Advertising group WPP said today that its profits plummeted 47% in the first half of 2009, with revenues falling and margins declining across the board – and chief exec Sir Martin Sorrell sees no sign of things improving massively any time soon. Both the results and the outlook were worse than the City was expecting, which isn’t just bad news for the advertising industry - WPP is seen as a good bellwether for the economy as a whole, because it operates across so many different industries and territories, so dismal figures like these don’t bode well for any of us…
Although WPP’s overall revenues were up 28% (thanks to acquisitions and exchange rates), sales were down 8% on a like-for-like basis – twice as much as even WPP itself was expecting. All of its divisions suffered, although the worst affected was the consumer insight division that now houses its most-recent buy, market research firm Taylor Nelson Sofres. At the same time, its profit margin slipped from nearly 14% to a relatively measly 8% - again, lower than analysts expected. This was despite WPP’s efforts to strip out costs: it got rid of nearly 6% of its staff during the period (that's over 6,500 people). Sorrell reckons he can't remember a worse period, which is saying something.
WPP did suggest that things had improved slightly since the end of the period, with July likely to show a ‘less-worse’ picture (go easy on the optimism there). And it does think profits will be higher in the second half – if only because it won’t have the same redundancy costs. But generally speaking, Sorrell is still feeling pretty gloomy about the next 18 months, suggesting that revenues would be ‘even-steven’ in 2010 despite sporting events like the football World Cup (which are normally heaven-sent opportunities to flog advertising). Although CEOs are feeling a bit more positive, Sorrell said, ‘there is little evidence of better heads and stouter hearts translating into stronger order-books or investments – at least, yet’. And that's really the proof of the pudding. He told the Times that the recovery will be an 'italicised L shape' at best (i.e. less pronounced than a v- or w-shaped recovery, we assume - although your guess is as good as ours).
So pretty disappointing all round, particularly for those investors who’d been hoping that WPP would add to some of the recent ‘green shoots’ talk (hence why it was the biggest faller on the FTSE 100 first thing this morning). But we can’t help feeling this injection of realism is a welcome one – this industry is always vulnerable to a downturn in the cycle, which is why revenues are down across the board (with the notable exception of Tim Bell’s Chime Communications, which reported record profits yesterday). Sorrell’s cost-cutting measures should leave WPP well-placed for the recovery, but today’s numbers were a reminder that this is still a long way off yet...
In today's bulletin:
WPP adds to gloom as profits halve
Fiat may buy Vauxhall - as Toyota scales back
Editor's blog: Watch out for Nimbys on high-speed track
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Coffee eases strain as recession lengthens daily grind