WPP announces 2006 preliminary results
23 February, 2007
WPP 2006 PRELIMINARY RESULTS
Billings up 13% to £30.1 billion
Reported revenue up almost 10% to £5.9 billion
Like-for-like revenue up 5.4%
Headline operating margin up 0.5 margin points to 14.5%
EBITDA crosses £1 billion for first time
Headline operating profit before interest and tax up almost 14% to £859 million
Headline Profit before tax up over 14% to £766 million
Profit before tax up over 15% to £682 million
Diluted headline earnings per share up almost 17% at 42.0p
Final dividend up 20% to 7.61p per share
• Billings up 13.0% to £30.141 billion.
• Revenue up 9.9% to £5.908 billion.
• Like-for-like revenue up 5.4%.
• Second half like-for-like revenue growth accelerates to 5.7% and quarter four to 7.2%.
• Headline operating profits before interest and tax up 13.8% to £859.0 million from £754.8 million.
• Operating margin up 0.5 margin points to 14.5% from 14.0%.
• Headline profits before tax up 14.5% to £766.3 million from £669.0 million.
• Profit before tax up 15.2% to £682.0 million from £592.0 million.
• Diluted headline earnings per share up 16.7% to 42.0p from 36.0p.
• Reported diluted earnings per share up 18.5% to 35.2p from 29.7p.
• Final dividend up 20% to 7.61p per share making a total for the year of 11.21p up 20% over 2005.
• Average net debt up £121 million to £1,214 million from £1,093 million (at 2006 exchange rates).
• Estimated net new billings of over £3.562 billion ($6.411 billion).
• Operating margin targets of 15.5% and 16.0% set for 2008 and 2009.
• Target percentage for rolling share-buyback programme increased to 4-5% of share capital for 2007 and 2008.
In this press release not all of the figures and ratios used are readily available from the unaudited preliminary results included in Appendix I. Where required, details of how these have been arrived at are shown in the Appendix.
Summary of results
The Board of WPP Group plc (“WPP”) announces the unaudited preliminary results for the year ended 31 December 2006, the Group’s twenty-first year. These record results again reflect the continued steady strength of the world economy positively impacting almost all disciplines and geographies and the strength of the Group’s operating brands and franchise.
Billings were up 13.0% at £30.141 billion, around $55 billion.
Reportable revenue was up 9.9% to £5.908 billion. Revenue, including 100% of associates, is estimated to total over £7.010 billion. On a constant currency basis, revenue was up 10.9% and gross margin up 10.3%. Like-for-like revenues, excluding the impact of acquisitions and on a constant currency basis, were up 5.4%. On the same basis, gross margin was up 5.7%. Like-for-like revenues were up 5.0% in the first half of 2006 and up 5.7% in the second half, continuing the strong organic growth of 5.5% in 2005, with the fourth quarter of 2006, accelerating to 7.2%. The fourth quarter was the Company’s first $3 billion revenue quarter.
Headline earnings before interest, depreciation and amortisation (“EBITDA”) was up 14.2% to £1.002 billion and up 16.0% in constant currencies. Headline operating profit was up 13.8% to £859 million and up 15.7% in constant currencies.
Reported operating costs together with direct costs (but excluding goodwill impairment, amortisation of acquired intangibles and profits on disposal of fixed asset investments), rose by 9.3% and by 10.1% in constant currency. Like-for-like total operating and direct costs rose 4.3%. Reported staff costs, excluding incentives (which includes the cost of share-based compensation), were up 9.1%. Incentive payments (including the cost of share-based compensation) totalled £246.9 million (£227.6 million in 2005), an increase of 8.4%, which represents 23.1% (24.0% in 2005) of headline operating profit before bonuses, taxes and income from associates. Before these incentive payments, operating margins increased by 0.4 margin points to 18.7% from 18.3%. On a reported basis, the Group’s staff cost to revenue ratio improved 0.5 margin points to 58.8% compared with 59.3% in 2005.
Part of the Group’s strategy is to continue to increase variable staff costs as a proportion of total staff costs and revenue, as this provides flexibility to deal with volatility in revenues. Through the cyclical upswing of the 1990s, variable staff costs as a proportion of total staff costs increased, reaching a peak of 12.1% in 2000. The impact of the recession in 2001 and 2002 was to reduce this ratio to 9.2% and variable staff costs as a proportion of revenue to 5.3% (calculated under 2004 UK GAAP). In 2004, following the significant improvement in pre-bonus operating profit and incentives, variable staff costs as a proportion of staff costs increased further. There was a slight deterioration in 2005, with the ratio declining slightly by 0.4 percentage points, to 12.8% (under IFRS – which includes 1.0 percentage points attributable to share-based compensation), but in 2006 the ratio strengthened again to 13.0%.
The number of people in the Group averaged 77,686 against 70,936 in 2005, an increase of 9.5%. On a like-for-like basis, average headcount was up to 77,686 from 74,971, an increase of 3.6%. At the end of 2006, staff numbers were 79,352 compared with 76,532 at the end of 2005 on a like-for-like basis, an increase of 3.7%.
Net finance costs (excluding the revaluation of financial instruments) were £92.7 million up from £85.8 million last year, an increase of £6.9 million, largely reflecting higher interest rates, offset by the impact of improved liquidity as a result of a reduction in average working capital.
Headline operating profit or profit pre-goodwill impairment, amortisation of acquired intangibles, interest, tax and investment gains and write-downs was up 13.8% to £859.0 million from £754.8 million and up 15.7% in constant currencies. Reported profit before interest and tax was up 14.0% to £782.7 million from £686.7 million and up 15.9% in constant currencies. Headline profit before tax or profit pre-goodwill impairment, amortisation of acquired intangibles, investment gains and write-downs, revaluation of financial instruments and tax was up 14.5% to £766.3 million from £669.0 million and up 16.8% in constant currencies. Reported headline operating margin (including income from associates) increased 0.5 margin points to a record 14.5% from 14.0%, in line with the revised target set in February 2006.
Reported profit before tax rose by 15.2% to £682.0 million, and by 17.6% in constant currencies.
The Group’s tax rate on headline profits was 26.0%, a reduction of 3.0 percentage points over 2005. This reflects the continuing positive impact of the Group’s tax planning initiatives, particularly in relation to Grey which had a tax rate on acquisition in excess of 45%.
Diluted headline earnings per share were up 16.7% at 42.0p. In constant currency, earnings per share on the same basis were up 18.9%. Diluted earnings per share rose by 18.5% to 35.2p and by 21.0% in constant currencies.
The Board recommends an increase of 20% in the final dividend to 7.61p per share, making a total of 11.21p per share for 2006, a 20% increase over 2005. The record date for this dividend is 8 June 2007, payable on 9 July 2007. The dividend paid in 2006 is over four times covered by headline earnings.