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paidContent - Earnings: WPP Revenue Slides But Digital Target On Track

This story was written by Patrick Smith.

In the first half of 2009, advertising group WPP made one quarter of its revenue from its digital activities, showing that advertisers are investing in new online ways to track, measure and expose their brands in the recession. In an unaudited interim report covering the six months to June 30, the London-listed company says it made $1.7 billion (1.03 billion), while 61 percent of revenues came from outside traditional “advertising and media investment management” compared to 55 percent in H108—meaning the company is on course to making two thirds of its revenue from new business models.

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Revenue slump: The company’s strategy might be going in the right direction but thanks to the recession, it’s numbers aren’t. The company made revenue of 4.28 billion in H108—at constant currencies that’s 8.6 percent more than in H109 but without the impact of acquisitions (it bought TNS last year), on a like-for-like basis revenue was down 8.3 percent. This is worse than the company expected, or hoped for: CEO Sir Martin Sorrell predicted a two percent revenue drop for the whole of 2009 and that was revised down to four percent drop for H109—in reality the drop is twice as bad. Pre-tax profits were 35.2 percent lower at 252.2 million—a 45.1 percent drop at constant currencies.

Outlook: Some qualified optimism from WPP: “There is little doubt that CEOs and CMOs feel better about the general economic environment (but) Armageddon or Apocalypse now having been averted, there is little evidence of better heads and stouter hearts translating into stronger order-books or investments at least, yet.” And WPP’s costs will become tighter still: travel, training and personal costs have been shaved but “this was insufficient as revenues fell faster than budgeted” and the fall in Q209 surprised executives. Some of the benefits from those staff cuts will come in H209 so WPP expects a “marked improvement in profitability” for the rest of the year.

Staff shrinkage: WPP had an average of 108,000 staff in the half, compared to 112,000 in the same period last year, a 2.8 percent decline. The plan is to shave more than 7,000 jobs from the roster this year.

Faith in BRIC: The emerging BRIC nations contributed 26.1 percent of revenues in the quarter and a 11.5 percent constant currency revenue growth; only Latin America and Africa showed a like-for-like revenue growth in the first half, compared with 10.1 percent decline for North American and a 5.3 percent drop for the UK. Taken collectively however, even the BRIC nations suffered a 4.7 percent H1 drop, so the recession is being felt there too if not as strongly.

Debt concerns: After buying TNS and taking on some of its debt, at June 30 WPP’s debt stood at 3.44billion. a rise of 1.59 billion on last year at 2009 foreign exchange rates.


By Patrick Smith
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