WPP has announced 4% like-for-like revenue growth despite the tough market.
There is considerable relief that WPP is not doing as badly as some of its rivals. While the 4% revenue growth for the first five months of 2001 is well below the 7% growth estimated for this period, it is still a positive sign.
Last month, Cordiant Communications, one of the world’s largest advertising groups, announced job cuts and a profit warning as it was hit by the impact of the US economic downturn. WPP’s results further underline the current difficulties in the advertising market but also demonstrate the company’s resilience in certain sectors.
Sir Martin Sorrell, chairman of WPP, announced in a statement to the AGM that information and consultancy have been performing relatively well, while advertising and media also showed some resistance to current trends. However, not all units are inspiring confidence right now. Worst hit was public relations, while branding and identity, healthcare and specialist communications also proved their vulnerability.
Overall, headline revenues increased by 69% over the period, largely attributable to the newly integrated Young & Rubicam along with other, smaller acquisitions. WPP commented that prudent cost management and flexible variable costs would allow it to remain on target to raise operating margins to 15% this year, up 1 percentage point from 2000. It believes it will be able to continue this increase up to 15.5% in 2002 and eventually reach 20%.
However, the downward movement in the industry looks likely to make things harder in the coming months. WPP’s revenues grew 15% for calendar 2000, helped by the last burst of dotcom advertising and a widespread belief that the economic downturn would be limited. But US businesses started to cut back spending towards Q4 2000, immediately affecting marketing services companies. Drastic cost-cutting in the technology, telecoms and auto sectors in particular has made things harder.
Still, despite its altered outlook, the fact that WPP is still able to produce real revenue growth and improve margins is a positive sign in a difficult industry.
