The group announced yesterday that it would appoint advisers to consider a float, in Britain or the US, in the second half of the year. It is also studying the issue of loan stock to improve the balance between long-term and short-term debt but would prefer to float because of the interest cost.
The group's debt at the end of December was pounds 84m, down from pounds 240m the previous year. But average borrowings during the year were only pounds 34m lower at pounds 361m, despite an pounds 88m rights issue and pounds 37m disposal proceeds.
That partly reflected the payment of pounds 28m in deferred consideration under earn-out deals agreed during its acquisition spree in the 1980s, which left it with a cash outflow of pounds 27m. A further pounds 29m of deferred consideration is due this year, pounds 19m in cash and the remainder in shares, but the group expects to generate enough cash to finance that without increasing borrowings.
The market research business, which includes Research International, Millward Brown and MRB, made dollars 29m (pounds 19.5m) in 1993 on sales of dollars 320m. Martin Sorrell, chief executive, said that if the flotation was priced at about 20 times earnings, the business could be worth between dollars 350m and dollars 400m, so the sale of a 49 per cent stake would raise half of that for WPP and cut its average borrowings to about pounds 200m.
Lorna Tilbian, media analyst with Warburg Securities, said that valuation should be within reach. She added that the sale would improve the balance sheet and enhance earnings.
The flotation plan was announced as the group disclosed that profit before tax increased sixfold to pounds 54.3m in the year to December on billings and revenues up 12.3 per cent at pounds 6bn and pounds 1.4bn respectively. Excluding currency fluctuations, revenue was 4 per cent higher. The rise in profits was partly caused by a fall in exceptional charges from pounds 28.9m to pounds 10.9m. At the operating level, profits advanced by a third to pounds 95m.
The group met its target of boosting operating margins by at least one percentage point a year with an increase from 5.6 to 6.7 per cent. But the public relations business, Hill & Knowlton, suffered a 5 per cent fall in revenue and remained in loss.
Mr Sorrell warned that despite improved confidence in the US and Europe, recovery was still 'unstable and uncertain'. The shares rose 2p to 125p.
View from City Road, page 28Reuse content