WPP PLC (WPP) 2002 Q1 法說會逐字稿

Good morning. My name is Libby. I would like to welcome everyone to the WPP Group conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, press star and then the number one on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press star then the number 2 on your telephone keypad. Thank you, Mr. Paul Richardson, you may begin.

Good morning. I'm joined by some Chief Executives and myself. Just to run through approximately 17 slides on the 1st quarter updates. Two things, one, you should have gotten an e-mail copy of the slides. They will be on the web. I have a very bad cough which I possible apologize if the clarity is not very clear.Unusually currency went against us by approximately 1% in the quarter. Revenues were down 1% for the quarter and on a light for like basis revenues were down almost 9%. A strong growth continued as it has done so for the last five quarters. And several strategic acquisition were completed which we'll detail later on. On slide three, looking at the growth by discipline, and comparing the minus 1.5% for the quarter which was very similar to what was achieved in quarter four 2001 and you'll see the momentum is continuing and the 1st quarter 2002 is in a similar shape but it's a by discipline and geography. The revenues are flat for the quarter. Information continue see revenues grew by 6.5%. Public relation revenues down 13% and health care -- is a mixed -- and was down 2%. Moving on to slide five. Moving on to public relations and public affairs slide six. Constant currency basis revenues are down 13%. To work with Ogelsby on a offering there at around 30% stake at this stage. Slide seven branding identity health care down but particularly strong growth in the group's health care agency. Reporting very strong growth continuing into 2002. Geographically, the strongest growth was in the UK. And the area of sports marketing, we acquired Sports Net during the quarter. UK was up 1.7%. Again, just for comparisons just to remind people in the 1st quarter 2001, the growth was 9.2% compared to the nine minus 1.5% we're comparing again and three of those regions were double digit growth in quarter one 2001. Looking at it by country we've identified all of the constant currency basis where growth is strongest and where growth is negative. Two categories continues to be strong which we monitor carefully. Very solid stable growth coming out through the whole country [INAUDIBLE] some clients possibly less so but as a whole robust growth and then the 5% or less category automotive computer, electrical, financial service I food and telecommunications. So the impact [INAUDIBLE] with the strength of the dollar against earning was partly offset by the weakness of the Euro. Moving on to new business wins slide 13 and 14, we've recorded here in the press release that net new business billings is $748 million quarter one 2002. This compares to a quarter one 2001 net new business billings recorded a year ago 365 and the last two quarters of 2002 sorry 2001, quarter three recorded $599 million. A quarter four 598 so an improvement in the momentum and you can see from the slide there is really across the businesses. There was an element of [INAUDIBLE] relationship to the [INAUDIBLE] so that kind of switched. Just like the 51 [INAUDIBLE] that is included on that number. In terms of acquisitions on slide 16, there are four media acquisitions here listed here.

I would like to remind everyone if you would like the ask a question, press star and then number one on your keypad. We'll pause for a moment to compile the Q & A roster. [PAUSE] Your first question comes from Alexas Quadani.

Good afternoon. First are you still comfortable with your progression GSZ for the full year that you gave on your 4th quarter conference call of I think it was flat organic growth to the full year and 100 basis points margin I'm I improvement and are you tracking as planned in terms of the margin improvement.

The answer to both is question. Obviously what has happened in the 1st quarter doesn't make it any easier but as we indicated in the statement, we're in line.

Okay and if you could comment a bit on the tempest integration.

There was no integration in the wnr process in the sense of business is being integrated with one another. So I think the integration in the case of [INAUDIBLE] of the branding [INAUDIBLE] has been separated and are working together with our branding and identity businesses. [INAUDIBLE] partners is a stand alone business.

Are you seeing any signs of improvement in the over all advertising environment as the quarter produced.

You said advertising environment.

I did say advertising but I mean total [INAUDIBLE] environment.

As you've seen from the statement, the conditions there by geography and by function but the answer to the question do we see any signs to improvement in advertising in the first three months of the year to be honest with you is no. There is a lot of chat about improvement in sentiment. That does not seem to have translated itself into any figures and I'm talking to the end of March. There is some antidote tall evidence in the UK but the press advertising being tough in April. Television advertising in the Uk ITV has been talking about maybe up by as much as 9% over the previous-year-old [INAUDIBLE] by the World Cup but sponsorship packages are proving to be difficult to sell. The picture is a little better. It was affected by September 11th but it is a little bit better. Public relations and public affairs continues to suffer but I think there is some signs of some stabilization there. Branding and identity health care and specialist communications, the second most affected part of our business is varied. Direct not as affected. Health care is not as affected. Branding and identity business has been affected and then advertising is a mixed picture and it's sort of follows the pattern that you see with corporate profitability. You get a week where you have Ibm and Ge and then you have a week where you have GM and Coco-Cola. So there is a very -- there is a significant variability but to the question, we've not seen anything in the 1st quarter that leads us to be of the view that things have changed. Now we may lag -- I think we discussed this before, we may lag real industry if I can put it that way and it may be that real business will respond first and because of relatively high unemployment advertising spend or marketing services may follow for at least a few months so we'll to have see how we go. The comparisons will get easier as we go through the year and from a personal point of view would expect 2002 to improve on a year to year basis by virtue of the fact that the comparisons get easier. And then 2003, I would expect an improvement and maybe we'll have to wait until 2004 before the U.S. Presidential election and the Athens Olympics have an impact on media and on media spending.

Okay and lastly, one technical question. Usually you give a number in the press release of pro form a combined revenues with the acquisitions in the entire period. Was that given today?

The loss here we had to it's in a special category. Because of-basically. But now that Ynr was in the 1st quarter 2001 and in the 1st quarter 2002 the constant currency basis which is minus one compared to the organic basis which is minus 9 shows that from acquisition, there has been 8% impact of which about half of that is tempered. So that's the only figures that we give.

Sure.

Thank you very much.

Your next question comes from Michael Russell with Morgan Stanley.

Thank you very much.

Yes.

I think we said before and should have mentioned in the [INAUDIBLE] answer, there are sort of for our five categories that have been stronger. Plus while all of this has been going on and that would be package goods, pharmaceuticals, government and which we regard in this country is the largest advertise terrific and then retail. One or two of the companies that are being very aggressive. We sort of discussed it [INAUDIBLE]. Often the bidding -- there is no bidding because the decision is made to hire an agency and then across is agreed or negotiated subsequent to the qualitative decision being made. I certainly have -- I'm interested in your question -- because I think it's far too early if there was any for anybody to be aware of it unless you've got anything specific in mind. We went through the -- in -- pitch which I would say they were fairly aggressive the client was fairly aggressive in terms of the terms for that but I think it's not predatory but on the consolidation side when a company "A" acquires company "B" they may welcome back to the agencies and say if you were to add company's "B" work to the existing work that you do for company "A" is there any price break? And I think there is evidence that that sort of thing is happening but to be fair there are some e con please of scale and as a result one can work out deals or arrangements which are not penal.

Okay. And just [INAUDIBLE] come three since that deal the companies are just coming together, do you think it creates an opportunity for certain agencies to preserve certain clients? Are there some things on your radar screen?

I'm not talk bugs in particular but it raises certainly the question about Proctor and Gamble will have a large amount of business concentrated in [INAUDIBLE] publicist and therefore races the question about whether that is a situation they will like or dislike either in the short-term or long-term. Just as an observer again standing on the sidelines I found it odd that IPG withdraw drew from the [INAUDIBLE] or that they withdraw according to the trades which sometimes can be inaccurate [INAUDIBLE] because of an objection from General Motors which if that was to be the case would have implications for the general [INAUDIBLE] business that's in the Bcom3 publicist business. So I think there are one of two things like that. But it's early days to come to a view. The deal hasn't even closed. And clearly there are other conflicts, Procter & Gamble and Lorial or potential conflicts which I think are handled through separate agencies but those sort of things have to have to be looked at. And then of course on a country by country basis there are a phenomenal number of conflicts which will have to be sorted through.

Does this change anything because of the improvement have density of that particular merger does it change the way you think about your own strategy?

In relation to us, I don't think there is much of of an impact on us in terms of a clients points of view. But the relationship with -- it does raise the question as to whether that density relationship with publicist will developer not develop.We have 20% in the [INAUDIBLE]. I think the answer to your question is we'll have to wait and see how that develops.

Thank you very much.

Your next question comes from Lauren Fine with Merrill Lynch.

Thank you. Just a couple of quick questions. One I'm wondering if you could comment on the level of new business pitch activity. We've been hearing that there is a dearth of pitches out there 5 any comments you might have about the shape of the USTB upfront market in terms of whether it will favor the buyers or sell jeers I think it will favor the buyers rather than the sellers and I think that applies not just in the U.S. but over here too. On the new business activity, I think our 1st quarter was about $750 million in net new business wins. 500 million pounds which was double what it was last year but that was a very weak quarter for business for us last year and generally the activity was pretty slow. But having said all of that I don't think we've noticed a remarkable increase in activity. There are several pitches and several changes that have been made. But I wouldn't describe the level of new business activity as high and I think by and large [INAUDIBLE] still hesitant. Again, a similar points to make would be we see no changes in the propensity to spend or the eagerness to spend. There is a still a degree of caution and avoidance of commitment. There is not postponing of campaigns but really an unwillingness to make commitments.

Great. Thank you.

Your next question comes from Fred Searbee from JP Morgan.

Good morning. I just had a couple of questions. Does any of the problems -- pharmaceutical sector is having, is it materially altering your expectations for the health care and that business and do you expect it to have an impact and slow down growth?

No. I think there is a big opportunities in the director consumer market. For the professional agencies and consumer agencies. I think a couple of observations, first of all there is a -- procurement measure particularly one or two companies. The other thing is that when professional market tears or marketers that move from the professional area marketing to doctors to the consumer there is a concern about measurement and a concern about value for money because you're moving in scale. You're changing significantly. So I think there is a premium on demonstrating to clients that what you're doing for them is quantitatively justified. So I don't think the prospects are gloomy. I think the prospects are the other way but they are going to have to be very well argued cases and they won't be done on a hunch or intuition. They will be done on solid thinking.

Okay. Thank you and just one quick question. In terms of tracking, was it pretty much January, February, March where they take into accounts seasonal changes? There was no slight ramp up that you saw?

Again, in our case, no. Maybe January was a bit weaker because January is a low month. February and March I think were pretty similar but there is as I said some anecdotal evidence that April was weak. April had what seemed like a pretty long Easter to it many people say and I think that might have affected one or two parts of the media but I wouldn't say any pronounced [INAUDIBLE].

Thank you, gentlemen.

Your next question comes from Kevin Sullivan from Lehman Brothers.

Thank you. Good afternoon. I was interested in the comments on the public relations area. You saw some signs of stable [INAUDIBLE]. I was wondering whether or not that was the market over all bottoming or peopling back into to spend a little bit and whether or not public relation will lag in some of the other categories in the upturn.

I think we said before that the specialization in the PR business didn't protect it in the downturn. I think when I say stabilization, we're seeing some signs of bottoming out and improvement and of course in terms of dealing with the plus side of the equation, I think our businesses are being quite aggressive. I don't think it will lag other areas. I think what the last few months or 18 months or so demonstrated is that the PR is more circumstancly call than some of our other businesses if not all of our other businesses. So I would expect that if there was an upturn, what you would sigh conservancy is a stronger and more pronounced recovery in the PR businesses as a result. I think the [INAUDIBLE] of the business is still heavily concentrated in financial services, technology, media and telecommunications. Tallahassee and that's the part of the business that is taking the belt of the strain so I think those businesses are going to broader spread and the other categories the other five, those broader based businesses will probably do a little bit better. So I think if there is a lag, it's going to be general to our business. Against what I described before as maybe unkindly as real business. And we'll follow on as a whole from that.

Great. I just want to make sure I'm doing my math. Based on 9% negative growth. Is it safe to assume that growth is down 15% in the quarter?

We haven't commented by region at all by organic growth. You have to estimate it from what we've shown you to be the u.S. Growth around 7% negative for the quarter.

It is our weakest region.

It's fair also to assume that the impact of acquisitions is least effects or it's one of the reasons that is least affected by acquisitions?

The U.S. is least affected. Yes.

That's helpful. Thank you very much.

Your next question comes from Troy Maston.

Thank you. Two questions. Could we focus first on slide 11 where you detailed different categories of customer types. Make using those that are up 5% or less. Could you discuss trends among those customer types. Meaning having a particular set of customers bottomed or are they beginning to improve?

Being under pressure or they wouldn't be included in the five categories that I mentioned. But in a sort of [INAUDIBLE] being flatter. Obviously computer and electrical have been under pressure as have financial services. Food and retail less affected. Package goods. Lower price regional price retail and telecommunications is being heavily impacted so those categories in the sort of undefined category I would say the most affected would be have been computer, electric travel call, -- electrical and tell communications.

And are those worst impacted still in decline?

Depends. I I could give you an example in the package good area where food manufacturers started spending by 20% in the first two months of the year. So you've got differences even within those five categories that I said. So you have to be very specific about the companies that you're talking about and in the automotive category clearly to financing is effectively quite a heavy price discounts and each of the manufacturers say they are investing a lot in marketing which turns out to be a lot of money in price promotion. Whether that lasts forever or not we'll have to see. So I think to be honest with you, you would have to go through individual company by individual company to come to any conclusions.

So you would identify maybe that there is a still a negative trend in technology advertising?

Depends on the company. Some companies position has improved. Again I don't want to name names but there are some companies that you would assume from the outside were having a very difficult time. Who continue to spend or not continue but increase their spending quite significantly. In the technology area. So I think broadly it's sort of bottoming out in those areas and I'm talking about financial services, the tell comes and the information technology but I could quote you examples that go against it both ways.

Okay. Thanks. Second question. If you could maybe characterize the nature of new business wins today versus what they have looked like in the past and the difference between accounts changing hands versus new accounts creation. Has that mix shifted significantly from where it's been in the last several years?

I think where we are in the cycle, there are few you are new categories at the moment so there is more cannibal situation in that sense. There have been shifts of spending and consolidations of spending so there are some differences to the top of the cycle or on the upturn in the cycle where new categories tend to come into play more heavily. But even now, the oil and energy sector for example the spending is quite significant and that's probably a change from where we were two or three years ago. So again, it's dangerous to draw conclusions but I think there is more consolidation as a result of mna activity and there is less new category extension than we've seen before but you would expect that at this stage in the cycle.

Would you sense that the mix of new categories is maybe bottoming as well?

Difficult. I'm not sort of thought about that but [INAUDIBLE] you can't really sort of talk about a bottoming of it. You can probably talk about a new categories developing and at the moment, the answer is they are few and far between.

Thank you very much.

At this time, there are no further questions.

Thank you very much.