Advertising giant WPP raises fears of double-dip

Sir Martin Sorrell yesterday suggested his characterisation of the economic downturn as "saucer shaped" may have to be revised to a "double dip" recession as his WPP Group issued another profits warning.

The chief executive of the world's biggest advertising group also said that most of WPP's clients opposed the proposed merger of Carlton and Granada, which was announced earlier this month.

WPP said the second half of the year was turning out to be even worse than anticipated and margins for the period would be down on the first half.

Sir Martin said: "The concern is over a two-paced economy.... How long can the consumer continue to spend? There are now more uncertainties out there that are leading to postponements in spending decisions [on advertising]."

Analysts had previously predicted flat to slightly better margins for the second half of the year and yesterday's third-quarter trading update saw City profit forecasts cut by up to 10 per cent for this year and 2003. Expectations had already been severely dampened after other profits warnings from WPP as recently as June and August.

Frederik Kooij, an analyst at JP Morgan, said: "They key message is that, when revenues are below expectations, it is hard to cut costs fast enough to keep pace."

WPP reduced staff by some 5,000 in the first nine months of the year. The company said the year to 30 September saw underling revenues down 9 per cent, though in the past three months of that period, the sale decline narrowed to 3 per cent.

Sir Martin said: "Although the rate of decline in like-for-like revenues in the third quarter was lower than that seen in the first half of the year, the recovery was less than that anticipated a few months earlier.

"Falling share prices in the summer on both sides of the Atlantic and increasing unemployment has had an impact on consumer confidence suggesting a potential 'double-dip' recession."

The downturn had in the past been famously characterised by Sir Martin as "bath or saucer" shaped, suggesting a prolonged period of "bumping along the bottom" of the economic trough. However, Sir Martin yesterday stuck to his theory that there will be an advertising recovery in 2004.

Sir Martin was also dismissive of recent suggestions from other media figures, notably Rupert Murdoch and Viacom's Mel Karmazin, that US television advertising was seeing a strong bounce-back. He said this was an "enigma" buoyed by seasonal political advertising and possibly unsustainable promotions from the car industry, which is marketing special deals.

On ITV, Sir Martin said that most of his clients were "worried" about the planned Carlton-Granada merger, even if one of the companies' advertising sales houses was spun off.

"The majority are concerned that prices [for ITV slots] will go up, without any improvement in quality [of programmes]. A minority think it is better to have one stronger company, rather than two weaker ones. A very small minority feel the merger would save them from a foreign bid," Sir Martin said.