Search results matching tag 'WPP Group'

WPP revenues boosted by TNS and currency gains, but research still a drag

1699071 — Fri, 30 Oct 2009 09:10:00 GMT

WPP Group revenues jumped by 24.5% in the nine months to 30 September as the company continued to benefit from the acquisition of Taylor Nelson Sofres last year. But among all WPP’s business categories, its research activities (which it now calls “consumer insight”) still showed the biggest decline in revenues on a like-for-like basis when compared with the same period last year, albeit the rate of decline has slowed.

Favourable currency movements made the biggest contribution to the 24.5% revenue growth. They contributed 16.5%.

Taking the business as a whole, like-for-like revenues for the nine months (ignoring acquisitions and currency movements) have fallen by 8.4% compared with the same period last year, and fell by 8.7% in the latest quarter. This bigger decline in the latest quarter is consistent with the trend already identified at Interpublic and Publicis (see Currency movements and digital business minimises Publicis revenue fall) and does not bode well for a swift economic recovery.

After reporting halved profits for the first six months of 2009 – despite the revenue growth of 28% in that period - shareholders will be anxious to know how WPP’s profitability is performing today. With profit margins as low as 8% in the first half year, the company reported a “significant turnaround” in the latest quarter as staff levels were reduced further. So the results for the second half should be much improved. The group is not expecting any further growth in revenue next year.

The price of WPP’s bid for world domination: profits slashed by half

1699071 — Wed, 26 Aug 2009 08:42:00 GMT

As anticipated, WPP Group’s results for the first half of 2009 tell a sorry tale with profits earned for shareholders slashed by almost 50% by comparison with the same period last year despite revenue growth of over 28% fuelled by the acquisition of Taylor Nelson Sofres (see WPP's half year results critical to confidence in the sector).

Excluding acquisitions and currency movements, revenues actually fell by 8.3%. Profit margins in all divisions were hit badly as the group struggled in vain to reduce staff and other costs to match the decline in revenues. Staff costs were exacerbated by severance expenses and absorbed 62.1% of revenues.

For the group as a whole the operating profit margin slumped to just 5% from almost 12% in the same period last year. If goodwill amortisation and impairment charges are excluded, the margin for the latest period was 6.2% compared with 13.4% last time. This performance comes from a company that vowed not so long ago that it would steadily improve its operating margin as each year passed.

The price being paid for the group’s massive expansion of its research capability (what WPP now chooses to call “consumer insight”) is most vividly reflected by the fact that, while revenues from that division grew by 131% with the help of Taylor Nelson for the first time, operating profits improved by a mere 39%. Research is renowned for problems in achieving respectable profit margins and that is no more clearly demonstrated than in today’s results. Post-acquisition restructuring will not have helped the bottom line either.

Net debt increased during the six month period to £3.5 billion while shareholders’ funds declined to £5.2 billion, resulting in a debt/equity ratio of 0.66:1.

Finance costs were cushioned not only by lower interest rates but also by a one-off credit arising from unravelling hedge accounting arrangements on repayment of Taylor Nelson debt. Even so, shareholders were left with only £108 million of post-tax profit from the period compared with £208 million reported for the same period last year. Not a lot of dosh from a lot of global activity.

Today the company said there was “little evidence” of stronger order books, but expected the second half to show a “marked improvement” in profitability.

It is no small achievement to achieve world domination as the biggest marketing group measured by revenues, but it has come at a price. As noted here last November when Sir Martin observed that WPP’s budgeting exercise for 2009 did not reflect the Armageddon predicted by the fall in stock prices: “There’s enough to worry about without Armageddon.”

Chime Communications profits improve

1699071 — Tue, 25 Aug 2009 07:05:00 GMT

Chime Communications brought a little summer cheer to the stock market this morning when it announced a modest growth in profit for the six months to 30 June despite the economic gloom. Profit after tax attributable to Chime shareholders for the period was almost £5.8 million - up 9% on the same period last year. Its operating profit margin of 16.1% remained healthy albeit lower than the 16.8% reported for the same period last year.

An increasingly large portion of group income was earned abroad. In the latest half year, nearly half the group's operating income came from international work - with a sizeable proportion of that thought to come from the Middle East - compared with 34% in the same period last year.

A chunky 20.4% of the group's total income is now derived from two clients although Chime emphasised that these pieces of business are broken down into a number of smaller contractual relationships.

The only other slightly cautioning component of an otherwise encouraging result was the group's heavy reliance on short-term credit to fund its long-term assets. At 30 June its short-term obligations exceeded its readily realisable assets by £21 million. Admittedly the group has unused bank facilities of £32 million, but it has never been regarded as a particularly prudent practice to fund long-term assets out of short-term liabilities even if the mighty WPP Group does so much of the time.

Presumably debt-free Chime is happy relying on short-term bank borrowings when the need arises. Or maybe it is waiting for better market conditions before asking shareholders for a little more long-term capital.

Facing the cold winds of the economy and the heat of the stock market

1699071 — Sat, 15 Aug 2009 14:16:00 GMT

As some observers make their first very tentative noises about economic recovery being on the horizon, most players in the marketing services sector are still looking for tangible evidence.

Traditionally the stock market tends to anticipate the ups and downs of the economy by at least six months and so we might draw some encouragement from the rise in the FTSE All Share Index since the turn of the year. But, at the same time, history shows that the economy and the stock market almost invariably have at least one false dawn before steady growth re-establishes itself.

On this occasion the marketing services sector should not only beware of a false dawn but also recognise that this relatively small segment of the economy is in the midst of radical change. Media is becoming even more fragmented and less reliable in delivering anything like a predictable response to advertisers. Technological change, however evolutionary and exciting, has added another layer of complexity.

Small wonder that many of the marketing groups that ventured on to the stock market in recent years are at best being treated with scepticism and at worst being totally avoided by investors. As a result the MSFI Index of marketing sector shares listed on the stock market has slumped to a much larger extent than public company shares as a whole. Admittedly the MSFI Index recovered by 15% between 12 January and 12 August this year (see chart) while the FTSE All-Share Index improved by a more modest 8.9%. But that's deceptive because the gap between the sector index and the FTSE All Share Index had become so wide that even the slightest improvement in the sector index would appear big in percentage terms.

The situation has not been helped by the fact that there are not many marketing companies listed on the London stock market. Most are relatively small in size and a few of them have been built more on the back of optimistic ambition than on substantial and successful businesses. So shares in the weaker businesses have slumped and several have subsequently withdrawn from the market.

Equally worrying is the performance of some of the bigger players. Their growth depends on being acquisitive as well as on building existing businesses. Without a constant stream of new acquisitions such groups run the risk of stagnation, especially if previously acquired businesses lose momentum after their entrepreneurial founders have retired with their lumpy swag bags. Sometimes the insatiable desire to feed shareholder expectations prompts big deals that rely on lots of borrowed money. And sometimes those big deals fail to deliver the anticipated rewards or take longer to do so than expected

Fear of under-delivery and consequent financial stress is probably the biggest cloud hanging over WPP Group today as the market awaits its half-year results to be announced later this month (see WPP's half year results critical to confidence in the sector).

As it digests not just Taylor Nelson Sofres but other chunky acquisitions like 24/7 Real Media before that, the group needs to generate enough profit and cash to fund its acquisition costs, to offset declines in other more mature subsidiaries and - never to be overlooked - to enhance shareholder returns. While the recession continues, that may prove quite difficult.

CHI reports sparkling profit

1699071 — Wed, 05 Aug 2009 19:44:00 GMT

CHI & Partners, now 49.9% owned by WPP Group, achieved a 93% increase in post-tax profit to £3.2 million for the year to 30 September 2008 on the back of a 44% increase in revenues.

The group's operating profit margin climbed to 16.7%, an exceptionally healthy achievement in the current climate. Last year CHI's operating margin was a more modest 12.6%.

The impressive operating margin was achieved despite setting aside £965,000 from profits for a special bonus pool to share among senior executives at the board's discretion. The average remuneration paid to the eight board directors was £242,000 and the highest paid director received £363,345.

CHI ended the year in a "strong position" with net cash of £5.2 million "positioned to exploit emerging markets and opportunities".

Tentative signs that stock market is stabilising: some marketing groups enjoy big rises

1699071 — Mon, 13 Apr 2009 21:10:00 GMT

Tentative signs that the London stock market is stabilising may be drawn from the 8.4% rise in the FTSE All-Share Index during the month to 12 April. Among marketing services companies the share price movements were anything but consistent, although several companies experienced healthy price rises.

The best movers were M&C Saatchi (up 45%), Motivcom (up 38%), Huntsworth (up 29%), Chime Communications (up 27%) and Creston (up 24%). Aegis Group put on a 19.6% rise as the market continued to anticipate some sort of deal being hatched by its new executive chairman and advisers Merrill Lynch, while Havas chairman Vincent Bolloré uttered surprisingly conciliatory noises and was reported to have withdrawn his long-standing demand for board representation.

The share price recovery at M&C Saatchi was to be expected after its preliminary results contained nothing to justify the extent of earlier share price falls (see Stock market less than euphoric as M&C Saatchi almost doubles shareholders' return). Similar comments could be made about Chime.

Huntsworth shares benefitted from a combination of factors. During the period it was busy buying back shares that were coming on the market after being dumped by institutions that were tracking the FTSE All-Share Index following Huntsworth's eviction from the Index last year. Simultaneously Huntsworth reorganised its share capital so that its depressed share price would no longer be less than the 50p face value. More recently it published its preliminary results for 2008 which, after a little unravelling seemed to tell a fairly encouraging story. After stripping out gains and losses on disposal of various businesses (and otherwise ignoring listed companies' habit of excluding certain so-called "highlighted items" from what the regulators define as profit) and after substituting a standard rate of tax, the current share price represents a multiple of about 10 times historic post-tax profits despite the gloomy economic outlook.

The previous decline in Motivcom's share price was perhaps an over-reaction to the warning last November that profits would fall well behind those of 2007. Its results seemed good enough to support the current price assuming business doesn't plummet further. However, analysts will not have been too pleased to learn that Motivcom had overestimated the value of net assets acquired when it bought Protravel in 2007 and that too may have affected the share price. The future remains very uncertain and implicit in the current share price is a further decline in 2009. That price represents a multiple of only about 6 times last year's post-tax profit.

WPP units fight for online budgets

255762 — Mon, 23 Feb 2009 12:37:00 GMT

Interesting piece in the Wall Street Journal today about different units within WPP, from the creative and media side, competing against each other.

The paper picks up on WPP's media buying network Mediaedge's move to branch out from buying online media to helping clients build internet marketing operations and compares this with Ogilvy & Mather going full service on the digital front by buying oline media.

On the Mediaedge side it cites the launch last year of Mediaedge's Paris-based creative agency called Arthur Schlovsky - a fictional founder - and quotes Mark Read, WPP's head of strategy as saying that "the lines are blurring, and there is experimentation, particularly in digital around the edges".

Last month Mediaedge expanded Arthur Schlovsky into Germany and hired the executive creative director of Omnicom's BBDO Dusseldorf, Ralf Zilligen, as chairman. It has created a biographical film in 1940s-newsreel style crediting its make-believe founder with inventing merchandising and product placement.

Interestingly, the piece also said that Mediaedge had initially wanted to buy established digital ad agencies to do this rather than launch Arthur Schlovsky, but that was vetoed by Read.

Over at Ogilvy it has Neo@Ogilvy, which it set up back in 2006 and is now a much bigger affair, to buy online putting up against Mediaedge's MEC Interaction unit. Last year Neo@Ogilvy's UK business grew about 25%, according to managing director Richard Wheaton, and this year it is expected to increase about 15%.

"WPP fosters and encourages this internal competition," Wheaton says.

The danger for WPP is "duplication of effort and extra cost," says Chris Ingram, a co-founder of Mediaedge who is no longer with the firm. "It's like a land grab, and nobody has got any rules."

Martin Sorrell with a dog in Switzerland. No seriously.

255762 — Wed, 28 Jan 2009 14:56:00 GMT

We've been sent a picture of Sir Martin Sorrell, the WPP chief executive, at the 2009 World Economic Forum in Davos with a St Bernard dog. Oh and an Obama beanie. This is a picture caption competition waiting to happen - please let's be having your suggestions.

I should say, (as if you couldn't work it out) that the pic is in support of the Financial Times and its Davos coverage. The St Bernard is apparently "heroically emerging from an alpine storm, demonstrating the role played by the Financial Times in these challenging times and importance of reliable, accurate news, comment and analysis". Got it?

Sorrell is also blogging for FT.com from Davos, alongside guest bloggers including foreign secretary David Miliband, and Sir Howard Davies, LSE head as part of the FT’s coverage.

Anyway so captions?

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GroupM revises web ad revenue down sharply in 2009

255762 — Thu, 04 Dec 2008 12:20:00 GMT

WPP's GroupM has reduced its forecast for headline UK internet ad growth dramatically from 20% to 4% for 2009. That's huge almost too huge.

It does temper this by saying that some of the fall is due to a maturing internet market and not all is downturn related, but still. The radical predictions for next year compare to 27% in its May forecast to 22% in 2008.

The report says that demand for paid search and online display is still good, but paid search growth has been slowing markedly across 2008 and display is subject to price deflation as more activity becomes cost-per-action or 'performance'-based. That's as it should be, CPA and CPP are how things should be done.

Better news GroupM says is that premium display inventory, which includes pre-roll, high-quality publishers and portals; cost-per-thousand-based rather than cost-per-action, remains in strong health, but advertiser arbitrage between per-thousand and per-action chains their respective pricing.

Premium display is typically used by larger brand advertisers, which means they are maintaining high profile usage campaigns and not cutting back online as some other reports have suggested.

GroupM does not see any sudden recovery (saying only it remains possible) because it says consumer retrenchment is simply too deep to make this likely in 2009.

However, like Sir Martin Sorrell (I recently blogged about how he expected a bounce back sooner, rather than later), GroupM does see some conditions are already improving. It points to the monetary and fiscal taps are at least open (by the US government and its $700bn bailout plan), even if the flow is sluggish.

Overall online and offline, GroupM suggests that only the US is likely to shed more ad dollars than the UK, which is going to be hard hit (as if we haven't already seen this in the tsunami of media job cuts).

"This has been a classic, hard-to-predict 'trend reversal' from our own springtime hopes of 3% UK media growth next year, with sentiment falling fastest alongside the grim September/October newsflow. Every medium is affected, and indeed nearly every country including the fast-growing BRIC/Next 11 as our forthcoming global forecast will show."

Sorrell: bounce back sooner than you think

255762 — Fri, 28 Nov 2008 10:44:00 GMT

Writing in The Times today Sir Martin Sorrell makes his case for the economic bounce back coming sooner than other think (2009 he says) although the piece could have benefited from last minute editing regards India.

The WPP chief executive plumps for 2009 as opposed to others saying 2010 or even 2011. He says sooner because "the market is missing the extent of the fiscal stimulus that the Obama administration is expected to announce. It will be colossal – the number $500bn has started to appear in the past few days – although, for it to work, people must act together and not independently".

Looking at the emerging four Bric economies – Brazil, Russia, India and China – he says India will do best next year.

The piece was clearly written before the Mumbai terror attacks and it is difficult to tell what impact they will have on business and investment the in Indian economy as people get nervous.

The case for these Bric economies, however, is undoubtedly strong as an indebted Europe, UK and US falters leaving the way open for the four to emerge.

WPP has long invested in the emerging markets and pegged future growth prospects to them.

In the article he compares Western Europe to "an ageing company with huge healthcare and pension liabilities that are difficult to fund" and because of this he says for WPP "there is no point in continuing to invest in Western Europe unless structural changes are made".

"For example, if we win a piece of business, we have to bear the severance costs of the company that lost the contract."

His gloomy view of the UK and Europe chimes with comments he made last week when he said there would be job cuts in its more mature markets in 2009 coupled with investment in emerging countries.

Sorrell said then that WPP would invest in emerging countries such as India, China or Brazil next year, in which WPP is strong and that promise growth, while cutting elsewhere.

"We will have to invest in those markets and take out head count in more mature markets. The key thing for us is to balance revenue and cost growth in terms of headcount."

In The Times today he also says that the ailing West needs Turkey inside the EU. He says entry should be a no brainer.

"It is the gateway to the Middle East, has a young population, is highly entrepreneurial and would be a huge boost to the EU's 450 million people."

As always, Sorrell has faith in America and recalls that while people wrote off the US in the 1980s and said that Japan would take over along came Ronald Reagan and shook it all up.

"He changed the dynamics. What the world really needs right now is leadership in the Reaganite, Thatcherite, Blairite mould to lead us out of this crisis."

He also wonders like everyone else if Obama could be the man to lead the change.

"Mr Obama could be that person. I look at Barack Obama and it takes me back to when I was 18, to when John F. Kennedy was elected. Mr Obama is young, smart, a wonderful orator and represents a new hope, a new era. JFK was just the same and he changed the attitudes of my generation. That’s what the world needs now from Mr Obama."