WPP still defending Y&R purchase

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WPP Group is going to great lengths to prove buying Young & Rubicam wasn't a mistake.

While reporting first-half earnings last week, the holding company broke precedent and separated out revenue performance data for Y&R Brands, a unit that's been the focus of criticism for the last six months. The company provided annual revenue dating back to 2000, when it bought the company, to show that although the unit's revenue declined for 2001, 2002 and 2003, it's improved in 2004 and is approaching the 2000 level of just over $2 billion.

WPP also said that its return on capital invested in the purchase, nearly 13% in 2000, dropped to roughly 6.5 % in 2002 but has now increased to over 8%.

Analysts weren't entirely convinced. While the agency represents about 10% of WPP, "Y&R is still an issue, that's my impression from the commentary," said one, adding that the problems are at the advertising unit, not the other companies.

For the holding company as a whole, net earnings for the first half of 2005 rose 45% to $253 million on revenue of $4.62 billion. Revenue increased 22% for the first six months vs. the same period a year ago, to $4.62 billion. Earnings per share rose to 21ยข, 39% over the year-ago period.

EXPECTED

The results were "in line with our expectations, to slightly ahead," said the analyst, although "organic growth is slightly slower than [WPP competitors] Omnicom and Publicis Groupe."

Of the disciplines in which the holding company operates, ranging from advertising, public relations, customer-relationship management and media-investment management, WPP Group Chief Executive Martin Sorrell said media-investment management (which refers to buying and planning services offered by agencies including MindShare and Mediaedge:cia) showed the strongest growth, along with direct, Internet and interactive-related activities. The latter now account for over 15% of WPP's annual revenue.

WPP also announced it completed its purchase of Australia's The Communications Agency, whose assets include advertising agency George Patterson Bates. The move comes one month after John Wren, CEO of the world's largest advertising holding company, Omnicom Group, outlined an acquisition strategy focused on the Asia/Pacific region.

While revenue grew at double-digit rates in all regions, WPP said that Latin America grew fastest. Asia/Pacific is also strong; there, China and India lead the region with growth rates of 22% and 13%.

The Communications Group deal will add 1% to WPP's Asia Pacific revenues over the next year, WPP management said. Terms were not disclosed; WPP already holds 30% of TCG through its 2003 acquisition of Cordiant Communications.

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