WPP profits up a third following surprise ad market recovery

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Luvv was in the air at WPP, the world's largest advertising agency, as it reported a 36 per cent bump in profits following a sharper-than-expected recovery in the ad market.

Profits before tax rose 36 per cent to £244m in the first half of 2010, which the company dubbed a "significant recovery" following a particularly strong performance in the US and traditional media.

This "surprise on the upside" prompted WPP's founder, Sir Martin Sorrell, to change his forecast recovery from what he dubbed "LUV" to "LuVVy shaped". He predicted an L-shape in Western Europe, a region that "remains difficult", but a V-shaped recovery in both the emerging markets and now the US.

"In our 25 years of existence, we cannot remember a more speedy recovery or turnaround of a region," WPP said yesterday. Sir Martin added: "That amount of stimulus in the US was always going to have an impact."

Elsewhere, the UK saw a "significant" improvement, while the summer's football World Cup helped to drive up WPP's African business, where revenues rose 6 per cent.

The results were bolstered by a sharp recovery in traditional advertising as companies took advantage of a historic low in prices. "Mild expansion has replaced fear and stabilisation," WPP's statement said. It added that, as predicted, growth returned in the second quarter and revenues were consistently running above budget in the first half.

Revenue at the group rose 3.5 per cent at £4.4bn as client spending returned. Sir Martin said that the financial comparisons were also easier, but that would change in the second half. WPP also boosted profits by slashing costs – this included reducing head count by almost 9 per cent to 100,008.

However, WPP warned: "Whilst the underlying current environment is better than anticipated, clients are unanimously uncertain about future profits." The group was also cautious because of ongoing fears of eurozone fiscal contagion from Greece, Portugal, Spain and Ireland to other parts of Europe, as well as the UK Government's austerity programme.

It believes there will be a "slow-growth slog" potentially with inflation and higher interest rates in the long term, although Sir Martin believes the global economy will "probably avoid a double-dip recession".