Net income (pro forma) attributable to equity holders in the first half were impressive and was ₤239.7 million ($366.7 million) compared with a net loss of ₤743.0 million ($1,107.1 million) in the comparable period of 2009.
Revenue
The company’s reported revenue of ₤4,440.9 million ($6,794.6 million) was up 3.5% compared with the year-ago period and up 2.7% on a constant currency basis due to the strength in pound sterling versus the U.S. dollar and Euro.
Excluding the impact of acquisitions and currency fluctuations, revenue was up 2.5% in the reported period.
From a geographical perspective, WPP Group experienced a noticeable recovery in North America with revenue of ₤1,608.4 million ($2,460.9 million), reflecting an increase of 4.3% year over year. Revenue in the United Kingdom grew 2.7% to ₤523.1 million ($800.3 million), while revenue from the Western Continental Europe declined 0.9% to ₤1,120.9 million ($1,715.0 million) and from the Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe soared 7.5% to ₤1,188.5 million ($1,818.4 million).
Revenue from public relations and public affairs grew 3.4% year over year to ₤417.0 million ($638.0 million). Branding & identity, healthcare and specialist communications witnessed a revenue increase of 2.4% to ₤1,115.2 million ($1,706.3 million), while revenue from advertising and media investment management increased 4.4% to ₤1,746.2 million ($2,671.7 million) and revenue of ₤1,162.5 million ($1,778.6 million) from consumer insight soared 3.4%.
Billings in the period amounted to ₤20,333.1 million ($31,109.6 million), up 8.5% (7.3% on a constant currency basis) compared with a year-ago period. Net new business billings of £2,114.0 million ($3,234.4 million) were won during the first half 2010.
Margins
Direct cost, as a percentage of revenue, increased 30 basis points to 8.1%, which leads to a decline in gross margin from 92.2% in the prior-year period to 91.9% in the reported period. Operating costs declined to 84.2% from 87.6% of revenue in the year-ago period.
EBITDA increased 23.1% to ₤560.8 million ($858.0 million) and margin was 12.6%. Operating profit increased 33.1% to ₤455.3 million ($696.6 million) with margin of 10.3% versus 8.0% in the year-ago period.
Balance Sheet
Exiting the first half of 2010, WPP Group has cash and short-term deposits of ₤1,103.6 million ($1,666.4 million) versus ₤1,098.2 million ($1,812.0 million) in the year-ago quarter. Bonds and bank loans were ₤3,980.8 million ($6,011.0 million) versus ₤4,163.2 million ($6,869.3 million) in the year-ago period.
Cash Flow
Net cash flow from operating activities was a negative ₤159.7 million ($244.3 million) compared with a negative ₤191.4 million ($292.8 million) in the year-ago period. Capital spending plummeted 29.3% to ₤79.9 million ($122.2 million).
The company’s board of directors declared its first interim dividend of ₤0.0597 to be payable on November 8, to shareholders of record as of October 8, 2010.
Outlook
Management expects revenue out performance throughout the fiscal year 2010 and believes like-for-like revenue growth will exceed seven months growth of 3.1% and market consensus of 2.5%. Additionally, mini-quadrennial events are likely to add at least 1.0% to global like-for-like revenue growth.
Margins are expected to improve at least 1.0%. Pro forma EPS is expected to reach 2008 high levels. Moreover, over the long term, WPP Group targets to improve operating income by 10% – 15%; operating margin by 0.5%–1% annually; improving percentage of staff costs to revenue or gross margins by 0.6% annually; converting 25 –33% of incremental revenue to profit and increasing revenue ahead of industry averages.
Management also remains cautious of any possible impact from the Eurozone crisis spreading in non-affected parts of Europe and withdrawal of fiscal stimulus in Germany. It also remains skeptical about the U.S. growth later this year and next year with an expected end to the Bush tax cuts.
We currently maintain an Underperform recommendation on the company.
WPP GRP PLC (WPPGY): Free Stock Analysis Report
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