No. 2 WPP Group

Analysis of WPP Activities in 2006

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WPP Group is the world's No. 2 ad industry holding company, generating slightly less than half of revenue from advertising/media and the rest from a broad mix of marketing services. The London-based company at year-end 2006 employed 79,352 people, up 3.7% from a year earlier.


WPP implemented top management changes over the past year at two key network groups, Young & Rubicam and Grey. In June 2006, Hamish McLennan replaced the embattled Ann Fudge as CEO of Y&R Advertising, flagship of Young & Rubicam Brands. Mr. McLennan had been chairman-CEO of Young & Rubicam Brands Australia/New Zealand.

Ms. Fudge stayed on as chairman-CEO of Young & Rubicam Brands till year-end 2006, when she retired. Peter Stringham, a former chairman-CEO of Y&R North America and most recently head of group marketing at financial firm HSBC Holdings, took over as CEO of Young & Rubicam Brands in February 2007.

Effective Jan. 1, 2007, James R. Heekin III moved up to chairman-CEO of Grey Global Group, succeeding Edward H. Meyer. Mr. Meyer retired after 50 years at Grey and more than three decades as CEO. Mr. Meyer, who turned 80 in January 2007, orchestrated Grey's sale to WPP in March 2005. Mr. Heekin had been chairman-CEO of Grey's flagship, Grey Worldwide, since September 2005.

Plans were in flux in early 2007 at another WPP grouping, the meandering Voluntarily United Group of Creative Agencies. WPP folded United London (formerly HHCL) in early April 2007, preparing to shift clients to the London branch of sibling Grey Worldwide.

On the digital front, WPP in April 2007 put new emphasis on internet search marketing, moving Outrider, a search-marketing company bought in 2001, into Group M—its group for MindShare, Mediaedge:cia, MediaCom and Maxus—from Mediaedge. As part of Group M, Outrider was to provide resources to all Group M media networks. WPP announced the move the same day rival Interpublic Group bought a search-marketing firm, Reprise Media.

WPP operates in four business segments:

Advertising and media: Global networks Grey Worldwide, JWT, Ogilvy & Mather and Y&R; Voluntarily United Group of Creative Agencies, which includes shops such as Berlin Cameron United; media agencies, under the banner of Group M, including global firms MediaCom, Mediaedge:cia and MindShare.

Market research ("information, insight and consultancy"): WPP's Kantar, which includes Research International and Millward Brown.

Public relations and public affairs: Burson-Marsteller, Cohn & Wolfe, GCI, Hill & Knowlton, Ogilvy Public Relations Worldwide and others.

Branding and identity, health care and specialist communications: Branding and design services—identity, packaging, literature, events, training, architecture—including Addison, Enterprise IG, Fitch, Lambie-Nairn, Landor, The Partners and others; direct, field, retail, promotion and point-of-sale services including A. Eicoff, G2, OgilvyAction, OgilvyOne, RTC Relationship Marketing, RMG:Connect, VML and Wunderman; health-care communications including CommonHealth, Grey Healthcare Group, Ogilvy Healthworld, Sudler & Hennessy and others; specialist communications such as multicultural marketing, event marketing and business-to-business.

WPP also operates its original U.K. business, Wire and Plastic Products, which makes kitchen goods such as dish drying racks.


WPP boasted solid results in 2006. The company's worldwide reported revenue rose 9.9%. Factoring out currency changes, it said, revenue increased 10.9%. (Revenue as calculated by Ad Age DataCenter rose 11.1%. Ad Age's 2005 revenue is reported in dollars based on average exchange rates and includes full-year results for Grey Global Group, which WPP bought in March '05.) Organic revenue, which factors out currency changes and acquisitions/divestitures, rose 5.4%.

In organic growth by discipline in 2006, WPP's advertising and media revenue increased 4.3% while non-advertising ventures rose 6.3%.

WPP's operating profit margin was 14.5% in 2006, up from 14% in 2005. Profit margin for WPP's advertising and media operations rose to 15.8% (from 15.5%), a higher margin than WPP earned in its non-advertising businesses. PR profit margins, though, were close behind at a strong 15%. In North America, WPP overall profit margins in 2006 were 17%, up 0.4 points and highest for any region.

WPP's stock in April 2007 hit $78.62, its highest price since the advertising bubble year of 2000.


WPP's 2006 reported net new billings grew $2.4 billion, reflecting about $4.7 billion in account wins and $2.3 billion in account losses, according to the tally of Bear, Stearns & Co. analyst Alexia Quadrani. WPP scored first in reported net new billings among the six ad holding companies ranked by Bear Stearns.

WPP in 2006 had an adjusted net new billings gain of $442 million, taking second place behind Havas; Bear Stearns' "adjusted" billings reduce media accounts to 25% of reported billings to more closely correlate with anticipated revenue. The adjusted net new billings translated to an expected annualized revenue gain of $53 million.

Bear Stearns aggregates account shifts reported in media, but it doesn't claim its new-business tally is all-inclusive, particularly in marketing services and outside the U.S. and U.K.

WPP, for its part, said it had 2006 estimated net new advertising billings of about $5.4 billion, reflecting close to $1.1 billion in creative wins and nearly $4.4 billion in media wins. Adding in $963 million in creative wins from non-advertising businesses, WPP claimed $6.4 billion in net new billings.

WPP's stated $1.1 billion in creative net new billings included $336 million at Ogilvy & Mather Worldwide; $279 million at JWT; $235 million at Grey Worldwide; and $200 million at Y&R.


On a pro forma basis in 2006 for WPP's 30 largest clients, WPP said 11 had lower spending while 19 were up.

WPP in 2006 generated 5.5% of revenue, or $595 million, from its largest client, Ford Motor Co. In 2005, Ford accounted for 5.7% or $557 million of WPP revenue.

The company's top 10 revenue clients in 2005 were, alphabetically, Altria Group, American Express, BAT, Ford, GlaxoSmithKline, IBM, Microsoft, Procter & Gamble, Pfizer and Unilever. Together, those clients kicked in about 23% of WPP revenue in 2005.

WPP said it served more than 390 clients across three or more disciplines in 2005. It worked with nearly 220 clients in six or more countries. WPP had relationships in 2005 with more than 300 of the Fortune Global 500.


WPP said its reported revenue from advertising and media rose 8.5% in 2006, with organic growth of 4.3%. But media shops fared better than ad agencies: Group Chief Executive Martin Sorrell in February 2007 said media planning/buying revenue jumped 13%-13.5% in 2006 (vs. growth around 14% in 2005 and 2004). He said advertising revenue "has tended to be flat to up a little bit," reflecting "a tougher time" in traditional advertising. WPP in February 2007 said media "continued to show the strongest growth of all our communications services sectors, along with direct, internet and interactive and specialist communications."

Advertising and media kicked in 47.5% of WPP revenue and 51.6% of profits.

WPP's revenue from branding, identity, health care and specialist communications rose 14.6% (reported) and 7.8% (organic).

Market-research operations saw 2006 revenue grow 11.2% on a reported basis and 4.1% in organic.

In WPP's public relations sector, reported revenue rose 12.4%; organic increased 5.9%.

Revenue fell in one WPP sector, manufacturing (Wire and Plastic Products).

In 2006, WPP generated:

--79% of revenue from North America (39%) and Europe (40%). The rest came from what WPP refers to as "faster growing markets" (Asia-Pacific, Latin America, Africa and the Mideast).

--52% of revenue from marketing services, with the rest from advertising/media.

--67% of revenue from advertising, media and "other marketing services," with 33% from "quantitative disciplines" (including market research, branding and consulting as well as direct marketing, internet and interactive).

More narrowly, WPP said digital/interactive work generated 9% or $974 million of its 2006 revenue.


When WPP announced its '06 results in February 2007, the holding company reaffirmed its strategic goals: To generate two-thirds of revenue from marketing services "in five to 10 years," according to Mr. Sorrell; to get one-third of revenue from "faster growing markets"; to get half of revenue from "quantitative disciplines."

Mr. Sorrell told analysts in February 2007: "In the future because of the fragmentation, because of the increase in complexity, we'd like to see half our business in the measurable area"—quantitative disciplines—"basically because we believe that clients will not move any more without significant quantitative data for their decision-making."


WPP in 2006 completed 44 acquisitions of smaller firms, though it did no big deals like its '05 purchase of Grey Global Group. It continued with more fill-in deals in early 2007.


Following various acquisitions in China, WPP ended 2006 with $500 million in revenue in Greater China (China, Hong Kong, Taiwan) and 7,300 people in that region (including associates, or those working for firms partly owned by WPP).

Among WPP's China deals:

WPP's Ogilvy Group China in September 2006 bought Black Arc Advertising, billed as China's "leading agency specializing in real estate-related advertising and promotions."

Also that month, Ogilvy Group reupped a joint venture with Shanghai Advertising Ltd. The firms' 1991 venture was set to expire in October 2006; they extended it through 2021. Under the new agreement, Ogilvy continued to maintain a majority interest in the joint venture company.

Ogilvy & Mather in October 2006 bought 70% of Beijing Century Harmony Advertising Co., a Chinese internet shop with 93 employees and 2005 revenue of $1.7 million. In December 2006, Ogilvy & Mather bought 49% of Beijing Raynet Advertising Co., a Chinese ad agency with 131 employees and 2005 revenue of $4.5 million.

WPP's Millward Brown in June 2006 bought 95% of All China Strategic Research Co., a market research firm in China. All China was folded into Millward Brown's Chinese operations; WPP ended up with a majority stake of the merged Chinese business with an option to buy the rest. All China had 147 staffers and 2005 revenue of $6.2 million; clients include Procter & Gamble, Unilever and Wal-Mart.

WPP did another China deal in May 2006 when its Group M bought 49% of Beijing Hua Yang Lian Zhong Advertising Co., an interactive media agency with 99 employees and 2005 revenue of $2.6 million.

WPP's BatesAsia in May 2006 bought 75% of Beyond Communications Hong Kong, a marketing communications consultancy in Hong Kong with 11 staffers and revenue of $570,000 in the year ended April 2005.

WPP's JWT in March 2006 bought Always Promotion Network, a China promo outfit.

WPP's Grey ended a long-standing alliance in China with Citic Guoan Group when WPP rival Omnicom Group in June 2006 entered a partnership with Citic Guoan.


WPP did other deals worldwide, with an emphasis on emerging sectors and regions. A chronology of recent WPP deals:

WPP in April 2007 bought Tapsa, a Spanish marketing-communications firm with 202 employees and 2006 revenue of $42 million; and 49.9% of Clemmow Hornby Inge, a hot London-based ad agency (with a sibling direct and digital shop) that had 151 employees and revenue of $33.7 million in the year ended June 30, 2006.

In another April 2007 deal, WPP's Research International bought Teenage Research Unlimited, Northbrook, Ill., a youth research outfit with 24 employees and stated 2006 revenue of $6.1 million.

Also in April 2007, WPP bought a minority stake in VideoEgg, a San Francisco-based video ad network for online communities. VideoEgg had 53 people and clients including Unilever, Dell, NBC, Nestle and Universal. WPP in March 2007 said KnowledgeBase Marketing, a WPP database marketing firm, bought 51% of DataCore Marketing, a strategic marketing, data and fulfillment services venture in Kansas City, Kan.

DataCore had 2006 revenue of $14.9 million. DataCore was founded in 1992 and had 119 employees.

Also in March 2007, Ogilvy Group's Neo@Ogilvy, a digital and direct shop, bought 70% of Global Strategies International, a search marketing consultancy. Global Strategies, based in Farmington, Conn., employed 16 people and had 2006 revenue of $2.2 million.

In other deals in March 2007, WPP bought 40% of Iconmobile, a Berlin-based mobile marketing firm with 2006 revenue of $8.2 million; 6.8% of Media Rights Capital, an entertainment-related financial firm in Los Angeles and New York; and, via WPP's Group M, a 75% stake in Quisma, a Munich-based marketing agency specializing in keyword advertising, affiliate marketing and search engine optimization with 29 employees and 2006 revenue of $19.2 million.

WPP in January 2007 bought All Global Limited, a London market-research firm with 44 staffers and revenue of $13.4 million.

WPP's Grey Healthcare Group in January 2007 bought a majority of Comunicacion y Servicio Consultores de Marketing Publicidad, a Spanish health-care shop with 2005 revenue of $2.7 million.

Group M in January 2007 bought Reddion, a Dutch digital media and customer-relationship management shop with 22 employees and 2005 turnover of $2.7 million.

Also in January 2007, WPP bought 2.5% of JumpTap, a Cambridge, Mass., mobile search and advertising venture.

WPP's BatesAsia in December 2006 acquired 74% of Sercon India Private Ltd., a New Delhi-based event management services outfit with 120 employees and revenue of $1.4 million in the year ended March 2006.

In December 2006, WPP's JWT merged its Dutch branch, PPGH/JWT Groep, with independent Ubachs Wisbrun. WPP ended up with a 60% stake in the merged shop, Ubachs Wisbrun/JWT. Ubachs Wisbrun 2005 revenue was $10.6 million.

WPP in November 2006 said it bought 3.2% of Spot Runner, an internet-based media shop and TV production outfit with 100 staffers in Los Angeles. (Interpublic Group of Cos. and CBS Corp. also made investments in Spot Runner.) Also in November 2006, Millward Brown, a WPP market research firm, bought ID Consultores, a research firm in Argentina.

WPP in October 2006 bought a majority of Ray & Keshavan Design Associates, a Bangalore, India, branding outfit with 33 staffers and revenue of $1.3 million in the year ended March 2006. Also that month, WPP's Wunderman bought two South Korean marketing services ventures, SRP Corp. and ComHaus Korea. SRP had 12 staffers and 2005 revenue of $500,000. ComHaus had 10 employees and 2005 revenue of $700,000.

WPP's G2 in September 2006 bought 70% of M/D/S Boole, a data, analytics and metrics consultancy in Spain with 18 staffers and 2005 revenue of $1.6 million. Also that month, WPP's Group M and Universal Music Group created a London-based 50/50 joint venture, BrandAmp, to develop music and brand partnerships for clients.

Wunderman in September 2006 bought Shaw Marketing Group, a relationship marketing agency involved in alcohol, package goods and other areas. Shaw, based in New York, had 15 employees and 2005 revenue of $2 million. It was to operate as a new division, Shaw Wunderman.

WPP in August 2006 bought DSG Strategies, a Washington, D.C., public affairs shop. The agency, commonly known as Dewey Square Group, had six U.S. offices, 53 staffers and 2005 revenue of $12.5 million. In its quest to seek ways its clients could tap customers online, particularly the harder-to-reach young-adult market, WPP in August 2006 took a minority position in WildTangent, an online game publisher that operated WildTangent Game Network, a video game ad network. Also that month, WPP bought a piece of Visible Technologies, an internet reputation management and information tracking outfit.

In another August 2006 deal, WPP purchased Public Strategies, an Austin, Texas-based public affairs and crisis communications agency. Public Strategies, founded in 1988, had nearly 175 employees in 15 U.S. cities and two offices in London and Mexico City.

WPP's Wunderman in July 2006 bought Zaaz, a Seattle interactive shop. Zaaz, founded in 1998, had 65 employees and 2005 revenue of $9.2 million.

WPP and LiveWorld, a Los Gatos, Calif., online community builder, in July 2006 formed a joint venture, LiveWorld-WPP, to create social networking applications, including message boards and blogs.

In June 2006, WPP's Group M bought Los Angeles-based M80, an online word-of-mouth marketing company.

Group M in April 2006 bought IEG, a Chicago-based firm that provided research on sponsorships and promotions.

In January 2006, WPP's Research International bought a majority of Poland's Pentor Research International.
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