Wpp Plc · LSE:WPP
Wpp — FY2007 Earnings Presentation
66 slides from Wpp's earnings presentation, February 2008
Slide 1: Results for 2007
WPP Results for 2007 London February 2008 1
Slide 2: Agenda
WPP 1 Results for 2007 2 Key Priorities, Objectives and Strategy 3 Conclusions 4 Structure and Competitive Position (Hard Copy Only) 2
Slide 3: Results for 2007
WPP 1 Results for 2007 3
Slide 4: Results for 2007
Results for 2007 Billings up over 5% to £31.7 billion. Reported revenue up 4.7%. On a constant currency basis, revenue up 8.2%. Like-for-like revenue up 5.0%. EBITDA rises over 7% to £1.07 billion. Headline PBIT up 8.0% to £928m from £859m, up 10.1% in constant currency. Operating margin up 0.5 marg
Slide 5: Results for 2007
Results for 2007 Headline PBT up 6.7% to £817m from £766m, up 8.8% in constant currency. Tax rate on headline profits was down 1.0 percentage point to 25% from 26%. Diluted headline EPS up 9.5% to 46.0p from 42.0p, up 13.6% in constant currency. Full year dividend up 20% to 13.45p per share. Record
Slide 6: If Reporting as a US Company
Results for 2007 If Reporting as a US Company¹ Reportable revenue up 13.6% to $12.4 billion. EBITDA up 15.5% to $2,154 million. Headline PBIT up 16.5% to $1,865 million. Headline PBT up 14.8% to $1,643 million. Diluted headline EPS up 18.1% to 92.6¢. ¹ See Appendix 2 to the Group’s Results for 2007.
Slide 7: Growth vs Prior Year
Results for 2007 Growth vs Prior Year Revenue PBIT² Diluted % % EPS² % Like-for-like 5.0 n/a n/a Acquisitions 3.2 n/a n/a Constant currency 8.2 10.1 13.6 Foreign exchange (3.5) (2.1) (4.1) Reportable sterling 4.7 8.0 9.5 Reportable US dollars¹ 13.6 16.5 18.1 ¹ Translated into US$, using among other
Slide 8: Unaudited Income Statement
Results for 2007 Unaudited Income Statement Year to 31 December Constant 2007 2006 Change Currency £m £m % % Revenue 6,185.9 5,907.8 4.7 8.2 Operating Profit pre-goodwill/ intangibles 887.4 821.9 8.0 9.9 Goodwill/ intangibles charges, FA gains (82.7) (80.3) (3.0) (6.7) Operating Profit 804.7 741.6 8
Slide 9: Unaudited Headline IFRS Income Statement
Results for 2007 Unaudited Headline¹ IFRS Income Statement Year to 31 December 2007 2006 Change Constant £m £m % Currency % Revenue 6,185.9 5,907.8 4.7 8.2 Headline operating profit 887.4 821.9 8.0 9.9 Income from associates 40.6 37.1 9.4 14.2 Headline PBIT 928.0 859.0 8.0 10.1 Net finance costs (11
Slide 10: Headline Performance Versus Consensus
Results for 2007 Headline¹ Performance Versus Consensus Median Actual Consensus Results +/ (-) Revenue £6,121m £6,186m £65m PBIT £918m £928m £10m Net finance costs £(106)m £(111)m £(5)m PBT £812m £817m £5m Fully Diluted EPS 44.6p 46.0p 1.4p PBIT Margin 15.0% 15.0% - Fully Diluted Shares 1,241m 1,227
Slide 11: Revenue by Discipline
Results for 2007 Revenue by Discipline 2007 2006 % Change £m £m Reported Constant Like-for- Currency like Advertising, Media Investment Management 2,871.3 2,806.9 2.3% 5.1% 4.5% Information, Insight & Consultancy 905.4 892.9 1.4% 4.5¹ 2.7%² Public Relations & Public Affairs 641.4 595.7 7.7% 12.6% 8.
Slide 12: Revenue by Region
Results for 2007 Revenue by Region 2007 2006 % Change £m £m Reported Constant Like-for- Currency like North America 2,266.7 2,291.1 -1.1% 7.6% 3.8% UK 890.3 856.3 4.0% 4.0%¹ 2.1%² Continental Europe 1,657.4 1,532.9 8.1% 7.0% 3.9% Asia Pacific, Latin America, Africa & Middle East 1,371.5 1,227.5 11.7
Slide 13: Headline PBIT and Margin by Discipline
Results for 2007 Headline PBIT¹ and Margin¹ by Discipline Headline PBIT Headline Margin 2007 2006 2007 2006 £m £m % % Advertising, Media Investment Management 466.9 443.7 16.3 15.8 Information, Insight & Consultancy 104.3 98.7 11.5 11.1 Public Relations & Public Affairs 106.5 89.5 16.6 15.0 Branding
Slide 14: Headline PBIT and Margin by Region
Results for 2007 Headline PBIT¹ and Margin¹ by Region Headline PBIT Headline Margin 2007 2006 2007 2006 £m £m % % North America 391.5 389.0 17.3 17.0 UK 107.1 97.9 12.0 11.4 Continental Europe 223.0 194.3 13.5 12.7 Asia Pacific, Latin America, Africa & Middle East 206.4 177.8 15.0 14.5 Total 928.0 8
Slide 15: Revenue Growth by Country
Results for 2007 Revenue Growth by Country Revenue Growth¹ Countries 20%+ Brazil, Greater China, India 15-20% Singapore 10-15% Canada, Poland, Spain 5-10% Belgium, Italy, Netherlands, Thailand, USA <5% Australia, Denmark, France, Germany, Japan, Mexico, Sweden, UK 1 Constant currency 15
Slide 16: Revenue Growth by Category
Results for 2007 Revenue Growth by Category Revenue Growth1 Categories 15%+ Drinks 10-15% Entertainment, Financial Services, Food, Retail 5-10% Automotive, Personal Care & Drugs, Telecommunications <5% Computer, Oil 16 1 Constant currency
Slide 17: Effects of Strength of Sterling
Results for 2007 Effects of Strength of Sterling Sterling was stronger on average in 2007 than in 2006 by 8.6% against the dollar, 0.3% weaker against the euro, and 10.0% stronger against the Japanese yen. Impact of currency reduced revenue by 3.5%, from 8.2% constant currency to 4.7% on a reportabl
Slide 18: Trade Estimates of Major New Business Wins
Results for 2007 Trade Estimates of Major New Business Wins Agency Account Office Billings ($m) mec AT&T USA 3,400 DaVinci Dell Worldwide 1,500 MediaCom GSK USA, Europe 600 MindShare LG Worldwide 350 mec Citigroup USA 310 mec Paramount Worldwide 250 mec Sony Asia 250 Y&R LG Worldwide 225 mec Macy’s
Slide 19: Trade Estimates of Major New Business Wins
Results for 2007 Trade Estimates of Major New Business Wins Agency Account Office Billings ($m) MediaCom Michelin USA 100 mec SAB Miller Worldwide 100 mec BT UK 100 United Berlin Cameron Heineken USA 100 MediaCom Boots UK 90 JWT Johnson & Johnson N America 83 MindShare Royal Caribbean USA 80 JWT Roy
Slide 20: Trade Estimates of Major New Business Losses
Results for 2007 Trade Estimates of Major New Business Losses Agency Account Office Billings ($m) MindShare Sears USA 740¹ MindShare Twentieth Century Fox USA 500¹ MindShare Mattel Worldwide 500 MindShare Samsung Worldwide 500 mec Barilla Europe 275 Ogilvy Numico Worldwide 220 mec BT UK 100 United B
Slide 21: Trade Estimates of Major New Business Losses
Results for 2007 Trade Estimates of Major New Business Losses Agency Account Office Billings ($m) Ogilvy Quiznos USA 80 MediaCom COI UK 75 Ogilvy American Express USA 75 Mindshare Domino’s USA 75 Y&R Weight Watchers USA 70 JWT Kraft – Ritz/ Chips USA 70 Batey Singapore Airlines Asia 60 Y&R Jenny Cra
Slide 22: Internal Estimates of Net New Business Wins in 2007
Results for 2007 Internal Estimates of Net New Business Wins in 2007 Billings ($m) Creative Media Total Advertising 1,459 7,188 8,647 Other Businesses 1,162 - 1,162 Total 2007 2,621 7,188 9,809 Total 2006 2,050 4,361 6,411 22
Slide 23: Trade Estimates of Major New Business Wins & Losses
Results for 2007 Trade Estimates of Major New Business Wins & Losses Since 1 January Agency Account Office Billings ($m) Ogilvy Motorola EMEA 200 WINS MindShare Nippon Paint Asia 96 LOSSES mec Cadbury Schweppes USA 150 23
Slide 24: Cash Flow
Results for 2007 Cash Flow 2007 2006 £m £m Operating profit (pre-goodwill & intangible charges) 888 822 Non-cash compensation 62 71 Depreciation & amortisation charges 144 143 Net interest paid & similar charges¹ (106) (58) Tax paid (151) (162) Net cash generation 837 816 ¹ Includes £22m of 1% rolle
Slide 25: Uses of Cash Flow
Results for 2007 Uses of Cash Flow 2007 2006 £m £m Net cash generation 837 816 Capital expenditure (171) (185) Acquisition payments: − Net initial payments¹ (579) (112) − Earnout payments (94) (92) − Loan note redemptions (2) (12) (675) (216) Share repurchases (415) (258) Other 32 85 Net cash (outfl
Slide 26: Net Finance Costs/(Income)
Results for 2007 Net Finance Costs/ (Income) £’m 2007 2006 B/(W) Net debt interest 109.5 75.3 (45%) Investment income (9.2) (5.7) 61% IAS 32 (Convertibles) 3.0 13.9 78% Net banking expense 103.3 83.5 (24%) IAS 19 (Pensions) 5.7 7.2 21% Earnout interest 1.7 2.0 15% Other finance costs 7.4 9.2 20% Hea
Slide 27: Net Debt - December 2007
Results for 2007 Net Debt - 31 December 2007 2007 2006 % £m £m Variance Net debt at 31 December (1,286) (815) (58%) YTD average net debt on constant (1,458) (1,153) (26%) currency basis YTD average net debt on (1,458) (1,214) (20%) reportable currency basis Headline finance costs (111) (93) (19%) In
Slide 28: Debt Maturity Profile
Results for 2007 Debt Maturity Profile $m Total 2008 .. 2012 2013 2014 2015 2017 2020 2033 Grey 5% convertible 150 150 £ bonds £200m (6.375%) 390 390 £ bonds £400m (6%) 780 780 Eurobonds €500m (5.25%) 650 650 US bond $650m (5.875%) 650 650 Eurobonds €600m (4.375%) 780 780 Yankee bonds $100m (6.875%)
Slide 29: Historic Average Net Debt/EBITDA
Results for 2007 Historic Average Net Debt/EBITDA £ million Average debt/ EBITDA 1,600 3.0 1,400 1,200 2.5 1,000 800 2.0 600 400 1.5 200 0 1.0 2001 2002 2003 2004 2005 2006 2007 Average net debt EBITDA Average net debt/EBITDA 29
Slide 30: Share Buy-Backs and Capital Allocation
Results for 2007 Share Buy-Backs and Capital Allocation • Following a review of the capital structure the company decided to increase buy-backs from 2%-3% each year (£200-300 million), to 4%-5% (£400-500 million) in each of 2007 and 2008, when market conditions are appropriate. • Share buy-backs in
Slide 31: Ordinary Shares - Basic
Results for 2007 Ordinary Shares - Basic December December 2007 2006 No. of Shares (million) Actual Actual 1 January 1,241 1,253 Share buy-back (57)¹ (33)¹ Option exercise 7 21 31 December 1,191 1,241 -4.0% Weighted Average 1,218 1,248 ESOP (41) (47) Average Basic 1,177 1,201 -2.0% ¹ Buy-back for ca
Slide 32: Ordinary Shares – Diluted
Results for 2007 Ordinary Shares – Diluted December December 2007 2006 No. of Shares (millions) Actual Actual Average Basic 1,177 1,201 -2.0% Share Option Dilution 16 15 Other Potentially Issuable Shares 25 17 Sub-Total 1,218 1,233 Convertibles: WPP £450m repaid anti-dilutive Grey $150m ¹ 9 9 Fully
Slide 33: Earnings and EPS
Results for 2007 Earnings and EPS¹ Earnings (£m) 2004 UK GAAP IFRS 600 46.0p 42.0p 10% 500 17% 36.0p 32.3p 400 27.9p 29.0p 29% 11% 23.8p 300 22% 200 100 0 2002 2003 2004 2005 2006 2007 ¹ Diluted Headline Earnings and Diluted Headline EPS 33
Slide 34: Key Priorities, Objectives and Strategy
WPP 2 Key Priorities, Objectives and Strategy 34
Slide 35: Key Priorities, Objective and Strategy: Long-term factors
Key Priorities, Objective and Strategy Long-term factors Globalisation /Americanisation /BRICs Overcapacity, shortage of human capital The Web (internet penetration, e-commerce, mobile) Internal communications Retail concentration Corporate responsibility and the environment Global and local structu
Slide 36: Key Priorities, Objectives and Strategy
Key Priorities, Objectives and Strategy Faster growing markets to be one third of total group Marketing services to be two thirds of total group Quantitative disciplines to be one half of total group 36
Slide 37: 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 Today¹ Today Including Associates¹ Tomorrow Faster growing markets including Central & Eastern Europe 25% 37% 22% 28% 34% 32% 33% 3% 3% 38% 33% 37% N. America Europe Asia Pacific, Latin America, Central & A
Slide 38: WPP's Performance Strong in BRIC Markets
Key Priorities, Objectives and Strategy WPP’s Performance Strong in BRIC Markets Revenue $’m 600 500 Associates @ 100% 400 300 200 100 0 00 06 07 00 06 07 00 06 06 07 00 07 20 20 20 20 20 20 20 20 20 20 20 20 China (including Brazil India Russia Hong Kong and 38 Taiwan)
Slide 39: WPP's Performance in Other Faster Growing Markets
Key Priorities, Objectives and Strategy WPP’s Performance in Other Faster Growing Markets Revenue $’m 400 350 300 Associates @ 100% 250 200 150 100 50 0 00 06 07 00 06 07 00 06 06 07 00 07 20 20 20 20 20 20 20 20 20 20 20 20 Middle East Eastern Europe Indonesia Vietnam 39
Slide 40: WPP in Faster Growing Markets
Key Priorities, Objectives and Strategy WPP in Faster Growing Markets Region Market Billings1 % Share¹ Rank¹ 12 month2 People² $bn Revenue $bn ‘000 Asia Greater China3 2.5 36% 1 0.6 8.3 India 1.0 56% 1 0.2 6.2 Thailand 0.3 39% 1 0.1 1.2 LatAm Brazil5 1.1 25% 1 0.4 8.5 Mexico 0.8 24% 2 0.1 1.5 Argent
Slide 41: Revenue by Geography
Key Priorities, Objective and Strategy Revenue by Geography $12.7bn $12.4bn 1.0 Asia Pacific, LatAm, Africa & Middle East Europe 2.8 N America 4.8 5.1 $6.6bn $6.4bn 1.2 1.2 1.5 2.5 6.9 $2.1bn 4.5 0.2 3.9 2.7 1.2 0.7 WPP Omnicom IPG Publicis Havas 1 Source: WPP - sterling revenues converted @ $2.00=
Slide 42: Media Billings by Geography
Key Priorities, Objectives and Strategy Media Billings by Geography Worldwide ranking by Group as % of the Six Groups 40 35 30 WPP 25 Publicis 20 Omnicom IPG 15 Aegis 10 Havas 5 0 Americas Europe Asia Pacific Worldwide Source: RECMA Billings report – August 2007, Definitive 2006 network key data, ta
Slide 43: Marketing Services To Be Two Thirds of Total Group
Key Priorities, Objectives and Strategy Marketing Services To Be Two Thirds of Total Group Today¹ Today including associates¹ Tomorrow 33% 46% 47% 53% 67% 54% Marketing Services Advertising & Media Investment Management ¹ Based on full year 2007 reported revenue. 43
Slide 44: Revenue by Discipline
Key Priorities, Objective and Strategy Revenue by Discipline $12.7bn $12.4bn 6.7 7.3 $6.6bn $6.4bn 2.8 2.3 $2.1bn 0.7 WPP Omnicom IPG Publicis Havas Media Advertising Marketing Services Source: ¹ 2007 Company Presentations. 2 Media based on Deutsche Bank estimates. 3 IPG revenue based on analysts’ e
Slide 45: Quantitative Disciplines To Be One Half of Total Group
Key Priorities, Objectives and Strategy Quantitative Disciplines To Be One Half of Total Group Today ¹ Today including associates ¹ Tomorrow 33% 50% 33% 67% 67% 50% Information, Insight & Consultancy and Direct, Internet & Interactive Advertising, Media Investment Management & Other Marketing Servic
Slide 46: WPP Position in Direct and Digital
Key Priorities, Objectives and Strategy WPP Position in Direct and Digital Full Year $ millions Digital/ Wide¹ Interactive Definition Direct/Digital Networks 774 2,128 +14% vs 2006 (OgilvyOne, Wunderman, rmg:connect, G2 and WPP Digital) % of Group revenues 6% 17% Digital/Interactive resources: - Inf
Slide 47: 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 improve return on capital employed. Developing the role of the parent company. Emphasising r
Slide 48: Historic Headline PBIT and Margins
Key Priorities, Objectives and Strategy PBIT1 Historic Headline PBIT¹ and MarginsPBIT margin 1 £’m % 1000 20% Long- Long-term IFRS target 19% 900 Objectives: 15.0% 2009 16.0% 800 14.5% 16% 14.0% 14.1% 2008 15.5% 14.0% 700 13.0% 13.0% 12.3% 928 859 600 755 12% 500 560 561 534 480 400 8% 300 200 4% 10
Slide 49: Increasing flexibility in the cost base
Key Priorities, Objectives and Strategy Increasing flexibility in the cost base Change in variable costs % 14 2002 13.0 12.7 2006 12 2007 10 9.2 8 7.7 7.4 6 5.3 4 2 0 Variable Staff costs as a % of Staff costs Variable Staff costs as a % of Revenue 49
Slide 50: Using Free Cash Flow to Enhance Share Owner Value
Key Priorities, Objectives and Strategy Using Free Cash Flow to Enhance Share Owner Value Dividends and Share Repurchases 2007 dividend raised by 20% to 13.45p per share. Distributions to share owners: Share Repurchases Dividends Paid Amount % of Share Base 2000 £25.6m £94.1m 1.3% 2001 £44.4m £103.3
Slide 51: Distributions to Share owners
Key Priorities, Objectives and Strategy Using Free Cashflow to Enhance Share Owner Value Distributions to Share owners¹ £ millions 600 6.4% Repurchases 500 Dividends 400 4.8% 415 300 3.6% 258 200 2.7% 1.8% 152 2.0% 1.6% 89 100 103 76 23 139 100 119 56 67 82 44 0 2001 2002 2003 2004 2005 2006 2007 51
Slide 52: Using Free Cashflow: Acquisitions
Key Priorities, Objectives and Strategy Using Free Cashflow to Enhance Share Owner Value Acquisitions Focus on the faster growing geographical areas and marketing services, particularly direct, internet & interactive and information, insight & consultancy. During 2007 40 small and mid size acquisiti
Slide 53: Acquisitions
Key Priorities, Objectives and Strategy Acquisitions¹ Quantitative and Faster Growing Markets Digital 24/7 Real Media (USA) All Global (UK) BLAST RADIUS (CANADA) DAWSON (CHINA) CHESKIN (USA) DBA Live (Colombia) Aqua Online (S. Africa) DataCore (USA) etcO (Brazil) Blue Interactive (Singapore) Foresig
Slide 54: Acquisitions: Advertising and Media Investment Management
Key Priorities, Objectives and Strategy Acquisitions¹ Advertising and Media Investment Management Badjar (Australia) Clemmow Hornby Inge (UK) JWT Hungary Laundry (Finland) MediaX (Austria) PPR WA (Australia) Tapsa (Spain) Healthcare WestawayGillis (UK) ¹ Excludes equity step ups 54
Slide 55: Investments
Key Priorities, Objectives and Strategy Investments¹ Quantitative & Digital INVIDI TECHNOLOGIES (CANADA) JumpTap (USA) Media Rights Capital Corp (USA) Video Egg (USA) ¹ Interests of less than 20% CAPITALS ARE Q4 ACQUISITIONS 55
Slide 56: Acquisitions since 1 January 2008
Key Priorities, Objectives and Strategy Acquisitions¹ since 1 January 2008 Faster Growing Quantitative and Markets Digital Encompass (India) AGENDA(Asia) HeathWallace (UK) Rikes (Hong Kong) NuConomy (Israel) Tagora (Belgium) Team Y&R (Middle East) Yankelovich (USA) immi² (USA) LaComunidad (Advertisi
Slide 57: Improving the Creative Capabilities and Reputation of all our Businesses
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 award
Slide 58: Conclusions
WPP 3 Conclusions 58
Slide 59: Financial Model
Conclusions Financial Model Revenue growth in line with the market (0%-5%). Operating margin up 0.5 margin points each year with a long term goal of 19% PBIT margin. PBIT growth of 5%-10% per annum. Use of free cash flow via share buy-backs of up to 5% of share capital and small to mid sized acquisi
Slide 60: Financial Model – 2007 Actual Performance
Conclusions Financial Model – 2007 Actual Performance Like-for-like revenue growth of 5%. Operating margin up 0.5 margin points. PBIT growth of 10.1% in constant currency. Share buy-backs of 4.6% of share capital. Acquisitions added 3.2% to revenue. EPS up 13.6% in constant currency. 60
Slide 61: Outlook
Conclusions Outlook The budgets have been prepared on a prudent basis and predict revenue growth in excess of last year’s budgeted revenue growth of 4.0%-4.5%. The budgets indicate marketing services growing faster than Advertising & Media Investment Management. On the basis of this data, 2008 shoul
Slide 62: Lookback at the last recession
Conclusions Lookback at the last recession 2000 background: – A boom year on the back of the quadrennial and dot.com IPO bubble which drove marketing services spending sharply higher. % growth 1997 1998 1999 2000 Industry 8.1 8.0 9.1 10.1 WPP 8.4 8.0 8.0 15.0 – Faster growing markets represented 15.
Slide 63: Current status
Conclusions Current status – Strong year expected in 2008 driven by US Presidential elections, Beijing Olympics and European Football Championships with expected global growth of around 4%¹. Advertising growth 2007 2008² Global 6.0 6.8 USA 3.0 3.9 – Valuation already discounting a 2% decline in orga
Slide 64: WPP Fundamentals vs. Market Valuation
Conclusions WPP Fundamentals vs. Market Valuation 60 10 EPS (p) P/E (x) Avg Share Price* (£) 9 50 8 7 EPS (p) & P/E m ultiple (x) 40 6 Share Price (£) 30 5 4 20 3 2 10 1 0 0 '00 '01 '02 '03 '04 '05 '06 07E 08E * 2008 price at 2/7/08 64
Slide 65: 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, and use of free cashflow to enhance share owner value. In the long term the Group will be concentrating on positioning its
Slide 66: WPP
WPP Results for 2007 London February 2008 66