WPP says no end in sight to advertising boom

WPP, Britain's largest advertising group, admitted yesterday that its current growth rate was unsustainable but said there were no signs of the global advertising boom coming to an end.

WPP, Britain's largest advertising group, admitted yesterday that its current growth rate was unsustainable but said there were no signs of the global advertising boom coming to an end.

Reporting a 22 per cent increase in half-year profits to £138m, WPP's chief executive, Sir Martin Sorrell, said the group was trying to protect itself from an economic downturn by making staff costs more flexible and turning down work for unsuitable dot.com clients.

The advertising industry has been enjoying its most lucrative period since the 1980s thanks to a huge growth in e-commerce-related advertising by dot.coms and traditional business.

WPP, whose agencies include Ogilvy & Mather and J Walter Thompson, said revenue grew by almost 19 per cent to £1.2bn in the six months to 30 June ,with 15 per cent e-commerce related.

"We are in an unprecedented period of growth," Sir Martin said. "I can't remember a time when we had this kind of real growth. Obviously our real revenues can't continue growing at 15 per cent organically for ever. A sensible approach to costs will become increasingly important if and when economic activity stalls."

WPP, which is set to complete its $4.7bn takeover of the US agency Young & Rubicam next month, said the shape of the e-commerce advertising market was changing. More work iscoming from traditional companies which are promoting their "New Economy" enterprises. Business-to-business clients account for half WPP's work in the online sector. "Demand continues to exceed supply and we have been able to maintain or increase fee levels," Sir Martin said. He added that WPP has not been taking equity stakes in clients in lieu of fees.

He also refused to rule out further acquisitions, despite the scale of the Y&R deal, saying, "we will always look at other opportunities".

In the six months to June, WPP's operating margins rose by 0.7 percentage points with staff costs as a proportion of revenue falling. WPP saw strong growth in North America and continental Europe with the UK showing the weakest revenue growth of 10.8 per cent.

Revenue in the core advertising and media division grew by a steady 16 per cent. But the strongest performance came from public relations,which saw revenue growth of 45 per cent. Sir Martin admitted PR was "the froth on the cappuccino" of the communications boom. But he pointed out the PR divisions were increasingly moving into "higher value" specialist sectors such as telecommunications, finance and entertainment.

WPP shares ended the day down 1p at 907p.