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Philip Lader

Philip Lader. Chairman. Sir Martin Sorrell. CEO, WPP. Strategic Priorities. Short term: to capitalise on the 2004 to 2006 up-turn Medium term: to continue to successfully integrate acquired companies

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Philip Lader

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  1. Philip Lader Chairman

  2. Sir Martin Sorrell CEO, WPP

  3. Strategic Priorities • Short term: to capitalise on the 2004 to 2006 up-turn • Medium term: to continue to successfully integrate acquired companies • Long term: to continue to develop our businesses in the faster-growing geographic areas of Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe to continue to develop our business in the faster-growing functional areas of marketing services, particularly direct, internet, interactive and market research

  4. Key Priorities, Objectives and Strategy • Faster growing markets to be one third of total group • Marketing services to be two thirds of total group • Quantitative disciplines to be one half of total group

  5. Strategy, Structure and Competitive Position Faster Growing Markets To Be One Third of Total Group WPPToday1 WPP Today incl. associates1 WPPTomorrow Faster GrowingMarkets2 Faster GrowingMarkets2 Faster GrowingMarkets2 NorthAmerica NorthAmerica NorthAmerica 24% 29% 33% 34% 34% 39% 37% 37% 33% Europe Europe Europe ¹ Based on full year 2006 revenue ² Asia Pacific, Latin America, Africa & Middle East, Central and Eastern Europe

  6. Strategy, Structure and Competitive Position • Brazil, Russia, India and Greater China (BRICs) account for approximately 10% of WPP revenue today • According to Goldman Sachs research, Dreaming with BRICs*, these countries will grow at 10.4% CAGR through 2015 • According to Zenith, ad spending as a % of GDP for BRIC was 0.5% in 2001 compared to mature markets where it is 1.5% to 2% • If GDP grows in line with Goldman Sachs estimates, and advertising spending as a proportion of GDP equals that of mature markets, BRICs alone would represent approximately 25% of WPP revenue by 2015 Wilson, Dominic and Purushothaman, Roopa. 1 October 2003. “Dreaming with BRICs: The Path to 2050.” Goldman Sachs Global Economics Paper No: 99: page 9

  7. 12% 14% 37% 25% 12% Strategy, Structure and Competitive Position Today 2015 Faster GrowingMarkets2 Faster GrowingMarkets2 NorthAmerica NorthAmerica 15% Europe* 39% 24% Europe1 8% 14% BRIC BRIC UK UK 1 Europe excludes Central and Eastern Europe ² Asia Pacific, Latin America, Africa & Middle East, Central and Eastern Europe Assumes Brazil, Russia, India and China GDP growth of 10.4% CAGR according to Goldman Sachs Research and Advertising spend as % of GDP equals that of mature markets through 2015. Illustrative purposes only intended to isolate the effect of BRIC GDP growing faster than rest of world

  8. Strategic Priorities Marketing Services To Be Two Thirds of Total Group Today1 Today including associates1 Tomorrow 33% 48% 48% 52% 52% 67% Marketing Services Advertising & Media Investment Management ¹ Based on full year 2006 revenue

  9. 34% 66% 50% 50% 33% 67% Strategic Priorities Quantitative Disciplines To Be One Half of Total Group Today1 Today including associates1 Tomorrow Information, Insight & Consultancy and Direct, Internet & Interactive Advertising, Media Investment Management & Other Marketing Services ¹ Based on full year 2006 revenue

  10. Strategic Objectives We continue to focus on our key objectives • Improving operating margins • Increasing flexibility in cost base • Using free cash flow to enhance share owner value, and improve return on capital employed • Developing role of parent company • Emphasising revenue growth more as margins improve • Further improving creative capabilities and reputation of all our businesses

  11. Historic Headline PBIT¹ and Margins PBIT1 £’m PBIT1 margin % Long-term target 19% 20% 1000 14.5% 14.0% 16% 859 800 14.1% 14.0% 13.0% Objectives: 12.0% 14.5% 755 13.0% 12% 600 2009 16.0% 561 560 534 2008 15.5% 468 8% 400 433 2007 15.0% 4% 200 0% 0 2000 2001 2002 2003 2004 2005 2006 PBIT Margin - Full Year IFRS Margin - Full Year 2004 UK GAAP Headline PBIT excludes finance income/ costs, taxation, goodwill and intangibles charges, investment gains, and share of exceptional gains of associates. For 2004 onwards, Headline PBIT has been prepared under IFRS. 2003 and prior periods are in accordance with previous UK GAAP.

  12. Financial Model • Organic revenue growth 0-5% • Margin growth in line with objectives • Operating profit growth of 5-10% • Incremental revenue and profit growth from acquisitions of up to 5% • Overall growth in EPS of 10-15%

  13. Earnings and EPS¹ Earnings (£m) 42.0p 17% 500 36.0p 29% 32.3p 400 30.9p 27.9p 29.0p 23.8p 300 200 100 0 2001 2002 2003 2004 2005 2006 2004 UK GAAP IFRS ¹ Diluted Headline Earnings and Diluted Headline EPS

  14. Increasing Flexibility in the Cost Base • We continue to focus on a more flexible cost structure in three key areas: • Staff c. 50% of revenue • Property c. 7% of revenue • Bought in services c. 30% of revenue • Increased flexibility in all areas important to combat any future economic slowdown

  15. Increasing Flexibility in the Cost Base Change In Variable Costs 14 2001 2005 2006 12 10 8 % 8.2 12.8 13.0 6 4 4.6 7.6 7.7 2 0 Variable Staff costs as % of Staff costs Variable Staff costs as % of Revenue

  16. Using Free Cash Flow to Enhance Share Owner Value - Acquisitions • Tender offer for 24/7 Real Media • Continued focus on small and mid-size strategic acquisitions – a number completed during first five months • Major focus continues to be on information, insight & consultancy and faster growing sectors within branding & identity, healthcare and specialist communications and faster growing geographies • Acquisitions in advertising used to address specific client or local agency needs • Continue to find opportunities, particularly outside the US

  17. Using Free Cash Flow to Enhance Share Owner Value - Dividends and Share Purchases Share Repurchases • 2006 dividend raised by 20% to 11.21p per share • Distributions to share owners: % of Share Base Dividends per share Annual increase Dividends Amount The Company increased the target for the rolling share buy-backs from 2-3% of its share base, equivalent to £200-300m to 4-5% or £400-500m in 2007 and 2008 in the open market when market conditions are appropriate 1 23.256million shares purchased to date at a cost of £175.4m (average of £7.54 per share)

  18. Emphasise Revenue Growth More as Margins Improve • Continue to focus on delivering above-average revenue growth by: • Expanding networks to take advantage of faster growing geographical markets • Re-enforcing competitive advantage in segments where growth is expected to remain higher, eg, Market Research, Direct, Internet, Interactive, Technologies, Retail, Healthcare, etc. • Taking advantage of consolidation trends to gain market share

  19. Improving the creative capability and reputation of all our businesses • By placing greater emphasis on recruitment • By recognizing creative success tangibly and intangibly • By acquiring highly regarded creative businesses • By placing greater emphasis on awards

  20. WPP Today Revenue £5.9bn PBIT £859m Advertising Media Investment Management Information, Insight & Consultancy Public Relations & Public Affairs Branding & Identity, Healthcare and Specialist Communications Revenue Wide £2.3bn Narrow £1.03bn Revenue £2.8bn PBIT £443m Revenue £893m PBIT £99m Revenue £596m PBIT £90m Revenue £1.6bn PBIT £227m Revenue and PBIT figures are 2006 reported sterling actuals PBIT isstated before goodwill and impairment, fixed asset gains and investment write-downs

  21. WPP Opportunities • Geographic • Technological

  22. WPP Today Media Investment Management: GroupM Irwin GotliebCEO KR Media (25%) MediaCom MindShare Mediaedge:cia MAXUS Dominic ProctorCEO Charles CourtierCEO Alex Schmidt-VogelCEO Nick Daly COO Bruno KemounEryck RebbouhJoint CEOs Kinetic

  23. Irwin GotliebCEO, GroupM • 2003 appointed Global CEO, GroupM, world's leading full service media investment management company • Launched MindShare North America, consolidating media resources of JWT/Ogilvy, to create global entity • Joined WPP 1999 as Chairman/CEO MindShare Worldwide • Prior to WPP, founder and President/CEO of MediaVest Worldwide, part ofMacManus Group • 22 years in Broadcast Programming with DMB&B, ultimately Worldwide Director of Broadcast & Programming • Multiple media recognitions eg Media Player of the Year by AdAge in 2000, inducted into Broadcast & Cable Hall of Fame • Member of Board and Executive Council of the Ad Council and member of 4As CEO Committee

  24. Rob NormanCEO GroupM Interaction Worldwide • Member of GroupM Global Executive Committee • Prior to GroupM, founded and led digital media arm of Tempus Group (acquired by WPP in 2001) • Responsible for digital practices of MAXUS, MediaCom, Mediaedge:cia, MindShare • Largest buyer of online media in world • GroupM – among top 3 largest agency clients of Google, MSN and Yahoo! • 1,300 people worldwide

  25. Irwin Gotlieb CEO, GroupM

  26. The Leading Global Media Investment Management Operation • GroupM is the parent company to WPP media agencies • MAXUS, MediaCom, Mediaedge:cia, MindShare • Represents over 31% of the worldwide media market (RECMA) • The intelligent application of physical and intellectual scale to benefit our clients and our companies

  27. GroupM Market Strength Rank 1 $60.5bn 31% Rank 1 $26.0 bn 32.2% Rank 1 $27.0 bn 29.1% Rank 1 $6.3 bn 22.9% Rank 1$1.2bn 25.2% Source: RECMA

  28. Vitality • GroupM ranked number 1 in Vitality and Momentum by RECMA for 2006 • GroupM agencies won 3 out of 4 “Agency of the Year” awards in the US • Mediaedge:cia - Global Agency of the Year - Ad Age • Mediaedge:cia - Global Agency of the Year - Adweek • MindShare - Agency of the Year - Adweek

  29. Role of GroupM • Maximize the performance of our media communications agencies • Ensure that each of our agencies is smarter and stronger in the service of its clients • Operate as parent and collaborator in performance enhancing areas • Develop synergies and leadership among the agencies in trading, content creation, sports, digital, finance, proprietary tools • Diversify our business to meet the future needs of the changing marketplace • Help our agencies create the most stimulating and rewarding work environment for our people • Increase WPP’s market share in this sector

  30. The Evolution of Media • Communications Planning • Exploiting opportunities in Digital

  31. What is Communication Planning? • The effective allocation of marketing investments across all channels to meet a client’s business objective • Uses a combination of rigour and imagination to deliver a holistic platform and architecture for a brand or corporate marketing spend • It defines how a brand will communicate with consumers

  32. A New IP and Data Centric Context • Communications strategists will be the key advisors for clients within the GroupM agencies • They will marshall and package the full range of GroupM services – Business Science, Entertainment, Sports, and Cause to navigate the complexities of modern media world

  33. Rob Norman CEO,GroupM Interaction Worldwide

  34. Marketing’s Perfect Storm Massproduction Massmedia Bigretail

  35. The Consumer Strikes Back Personalization and speed Fragmentation and interaction Multi-channel distribution and conflict A new world order

  36. Communication space Sample Prediction Context Brand as publisher Audience Buyers Interrupters Shelf space Census Intention Behavior Community as publisher Hive Arbitrageurs Integrators

  37. A New Kind of Integration for Success Context Content DATA CENTER Currency

  38. Our Mission Remains Unchanged Increase the efficiency of changing minds Reduce the costs of selling goods

  39. We Were The world’s largest vertically and regionally integrated commercial message distribution business

  40. We Have Become The world’s largest vertically and regionally integrated commercial message distribution business A major data management center A major producer and distributor of branded and entertainment content across all analog and digital channels A significant component of the distribution chain

  41. Complexity Increases Demand GroupM Across WPP More channels More optimization More transactions More flexible value chain More distribution opportunities More channels More messages More formats to develop More content required More research

  42. Our Challenge To continue to leverage our physical and intellectual scale to consolidate opportunity in fragmented markets

  43. WPP Today Long Tail and Targeted Advertising SocialMedia Mobile Online Video In-Game Advertising Interactive Agencies

  44. Mark ReadDirector of Strategy, WPPCEO, WPP Digital • First worked at WPP parent company and then at Ogilvy and Hill & Knowlton (1989 – 1994) • Founder of WebRewards in UK • Principal at Booz-Allen & Hamilton • Rejoined WPP in 2002 as Director of Strategy and CEO WPP Digital • Joined WPP Board in 2005

  45. Mark Read Director of Strategy, WPPCEO, WPP Digital

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