WPP beats forecasts but remains cautious: 50% rise in half-year profits underlines reviving fortunes of advertising sector

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THE REVIVING fortunes of the advertising industry were confirmed by WPP Group yesterday with a better-than-expected 50 per cent rise in pre-tax profits to pounds 36.2m for the six months to 30 June and a 10 per cent rise in the interim dividend to 0.385p.

Despite the improved profit the group is cautious about prospects. It said business activity in the first half of 1994 had been 'patchy and inconsistent'. Its shares closed 3.5p down at 119.5p.

The first two months of the year were ahead of the previous period while March and April were weaker, but May and June proved the best consecutive months WPP has seen for two and a half years.

'In these circumstances plans, budgets and forecasts of revenues are being made on a conservative basis and considerable attention is being focused on achieving margin and staff cost to revenue targets,' it said.

The group said that the improved profitability and cash flow seen in the first half had lessened the need to examine new forms of financing and ways of strengthening its capital structure.

Net debt had fallen to an average pounds 280m compared with pounds 327m, adjusting for the pounds 85m March 1993 rights issue. Net interest charges fell from pounds 15.6m to pounds 14m.

Operating margins in the half- year rose from 6.1 to 7.3 per cent. This keeps WPP ahead of schedule on its 1992 restructuring, which projected a 1 per cent improvement in each of three years.

'Given a stable or improving operating climate the group should be able to make further progress as operating margins remain below the achievement of the best-performing competition and its own historical performance,' it said.

Revenues fell by 1.3 per cent to pounds 690.5m from pounds 699.7m but, adjusting for business disposals and exchange rate changes, there was an underlying rise of 4 per cent, similar to that reported by Saatchi & Saatchi on Monday.

With the main North American market in retreat and sluggish growth in Continental Europe, the rise in revenues was led by Britain and the rest of the world. By sector, market research was the strongest performer and public relations the weakest. Net new business increased to pounds 700m compared with pounds 625m a year earlier.