Wpp Plc · LSE:WPP
Wpp — H1 2006 Earnings Presentation
61 slides from Wpp's earnings presentation, August 2006
Slide 1: WPP 2006 Interim Results
WPP 2006 Interim Results London August 2006 1
Slide 2: Agenda
WPP 1 2006 Interim Results 2 Pensions Update 3 Key Priorities, Objectives and Strategy 4 Conclusions 2
Slide 3: 2006 Interim Results
WPP 1 2006 Interim Results 3
Slide 4: 2006 Interim Results
2006 Interim Results • Billings up over 27% to £14.4 billion. • Reported revenue up over 16%. On a constant currency basis, revenue up almost 13%. Like-for-like revenue up 5%. • Headline PBIT up over 20% to £361.0m from £299.6m. • Operating margin up 0.5 margin points to 12.6% from 12.1%. 4
Slide 5: 2006 Interim Results
2006 Interim Results • Headline PBT up over 24% to £316.1m from £254.8m. • Diluted headline EPS up over 20% to 16.6p from 13.8p. • Interim dividend up 20% to 3.60p per share. • Record estimated net new business billings of over £2.2 billion ($4.1 billion), up 15% compared with 2005. • Rated No. 1 in
Slide 6: Unaudited IFRS Income Statement
2006 Interim Results Unaudited IFRS Income Statement Six months to 30 June Constant 2006 2005 Change Currency £m £m % % Revenue 2,864.4 2,467.5 16.1 12.7 Operating Profit pre-goodwill/ intangibles 339.7 285.9 18.8 15.2 Goodwill/ intangibles charges, FA gains (31.8) (33.3) 4.5 5.4 Operating Profit 30
Slide 7: Unaudited Headline IFRS Income Statement
2006 Interim Results Unaudited Headline¹ IFRS Income Statement Six months to 30 June 2006 2005 Change Constant £m £m % Currency % Revenue 2,864.4 2,467.5 16.1 12.7 Headline operating profit 339.7 285.9 18.8 15.2 Income from associates 21.3 13.7 55.5 49.3 Headline PBIT 361.0 299.6 20.5 16.8 Net finan
Slide 8: Revenue by Discipline
2006 Interim Results Revenue by Discipline Revenue 2006 2005 % Change £m £m Reported Constant Like-for- Currency like Advertising, Media Investment Management 1,354.4 1,185.9 14.2 10.7 3.4 Information, Insight & Consultancy 438.9 387.5 13.3 10.9 4.1 Public Relations & Public Affairs 290.3 251.8 15.3
Slide 9: Revenue by Region
2006 Interim Results Revenue by Region Revenue 2006 2005 % Change £m £m Reported Constant Like-for- Currency like North America 1,135.5 973.4 16.7 11.3 4.5 UK 415.1 389.0 6.7 6.7 1.2 Continental Europe 741.4 662.3 11.9 11.4 4.5 Asia Pacific, Latin America, Africa & Middle East 572.4 442.8 29.3 22.8
Slide 10: Headline PBIT and Margin by Discipline
2006 Interim Results Headline1 PBIT and Margin by Discipline Headline1 PBIT Headline1 margin 2006 2005 2006 2005 £m £m % % Advertising, Media Investment 190.3 158.6 14.1 13.4 Management Information, Insight & Consultancy 41.5 36.1 9.5 9.3 Public Relations & Public Affairs 40.3 35.0 13.9 13.9 Brandin
Slide 11: Headline PBIT and Margin by Region
2006 Interim Results Headline1 PBIT and Margin by Region Headline1 PBIT Headline1 margin 2006 2005 2006 2005 £m £m % % North America 176.1 151.9 15.5 15.6 UK 36.7 31.3 8.8 8.0 Continental Europe 85.8 68.9 11.6 10.4 Asia Pacific, Latin America, 62.4 47.5 10.9 10.7 Africa & Middle East Total 361.0 299
Slide 12: Revenue Growth by Country
2006 Interim Results Revenue Growth by Country Revenue Growth1 Countries 20%+ Australia, Germany, Greater China, India, Poland, Sweden 15-20% Canada, Denmark, Mexico, Norway 10-15% USA 5-10% Brazil, Japan, Singapore, Spain, UK <5% Belgium, France, Italy, Netherlands 1 Constant currency 12
Slide 13: Revenue Growth by Category
2006 Interim Results Revenue Growth by Category Revenue Growth1 Categories 20%+ Entertainment 15-20% Personal Care & Drugs 10-15% Financial Services, Oil, Telecommunications 5-10% Drinks, Food <5% Automotive, Computer, Retail 1 Constant currency 13
Slide 14: Effects of Weakness of Sterling
2006 Interim Results Effects of Weakness of Sterling • Sterling was weaker on average in the first half of 2006 than in 2005 by 4.4% against the dollar and by 0.2% against the euro. • Impact of currency increased revenue growth by 3.4%, from 12.7% constant currency to 16.1% on a reportable basis. •
Slide 15: Major New Business Wins
2006 Interim Results Major New Business Wins Agency Account Office Billings ($m) MindShare Sprint Nextel USA 750 mec Dreamworks USA 270 MindShare Wrigley USA 200 JWT Kimberly-Clark ¹ Global 200 MindShare Sears ² USA 190 MediaCom Nokia Asia Pacific 150 mec Campbell’s Soup Global 100 Ogilvy Easyjet Eu
Slide 16: Major New Business Wins
2006 Interim Results Major New Business Wins Agency Account Office Billings ($m) Ogilvy Chiquita Europe 60 Y&R Hitachi Europe 60 Brouillard Ruby Tuesday USA 60 Grey Worldwide Hasbro Games USA 55 JWT Cadbury Adams USA 50 Y&R Royal Canadian Mint Canada 50 mec Henkel Europe 43 Y&R Goodyear Latam 42 Med
Slide 17: Major New Business Losses
2006 Interim Results Major New Business Losses Agency Account Office Billings ($m) JWT Reckitt Benckiser Global 300 Ogilvy Kimberly-Clark ¹ Global 200 MediaCom Sears ² USA 190 MindShare Vodafone Italy 126 Ogilvy Miller Lite USA 88 Grey Worldwide Panasonic USA 60 MindShare FritoLay China 30 JWT Thai
Slide 18: Net new business wins in first six months of 2006
2006 Interim Results Net new business wins in the first six months of 2006¹ US $ millions Creative Media Total Advertising 625 2,879 3,504 Other Businesses 574 - 574 Total 2006 1,199 2,879 4,078 ¹ Estimated billings 18
Slide 19: Major new business wins/(losses) since July
2006 Interim Results Major new business wins/(losses) since 1 July Agency Account Office Billings ($m) mec Ikea USA 86 MindShare LVMH Japan 88 WINS MediaCom RBS¹ UK 45 MindShare Nike Japan 35 mec RBS¹ UK 45 LOSSES Wunderman Star Alliance Europe 27 Grey Worldwide Bridgestone USA 20 (All billings figu
Slide 20: Cash Flow
2006 Interim Results Cash Flow 2006 2005 £m £m Operating profit 308 253 Non-cash compensation 38 30 Depreciation and goodwill charges 103 84 Net interest paid & similar charges (37) (36) Tax paid (69) (57) Net cash generation 343 274 20
Slide 21: Uses of Cash Flow
2006 Interim Results Uses of Cash Flow 2006 2005 £m £m Net cash generation 343 274 Capital expenditure (74) (70) Acquisition payments: − Net initial payments¹ - Grey - (243) - Other (32) (21) − Earnout payments (81) (69) − Loan note redemptions (12) (3) (125) (336) Share repurchases (162) (75) Other
Slide 22: Net Finance Costs/(Income)
2006 Interim Results Net Finance Costs/(Income) £’m 2006 2005 B/(W) Net bank interest 34.3 27.0 (7.3) A/R interest/fees - 4.2 4.2 Net bank and A/R interest 34.3 31.2 (3.1) Investment income (0.5) - 0.5 IAS 19 (Pensions) 3.5 4.0 0.5 Earnout interest 1.2 2.5 1.3 IAS 32 (Convertibles) 6.4 7.1 0.7 10.6
Slide 23: Net Debt – 30th June 2006
2006 Interim Results Net Debt – 30th June 2006 2006 2005 % £m £m Variance Net debt at 30 June (1,219) (1,242) 2% YTD average net debt on constant (1,170) (1,020) (15%) currency basis Headline finance costs (45) (45) - Interest cover on Headline PBIT¹ 8.0x 6.7x ¹ Headline PBIT: profit before interest
Slide 24: Net Debt
Net Debt Half Yearly Position £m 0 (100) Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 (200) (300) (561) (642) (400) (804) (500) (1,015) (600) (1,242) (1,219) (700) (800) Inflow 454 Outflow (373) (900) Outflow (681) (1,000) Inflow 438 (1,100) Outflow (415) (1,200) (1,300) 24
Slide 25: Ordinary Shares – Basic
2006 Interim Results Ordinary Shares – Basic June June 2006 2005 No. of Shares (million) Actual Actual 1 January 1,252 1,185 Share buyback¹ (18) (10) Option exercise 15 10 Grey - 78 30 June 1,249 1,263 Weighted Average 1,252 1,240 ESOP (47) (47) Basic Reported 1,205 1,193 ¹ Buyback for cancellation
Slide 26: Ordinary Shares – Diluted
2006 Interim Results Ordinary Shares – Diluted June June 2006 2005 No. of Shares (million) Actual Actual Average Basic 1,205 1,193 Potentially Issuable Shares 29 26 Convertibles: WPP £450m anti-dilutive anti-dilutive Grey $150m ¹ 9 - Fully Diluted Shares 1,243 1,219 Income Adjustment Attributable to
Slide 27: Pensions Update
WPP 2 Pensions Update 27
Slide 28: WPP Pensions Overview
WPP Pensions Overview • WPP has been an early adopter of steps taken to mitigate liabilities from post employment plans. • 71% of contributions are paid to “Defined Contribution” (DC) plans. • The balance sheet has liabilities for post employment benefits of £231m: - £103m deficit for “funded” plans
Slide 29: Defined Benefit & Contribution Plans P&L Expense
Defined Benefit & Contribution Plans P&L Expense 100 Defined benefit Defined contribution 90 80 70 60 £m 50 71.1% 40 69.6% 30 20 10 30.4% 28.9% 0 2001 2002 2003 2004 2005 • Defined Contribution (DC) Plans account for most of the Company’s ongoing pension expense. • No residual risk remains with the
Slide 30: Balance Sheet Liability
Balance Sheet Liability • Balance sheet liabilities have increased due to: – Under-funded defined benefit plans from acquisitions: (Y&R in 2000, Cordiant in 2003 and Grey in 2005). – Falling interest/discount rates leading to higher present value of liabilities. – US: 8.0% to 5.5% – UK: 5.5% to 4.7%
Slide 31: Balance Sheet Liability
Balance Sheet Liability 250 200 150 £m 100 50 0 Dec/2000 Dec/2005 Y/E 2000 plans Acquisitions Interest rate Investment returns Life expectancy Newly designated DB plans under IAS 31
Slide 32: Current Funding Strategy
Current Funding Strategy Defined Benefit Plans • Contributions of £174m in the 5 years 2006 to 2010 (in line with all regulations/requirements). • Funded deficit reduced from £103m to £65m in 2010. • No requirement/obligation to match fund the “unfunded” plans. The following analysis excludes certai
Slide 33: Current Funding Strategy
Current Funding Strategy Defined Benefit Plans P&L Expense and Contributions 60 IAS Expense 50 Contributions 40 £m 30 20 10 0 2001 2003 2005 2007 2009 2011 2013 2015 2001-2005 2006-2010 2011-2015 Contributions: £131 million £174 million £153 million 33
Slide 34: Current Funding Strategy: Projected Balance Sheet Position
Current Funding Strategy Projected Balance Sheet Position 250 Unfunded Funded 200 150 £m 100 50 0 2001 2003 2005 2007 2009 2011 2013 2015 34
Slide 35: Revised Funding Strategy
Revised Funding Strategy Defined Benefit Plans • Phase 1: Eliminate the deficit for funded plans by 31 December 2010. This requires an additional £56m of contributions* compared to current funding strategy. • Phase 2: Eliminate/match fund the liabilities for “unfunded” plans by 31 December 2015. Thi
Slide 36: Revised Funding Strategy
Revised Funding Strategy Defined Benefit Plans P&L Expense and Contributions 60 50 40 £m 30 20 10 0 2001 2003 2005 2007 2009 2011 2013 2015 2001-2005 2006-2010 2011-2015 Contributions: £131 million £230 million £199 million IAS expense Contribution - current strategy Phase 1 additional contributions
Slide 37: Revised Funding Strategy: Projected Balance Sheet Position
Revised Funding Strategy Projected Balance Sheet Position 250 200 Unfunded Funded 150 £m 100 50 0 2001 2003 2005 2007 2009 2011 2013 2015 Eliminate deficit for funded plans by 31 December 2010, and for unfunded 37 plans by 31 December 2015.
Slide 38: Key Priorities, Objectives and Strategy
WPP 3 Key Priorities, Objectives and Strategy 38
Slide 39: 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 39
Slide 40: The two speed world
Key Priorities, Objectives and Strategy The two speed world • Media planning and buying growth strong driven by media fragmentation and share gains from consolidation • Advertising growth slower in US and Western Europe but stronger in Asia Pacific, Latin America, Africa and Middle East, and Central
Slide 41: Long-term revenue mix objectives
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 41
Slide 42: 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 Today¹ WPP Today Incl. Associates¹ WPP Tomorrow incl. Associates Asia Pacific, Latin Asia Pacific, Latin America, Africa & America, Africa & M iddle East M iddle East 20% Asia Pacific, Latin 25% America
Slide 43: WPP's Performance Strong in BRIC Markets
Key Priorities, Objectives and Strategy WPP’s Performance Strong in BRIC Markets Revenue $’m 450 400 350 Associates @ 100% 300 250 207 200 H1 05 H1 05 156 150 88 100 H1 05 50 29 H1 05 0 06 06 06 06 95 00 H1 05 95 00 H1 05 95 00 H1 05 95 00 H1 05 19 20 20 19 20 20 19 20 20 19 20 20 20 20 20 20 China
Slide 44: WPP in Faster Growing Markets
Key Priorities, Objectives and Strategy WPP in Faster Growing Markets Region Market Billings1 % Share¹ Rank¹ 12 month2 Headcount² $bn Revenue $bn ‘000 Asia Greater China3 2.4 37% 1 0.4 6.7 India 0.8 55% 1 0.2 4.8 Thailand 0.3 37% 1 0.1 1.2 LatAm Brazil5 1.1 25% 1 0.3 3.6 Mexico 0.8 27% 1 0.1 1.5 Arg
Slide 45: Revenue by Geography
Key Priorities, Objectives and Strategy Revenue by Geography N. America Europe ROW ROW Total Revenue % % $’bn % $’bn WPP 39% 41% 1.9 20% 9.8 OMC 56% 36% 0.9 8% 10.5 Havas 42% 50% 0.2 8% 1.9 Publicis 43% 40% 0.9 17% 5.1 IPG 57% 28% 1.0 15% 6.4 Source: Company reports for 2005 Notes: FX: WPP sterling
Slide 46: Media Billings by Geography
Key Priorities, Objectives and Strategy Media Billings by Geography Worldwide ranking by Group as % of the Six Groups 35 30 25 WPP 20 Publicis Omnicom 15 IPG Aegis 10 Havas 5 0 Americas Europe Asia Pacific Worldwide Source: RECMA Billings report – May 2006, networks projected 2006 key data, table 1b
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 Today¹ Today including associates¹ Tomorrow 33% 48% 48% 52% 52% 67% Advertising & Media Investment Management Marketing Services ¹ Based on full year 2005 revenue 47
Slide 48: Revenue by Discipline
Key Priorities, Objectives and Strategy Revenue by Discipline Advertising & Media Marketing Services $’bn % Revenue $’bn % Revenue WPP 4.7 48% 5.1 52% OMC1 4.6 44% 5.9 56% Havas1 1.1 56% 0.8 44% Publicis1 3.7 72% 1.4 28% IPG1,2 3.8 60% 2.6 40% Source: 1 2005 Company Presentations 2 Split based on Be
Slide 49: Quantitative Disciplines To Be One Half of Total Group
Key Priorities, Objectives and Strategy Quantitative Disciplines To Be One Half of Total Group Today¹ Today including associates¹ Tomorrow 33% 35% 50% 50% 67% 65% Information, Insight & Consultancy and Direct, Internet & Interactive Advertising, Media Investment Management & Other Marketing Services
Slide 50: WPP position in CRM/Direct and Digital
Key Priorities, Objectives and Strategy WPP position in CRM/Direct and Digital H1/06 v H1/05 $’m Direct/Digital networks 850 +10% (OgilvyOne, Wunderman, RMG Connect and G2) % of Group revenues 17% Other Digital/Interactive resources: - Information, Insight & Consultancy 126 (Millward Brown, RI and L
Slide 51: 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 • Emphasi
Slide 52: Historic headline PBIT and margins
Key Priorities, Objectives and Strategy PBIT1 Historic headline PBIT¹ and margins PBIT1 margin £’m Long- % 800 Long-term IFRS target 19% 20% 700 755 Objectives: 16% 2007 15.0% 14.5% 600 14.0% 14.1% 14.0% 2006 14.5% 13.0% 13.0% 12.3% 500 561 12.6% 560 12% 534 12.1% 468 400 431 361 8% 300 300 200 4% 1
Slide 53: Increasing flexibility in the cost base
Key Priorities, Objectives and Strategy Increasing flexibility in the cost base Change in variable costs % 14 2001 H1 2005 H1 12 11.7 11.3 2006 H1 10 8.2 8 7.1 6.9 6 4.7 4 2 0 Variable Staff costs as a % of Staff costs Variable Staff costs as a % of Revenue 53
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 • 2006 interim dividend raised by 20% to 3.60p per share • Share repurchases and buy-backs Shares Amount % of Share Base 2000 10.3m £94.1m 1.3% 2001 15.4m £103.3m 1.4% 2002 12.8m
Slide 55: Acquisitions
Key Priorities, Objectives and Strategy Using Free Cash Flow to Enhance Share Owner Value Acquisitions • Continued focus on small and mid-sized strategic acquisitions - a number completed in the first half • Major focus continues to be on information, insight and consultancy and the faster growing s
Slide 56: Use of Free Cash Flow on Acquisitions in 2006
Key Priorities, Objectives and Strategy Use of Free Cash Flow on Acquisitions² in 2006 Faster Growing Market Quantitative and Digital Bridge (USA) Emerge (Denmark) IEG (USA) Always (China) ACSR (China) Leopard (USA) Beyond (Hong Kong) HYLZ (China) M80 (USA) Enterprise Nexus (India) Planetactive (Ger
Slide 57: Use of Free Cash Flow on Acquisitions in 2006
Key Priorities, Objectives and Strategy Use of Free Cash Flow on Acquisitions in 2006 Public Relations Dewey Square Group (USA)¹ Public Strategies Inc. (USA)¹ Result Inc. (Canada)¹ Other DMX Inflight (USA) ¹ Acquired after 30 June 2006 ² Excludes equity step ups 57
Slide 58: 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
Slide 59: Conclusions
WPP 4 Conclusions 59
Slide 60: 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
Slide 61: WPP
WPP 2006 Interim Results London August 2006 61