WPP warns advertising recovery is long way off as profits dip 17%

WPP cast further gloom over the advertising industry yesterday when it warned of a slower than hoped for recovery as the company reported that it had missed a key target on revenues and that profit margins had slipped.

The media group, which owns the J Walter Thompson and Ogilivy & Mather advertising agencies, said a meaningful recovery in its markets might not take place until 2004.

Sir Martin Sorrell, WPP's chief executive, said: "It has become apparent that any improvement could be delayed still further and that any improvements in comparative performance could be relatively mild."

He added: "It seems unlikely that that any significantly improved performance will occur in 2002 and that any recovery will have to wait until 2003, or, perhaps, even more likely 2004 when the US presidential elections and the Athens Olympics will begin to have a positive effect, at least on media markets."

Sir Martin, who has described the shape of the recovery in the advertising market variously as bath shaped and saucer shaped, added a new metaphor to his repertoire. "It is a corrugated bath and we are at the bottom of one of the dips," he said.

Shares in WPP dropped 6 per cent to 468p as the company reported a 17 per cent fall in pre-tax profits to £210m for the six months to June, if exceptional charges and goodwill amortisation are stripped out.

Revenues were down 8 per cent on the same period last year, on a like-for-like basis. This was worse than a budgeted fall of 5 per cent. However, there had been some improvements in July with like-for-like revenues down 4 per cent on the same month last year.

Operating margins were down to 13 per cent from 14.4 per cent. The company added that the outlook for margins was poor. "Given [the] conditions, even achieving last year's operating margins of 14 per cent in 2002 will be difficult," it said.

Sir Martin said corporate clients were behaving cautiously and showing an "unwillingness to commit". He added that "all the talk of double dips in the economy and the impact on consumer confidence doesn't help".

Lorna Tilbian at Numis Securities cut her full-year profits forecast from £500m to £450m, saying: "Big companies have been more inward looking, signing off their accounts and making sure everything is in order rather than launching big ad campaigns."

WPP won £1.2bn of net new billings in the half year. Contract wins included Reckitt Benckiser, Vodafone, Novartis and Domino's Pizza. Lost contracts included Deutsche Telekom, Hershey chocolate and Allied Domecq.

The United States was WPP's worst performing market, with revenues down 6.3 per cent. The UK was much better with revenues up by 3.9 per cent. Public relations was the worst performing sector, with revenues down 11 per cent. Information and consultancy was the most robust, up 6.8 per cent.

The company has been cutting jobs to match falling revenues, with a 9 per cent fall in staff numbers. It did not rule out further cuts if trading continues to be weak.

Sir Martin played down the possibility of further deals despite stock market falls. "Sellers have not adjusted their expectations of valuations and that needs to happen first," he said.

WPP's total revenues were down 2 per cent to £1.96bn in the half year. The interim dividend was raised 20 per cent to 1.73p per share. The company plans to continue its share buy-back programme with an aim to buy back £150m to £200m of shares each year.