Sir Martin Sorrell, the chief executive of the advertising giant WPP, expressed his disappointment at the "severe" slump in its profits at yesterday as earnings also fell well short of expectations.
WPP, which owns a network of media and advertising agencies around the world, said its pre-tax profits had slumped by 47 per cent, from £339m in the first half of 2008 to £179m in the six months to the end of June. Sir Martin said: "The impact of the recession has been severe on profits and we were obviously disappointed by that."
In a statement, the company added: "Although action was taken to reduce staff and discretionary costs, such as travel, training and personal costs, as revenues came under pressure, this reduction was insufficient as revenues fell faster than budgeted." On a like-for-like basis, which excludes currency fluctuations and the impact of acquisitions, WPP's revenues fell 8.3 per cent. "Like-for-like revenues were budgeted to fall by almost 4 per cent in the first half of 2009 and fell, in fact, by over 8 per cent with the deterioration against budget even greater in the second quarter, which was a surprise," WPP said. Sir Martin put it rather more succintly, saying: "We just got our forecasts wrong."
The group's businesses in Western Continental Europe fared worst, with revenues retreating by 10.5 per cent, In North America, they fell by 10.1 per cent and in the UK by 5.3 per cent. WPP said: "The results continue to reflect the impact of the significant global economic contraction on most regions and service sectors. The impact continued to intensify in the second quarter though results for July did indicate a 'less-worse' picture."
Only WPP's Latin America and Africa operations were relatively unscathed. The group said that as the recession abated, its strategy if focusing on new markets, new media and consumer insight would "become even more important".
Tamsin Garrity, an analyst at Oriel Securities, said the results rebutted concerns about a potential rights issue, which were reported earlier this year. "This should be the end of negative news flow," she added.
WPP said its profits were unlikely to be better than "even" next year, despite the positive impact of the Winter Olympics in Vancouver, the World Expo in Shanghai, the Asian Games, the World Cup in South Africa and the mid-term Congressional elections in the US.
"Although there is little doubt that chief executive officers and chief marketing officers feel better about the general economic environment, armageddon or apocalypse now having been averted, there is little evidence of better heads and stouter hearts translating into stronger order books or investments – at least, yet," Sir Martin said.
Hamish Pringle, director-general of the Institute of Practitioners in Advertising, said: "WPP's numbers are in line with those we are seeing for the UK in general. There is a big pressure from client companies seeking to reduce the cost of sales. Our bellwether report suggests that the worst is over and we would expect things to recover slightly through this year."
WPP's share price closed down 7.5p at 512p last night.