WPP profits slump 47 per cent in 'surprise' revenue fall

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The Independent Online

WPP’s profits were hammered in the first half of the year as the recession continued to take its toll on the advertising market, with the group admitting its “surprise” at the extent of the fall in earnings.

WPP, which owns a network of media and advertising agencies around the world, yesterday posted a 47 per cent slump in pre-tax profits, down to £179m in the six months to the end of June from £338.5m in the first half of 2008.

The group, headed by Sir Martin Sorrell, said the impact of the recession on its profits had been “severe” adding: “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 – the group bought Taylor Nelson Sofres for £1bn last year – revenues fell 8.3 per cent.

“Like-for-like revenues were budgeted to fall by almost 4% in the first half of 2009 and fell, in fact, by over 8% with the deterioration against budget even greater in the second quarter, which was a surprise,” WPP said.

The shares were down 3.3 per cent at 502.5p at 1.30pm.

The group’s business in Western Continental Europe fared worst, with revenues retreating 10.5 per cent, followed by North America where they were down 10.1 per cent. The UK fell 5.3 per cent.

It said in the earnings statement this morning that 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.”

WPP’s statement added that only Latin America and Africa remained relatively unscathed. The group has especially focused on emerging markets and Asia, and said that as the recession abates the strategy to focus on new markets, new media and consumer insight “will become even more important”.

Tamsin Garrity, analyst at Oriel Securities said the results rebutted concerns around a potential rights issue, which had been rumoured earlier this year, adding “this should be the end of negative news flow”.

WPP predicts profits will be no better than “even Steven” next year, despite the positive impact of the Winter Olympics in Vancouver, the World Expo in Shanghai, the Asian Games and the World Cup in South Africa as well as 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,” WPP said.

Hamish Pringle, director general of the Institute of Practitioners in Advertising said: “WPP’s numbers are in line with those we’re 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 the worst is over and we would expect things to recover slightly through this year,” he added.