility in the cost base • Using free cash flow to enhance share owner value, and improving return on capital employed • Developing the role of the parent company • Empha
Slide 50: Financial Model
Key Priorities, Objectives and Strategy Financial Model • Organic revenue growth 0-5% • Margin growth in line with objectives • Operating profit improvement • Incremental profit growth from acquisitions of up to 5% • Overall growth in EPS 50
Slide 51: Earnings and EPS 2000 – 2005
Earnings¹ and EPS¹ 2000 – 2005 Interim and full year Earnings (£m) Interim - IFRS Interim - UK GAAP 450 Full Year - UK GAAP 400 32.3p 30.9p 350 29.0p 300 24.9p 30.3p 250 16.7p 200 15.0p 13.8p 13.4p 14.1p 150 12.8p 10.8p 100 12.0p 50 0 2000 2001 2002 2003 2004 2005 ¹ Diluted Earnings and Diluted Head
Slide 52: Increasing flexibility in the cost base
Key Priorities, Objectives and Strategy Increasing flexibility in the cost base • We continue to focus on a more flexible cost structure in three key areas: Staff c. 50% of revenue Property c. 10% of revenue Bought in services c. 30% of revenue • Increased flexibility in all areas important to
Slide 53: Increasing flexibility in the cost base: variable costs
Key Priorities, Objectives and Strategy Increasing flexibility in the cost base Change in variable costs % 14 2000 12.4 2004 12 11.3 11.3 2005 1 10.41 10 10.4 8 6.6 6.8 6.9 6.41 6 6.21 4 2 0 Variable Staff costs as a % of Staff costs Variable Staff costs as a % of Revenue 53 1 Variable Staff costs e
Slide 54: Using Free Cashflow to Enhance Share Owner Value
Key Priorities, Objectives and Strategy Using Free Cashflow to Enhance Share Owner Value Dividends and Share Repurchases • 2005 interim dividend raised by 20% to 3.00p per share • Share repurchases and buy-backs Shares Amount % of Share Base 1997 7.2m £31.2m 1.0% 1998 15.6m £54.6m 2.1% 1999 3.3m £17
Slide 55: Using Free Cash Flow: Acquisitions
Key Priorities, Objectives and Strategy Using Free Cash Flow to Enhance Share Owner Value Acquisitions • Grey consolidated from 7 March 2005 • Continued focus on small and mid-sized strategic acquisitions - a number completed during the first half • Major focus continues to be on information, insigh
Slide 56: Use of Free Cash Flow on Acquisitions in 2005
Key Priorities, Objectives and Strategy Use of Free Cash Flow on Acquisitions in 2005 Advertising and Media Investment Information, Insight & Management consultancy Grey Worldwide (Global) Oracle Market Research MediaCom (Global) (Hong Kong) Santo Argentina (Argentina) MRI (Korea) Tarantula (UK) Dyn
Slide 57: Use of Free Cash Flow on Acquisitions in 2005
Key Priorities, Objectives and Strategy Use of Free Cash Flow on Acquisitions in 2005 Branding & Identity, Healthcare and Specialist Communications Grey Synchronised Partners (Grey Direct, Grey Interactive and Grey Sales Promotions) CMD (USA) NZP (Netherlands) Dr Schlegel (Switzerland) K&L (USA) Tar
Slide 58: Developing the Role of the Parent Company
Key Priorities, Objectives and Strategy Developing the Role of the Parent Company Key areas for Group co-operation • Media planning, buying • Internal and research communications • Healthcare • Retailing • New technologies • Hi-tech • Emerging Markets • Financial Services • Privatisation • Entertain
Slide 59: Emphasise Revenue Growth More as Margins Improve
Key Priorities, Objectives and Strategy Emphasise Revenue Growth More as Margins Improve • Continue to focus on delivering above average revenue growth by: − Expanding networks to take advantage of faster growing geographical markets − Re-enforcing competitive advantage in segments where growth is e
Slide 60: Improving the Creative Capabilities and Reputation
Key Priorities, Objectives and Strategy Improving the Creative Capabilities and Reputation of all our Businesses • By placing greater emphasis on recruitment • By recognizing creative success tangibly and intangibly • By acquiring highly regarded creative businesses • By placing greater emphasis on
Slide 61: Conclusions
WPP 4 Conclusions 61
Slide 62: Conclusions
Conclusions • The Group continues to be well placed by region and discipline to benefit from key industry trends • There is scope for further margin improvement, cost flexibility, use of free cashflow to enhance share owner value • In the long term the Group will be concentrating on positioning its
Slide 63: WPP London August 2005
WPP Interim results for 2005 London August 2005 63