WPP posts 33% earnings rise for '05

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Despite the hubbub surrounding WPP Group and its allegations of financial wrongdoing against the former head of its Italian operations, the holding company pulled off record results in 2005.

Earnings for 2005 rose 33% to $695 million, or 54¢ per U.K. share and $2.70 per American depositary receipt, which trades in the U.S. That's compared to the 43¢ per share or $2.13 per ADR one year ago. Revenue increased 25% to $9.7 billion compared to 2004. Net new billings for the year were $5.2 billion, including wins from Volkswagen, Shell Oil Co. and Cingular. Operating margin for the year rose one margin point to 14%. For 2006, WPP is aiming for a 14.5% margin and in 2007, 15%.

Asia Pacific, Latin America, Africa and the Middle East reported the highest revenue increase (34%, to $1.8 billion), of the four geographic regions in which WPP operates. North America followed, with a 28% rise to $3.6 billion, followed by continental Europe (up 24% to $2.4 billion). The U.K. trailed with an 11% increase, or $1.4 billion.

Broken down on a country-by-country basis, China, India, Hong Kong, Mexico and the U.S. were among those that showed revenue growth of more than 25%. Belgium, which showed growth of 5% or less, was the worst performer.

Three of WPP's four discipline categories reported double-digit growth, percentage-wise, led by advertising and media, up 31.3% to $4.5 billion, followed by branding, identity, health-care and specialist communications, which increased 26% to $2.4 billion. Public relations increased 20% to $933 million, while insight, information and consultancy rose 9% to 1.4 billion.

Discussing strategy during a conference call with analysts, WPP Chief Executive Martin Sorrell emphasized management's intention to generate a greater amount of the group's revenue from faster growing markets in Asia Pacific, Latin America, Africa and the Middle East. He also aims to increase revenue coming from marketing services in future years. Today, 52% of WPP's revenue comes from advertising and media; the plan is to decrease that to 33% and increase marketing services to 67%.

Medium, small deals

In the area of potential acquisitions, Mr. Sorrell-known as an enthusiastic dealmaker-said the company will focus on medium and small deals, with a focus on stronger-growth areas such as market research and companies in faster-growing companies. Addressing rumors that WPP might become involved in current talks on the sale of Dutch media entity VNU, Mr. Sorrell said it was "highly unlikely or impossible given the nosebleed territory of the prices."

Though no analysts asked questions about the Italy affair during WPP's Feb. 24 conference call, the company did address it in its press release about results with a few sentences. The company is taking legal action against its former country manager in Italy, and "it is not expected that this will have a significant effect on the group's financial results."

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