Transcript WPP Trading Statement for the Third Quarter 2008 October 2008 Third Quarter 2008 Summary – Q3 Like-for-like growth was 3.0%, with acquisitions adding 3.0% to.

WPP
Trading Statement for the Third
Quarter 2008
October 2008
1
Third Quarter 2008
Summary – Q3
Like-for-like growth was 3.0%, with acquisitions adding 3.0% to give constant
currency growth of 6.0%.
Currency movements increased revenue growth by 10.2%, resulting in reported
revenues of 16.2%.
Geographically,
– Asia Pacific, Latin America, Africa and the Middle East continues to be the fastest
growing region.
– Continental Europe strengthened compared with the first half.
– The UK saw some softening.
– North America was flat.
Advertising and media investment management and public relations and public
affairs showed the strongest growth.
2
Third Quarter 2008
Summary – Revenue Growth
% change
Third
Quarter
YTD
Like-for-like
3.0
3.8
Acquisitions
3.0
3.6
Constant currency
6.0
7.4
Foreign exchange
10.2¹
7.5
16.2
14.9
Reported
¹ Average Q3 2008 exchange rate for US$/ £ was $1.891 (Q3 2007 $2.021), €/£ was €1.259 (Q3 2007 €1.470) and
Japanese Yen/£ was Y203.6 (Q3 2007 Y238.0).
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Third Quarter 2008
Revenue by Discipline: Third Quarter
2008
£m
2007
% Change
£m Reported Constant Like-forCurrency
like
Advertising, Media Investment
Management
785.3
663.2
18.4
7.3
6.1
Information, Insight & Consultancy
246.7
218.5
12.9
4.0
2.0
Public Relations & Public Affairs
184.2
157.3
17.1
7.6
5.1
Branding & Identity, Healthcare and
Specialist Communications
503.1
441.1
14.1
4.4
(1.6)
1,719.3
1,480.1
16.2
6.0
3.0
Total
4
Third Quarter 2008
Revenue by Discipline: Year to Date
2008
£m
Advertising, Media Investment
Management
2007
% Change
£m Reported Constant Like-forCurrency
like
2,306.6
2,023.6
14.0
5.3
4.5
Information, Insight & Consultancy
733.2
650.3
12.7
6.1
4.0
Public Relations & Public Affairs
540.3
470.3
14.9
8.5
6.7
Branding & Identity, Healthcare and
Specialist Communications
1,478.4
1,257.0
17.6
11.1
1.7
Total
5,058.5
4,401.2
14.9
7.4
3.8
5
Third Quarter 2008
Advertising, Media Investment Management
Constant currency revenue growth over 7%. Like-for-like growth over 6%.
This sector performed well with strong like-for-like growth in both Advertising and
Media Investment Management.
On a like-for-like basis Asia Pacific, Latin America, Africa and the Middle East,
Continental Europe and the UK showed above average growth.
6
Third Quarter 2008
Information, Insight and Consultancy
Constant currency revenue growth up 4.0%, with like-for-like growth up
2.0%.
Strong organic growth from Millward Brown, IMRB, Lightspeed and Kantar
Media Research.
Above average like-for-like growth in the UK, Asia Pacific, Latin America,
Africa and the Middle East .
Offer for TNS became wholly unconditional on 29 October 2008 and will be
included in the Group’s 2008 results from 1 November.
7
Third Quarter 2008
Public Relations & Public Affairs
Continued strong growth with constant currency revenue up over 7%. Like-for-like
growth over 5%.
Strong performances at Burson-Marsteller, Hill & Knowlton, Clarion and Public
Strategies.
Geographically, Continental Europe, Asia Pacific, Latin America and the Middle East
performed well above the average like-for-like growth.
Acquisition in India completed in the quarter.
8
Third Quarter 2008
Branding & Identity, Healthcare and Specialist Communications
Constant currency revenue growth up over 4%. Like-for-like growth down over 1%.
Strong performances at Wunderman, VML, Schematic, 24/7 Real Media, the Blue
Group, Quasar, The Brand Union, Lambie Nairn, The Partners and The Food Group.
Continuing pressure at some of the Group’s healthcare and specialist communications
businesses, particularly in the USA and the UK.
Geographically, strong like-for-like growth in all regions except the US and UK.
Acquisitions in the United States, France, the Netherlands, Russia and the Czech
Republic.
9
Third Quarter 2008
Revenue by Region: Third Quarter
2008
£m
2007
% Change
£m Reported Constant
Currency
North America
596.9
557.1
7.1
-
(2.5)
UK
224.0
217.6
2.9
2.9
1.9
Continental Europe
459.4
366.2
25.5
7.2
4.9
Asia Pacific, Latin America,
Africa & Middle East
439.0
339.2
29.4
16.5
10.6
1,719.3
1,480.1
16.2
6.0
3.0
Total
Like-forlike
10
Third Quarter 2008
Revenue by Region: Year to Date
2008
£m
North America
2007
% Change
£m Reported Constant
Currency
Like-forlike
1,786.7
1,668.9
7.1
4.3
0.5
674.2
648.0
4.0
4.0
2.3
Continental Europe
1,388.8
1,137.7
22.1
5.5
3.7
Asia Pacific, Latin America,
Africa & Middle East
1,208.8
946.6
27.7
17.2
10.6
Total
5,058.5
4,401.2
14.9
7.4
3.8
UK
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Third Quarter 2008
Growth by Region – Third Quarter
Asia Pacific, Latin America, Africa and the Middle East, fastest growing region, with
like-for-like growth almost 11%.
The Middle East, again became the fastest growing area, with like-for-like revenue
up 23.6%, ahead of Central and Eastern Europe at 15.2% and Latin America at
13.6%.
Asia Pacific remains strong, up almost 8%, the same as the first half, with stronger
growth in SE Asia and weaker growth in Japan and ANZ. Like-for-like growth in
mainland China slowed to almost 15% in the first nine months, with India up almost
30% in the third quarter and up almost 27% in the first nine months.
Western Continental Europe strengthened in the third quarter, with like-for-like
growth of almost 3%, with the UK up 1.9%. North America like-for-like growth down
2.5%, mainly as a result of softness in the Group’s branding and identity,
healthcare and some of the Group’s specialist communications businesses.
12
Third Quarter 2008
Growth by Country – Year to Date
1
Revenue Growth¹
Countries
20%+
Argentina, Brazil, India
15-20%
Canada, South Africa
10-15%
Mainland China², Poland, Sweden
5-10%
Denmark, Mexico, Singapore
<5%
Australia, France, Germany, Italy, Japan, Netherlands,
Spain, UK, US
Constant currency
² Like-for-like growth
13
Third Quarter 2008
Revenue Growth by Category – Year to Date
Revenue Growth1
Categories
15-20%
Telecommunications
10-15%
Computers
5-10%
Automotive, Financial Services, Retail
<5%
Drinks, Entertainment, Food, Oil, Personal Care & Drugs
1
Constant currency
14
WPP 2008 – Revenue by Industry
Third Quarter
Telcom
9%
T&E
5%
September YTD
T&E
4%
Auto
10%
Consumer
Products
6%
Technology
8%
Retail
4%
Personal Care
13%
Consumer
Products
6%
Technology
7%
Retail
3%
Personal Care
13%
Healthcare
11%
Healthcare
10%
Food & Drink
14%
Other
12%
Telcom
8%
Auto
10%
Financial
Services
9%
Other
12%
Food & Drink
17%
Financial
Services
9%
15
Charts represent the amount of revenue attributed to each industry expressed as a percentage of the total revenue from WPP’s designated clients (1,934 with Sept YTD revenue) for the period ended
September 30, 2008.
Third Quarter 2008
Effects of Strength of Sterling
Currency movements accounted for a 10.2% increase in revenue, largely reflecting
the weakness of the £ sterling against the US dollar and the euro.
The average US dollar exchange rate for the third quarter of 2008 was $1.891/£1
compared to $2.021/£1 for the same period last year, a change of almost 7%. The
average euro exchange rate for the third quarter was €1.259/£1 compared to
€1.470/£1 for the same period last year, a change of over 14%.
16
Third Quarter 2008
Uses of Cashflow
Average net debt in the first nine months up £508 million to £1,955 million,
compared to £1,447 million in 2007, at 2008 exchange rates.
Net debt at 30 September 2008 up £85 million to £2,172 million, compared to
£2,087 million last year, at 2008 exchange rates.
Operating cash flow in the last 12 months was £940 million. In the same period,
cash outflow on capital expenditure, acquisitions, share repurchases and dividends
was £838 million.
17
Third Quarter 2008
Uses of Cashflow
In the first nine months 18.8 million ordinary shares, equivalent to 1.6% of the
share capital, were purchased at an average price of £5.96 per share and total cost
of £112.2 million.
No further shares have been repurchased as the Group was required to withdraw
from the market during the TNS bid.
The TNS offer became wholly unconditional on 29 October 2008.
Based on the WPP closing share price on 29 October of £3.325 per share, WPP’s
offer values a TNS share at £2.358 and values the TNS equity at approximately
£1.0 billion.
18
Third Quarter 2008
Trade Estimates of Major New Business Wins – Year to Date
Agency
Account
Office
Billings ($m)
mec
Novartis³
USA
300
MediaCom
Time Warner
USA
250
MindShare
Estee Lauder¹
Worldwide
200
Ogilvy
Motorola
EMEA
200
JWT
Microsoft
Worldwide
200
Ogilvy
Wachovia
USA
145
mec
Orange
UK
138
Y&R
Office Depot
USA
120
MindShare
Nippon Paint
Asia
96
MindShare
American Family Insurance
USA
90
Grey/ MindShare
Hong Kong Tourist Board
Asia
84
JWT
Diageo
Worldwide
80
MediaCom
Procter & Gamble
Asia Pacific
80
Y&R/Maxus
Cellular South
USA
60
mec
Playtex²
USA
60
MediaCom
E.ON
UK
60
¹ Estee Lauder transferred from Maxus to MindShare
² Playtex transferred from MediaCom to mec
Underlined figures are Q3 wins
³ Novartis transferred from MindShare to mec
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Third Quarter 2008
Trade Estimates of Major New Business Losses – Year to Date
Agency
Account
MindShare
Novartis³
MediaCom
Office
Billings ($m)
Worldwide
300
Eli Lilly
USA
250
Maxus
Estee Lauder¹
USA
200
mec
Cadbury Schweppes
USA
140
mec
Payless Shoes
USA
90
mec
TD AMERITRADE
USA
75
MediaCom
Playtex²
USA
60
JWT
Unilever
Worldwide
60
MindShare
Kraft
Asia
60
Y&R
Miller Brewing
USA
50
¹ Estee Lauder transferred from Maxus to MindShare
² Playtex transferred from MediaCom to mec
Underlined figures are Q3 wins
³ Novartis transferred from MindShare to mec
20
Third Quarter 2008
Internal Estimates of Net New Business Wins – Year to Date
Billings ($m)
Advertising
Other Businesses
Total
Creative
Media
Total
1,341
2,043
3,384
861
-
861
2,202
2,043
4,245
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Third Quarter 2008
Acquisitions¹ and Investments – Year to Date
Faster Growing
Markets
Quantitative and
Digital
ADVERTURES (Czech)
ACTIS (Russia)
Data Intelligence³ (Denmark)
Agenda (Asia)
DESIGNKITCHEN (USA)
Evision (China)
HeathWallace (UK)
10AM (Singapore)
HDT² (China)
immi² (USA)
Encompass (India)
IGA² (China)
JUMP TAP² (USA)
Rikes (Hong Kong)
NuConomy (Israel)
KASSIUS (Denmark)
Team Y&R (Middle East)
RAMS (India)
Lluminari (USA)
SCANGROUP (Kenya)
MEDIA RIGHTS CAPITALl² (USA)
Sharp Shooters³ (India)
PROCLIVITY² (USA)
Smollan³ (S. Africa)
Realtime World² (USA)
VAC (China)
Tagora (Belgium)
YUMES (Argentina)
Yankelovich (USA)
Zdology (China)
Yield Software² (USA)
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¹ Excludes equity step ups
² Investment
³ October 2008 acquisitions
CAPITALS ARE Q3 ACQUISITIONS
Third Quarter 2008
Acquisitions¹ - Year to Date
Advertising and Media Investment Management
AdPeople (Denmark)
LaComunidad (Netherlands)
Public Relations and Public Affairs
Axicom (UK)
Healthcare
Osprey (USA)
¹ Excludes equity step ups
23
Third Quarter 2008
Debt Maturity Profile £m
As at 30 September 2008
Total
Credit
Total
Drawn
£ bonds £200m (6.375% ’20)
200
200
£ bonds £400m (6% ’17)
400
400
Eurobonds €750m (6.625% ’16)
593
593
Eurobonds €500m (5.25% ’15)
395
395
US bond $650m (5.875% ’14)
365
365
Eurobonds €600m (4.375% ’13)
474
474
899
250
Bank revolver
1
Net cash & overdrafts
2009
2010
2011
2012
Maturity
2013 2014 2015
2016
2017
.
2020
200
400
593
395
365
474
250
(505)
3,326
2,172
250
474
365
395
593
400
250
474
365
395
593
400
200
TNS acquisition facilities1
Bridge facility
650
Revolving credit facility
600
200
200
200
4,576
200
850
200
Total
1
These instruments are subject to financial covenants
650
.
200
24
Third Quarter 2008
Banking Facility Covenants
No covenants or ratings triggers on public bonds (of which only 30% is swapped
into variable rates).
Bank Revolver and new TNS facilities subject to the following covenants:
– Net Debt/EBITDA ≤ 3.5 measured half yearly
– EBITDA/net interest ≥ 5.0 measured half yearly
– The covenant definitions for EBITDA and net interest exclude non-cash and nonoperating items. In 2007 the bank covenant ratio for EBITDA/net interest was
10.8x compared to 9.7x on a reported basis
On a proforma basis at current rates, including TNS at 31st December 2008, based
on analysts’ forecasts, the ratios indicated are
– Net Debt/EBITDA ≤ 2.5
– EBITDA/interest ≥ 6.0 - 7.0x
25
WPP
Trading Statement for the Third
Quarter 2008
October 2008
26