WPP records 13.4% decline in net income in first half

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Even as it reported a mixed bag of second-quarter results, WPP Group management sounded its most optimistic note in two years.

The parent of Ogilvy & Mather Worldwide and J. Walter Thompson Worldwide posted net income of $157.1 million for the first half, down 13.4% from the same period last year. But in a conference call with analysts Aug. 22, management noted U.S. revenue continues to grow and some markets in Europe are showing signs of improvement in recent months.

"Do I feel happier than I did months ago? I'd say yes," said WPP Chief Executive Martin Sorrell. "I don't want to give the impression that this is a frenetic pace. It isn't. But it's certainly a pickup from where we were."

Mr. Sorrell-long considered the biggest bear in the business-noted encouraging revenue trends for the first half and July. U.S. revenue rose just over 1% on an organic basis-after factoring out currency and acquisitions-which was offset by a similar decline in international revenue. Those results match the reports by other major holding companies earlier this month, which also saw the U.S. market grow in the second quarter (AA, Aug. 18).

Like most holding companies, WPP's revenue trends were affected by the continued weakness of the dollar against the British pound, which cost WPP more than four percentage points in revenue growth for the first half. Reported revenue dropped 2.5% to $14.3 million, but rose 1.8% after factoring out the exchange rate.

Total revenue was flat for the first half on an organic basis, and rose 2% in July, said Paul Richardson, group finance director.

Mr. Sorrell-who has repeatedly referred to this downturn as a business-to-business recession-noted companies have begun to increase their capital expenditures. Merger and acquisition activity has also begun to perk up, another encouraging sign, he said.

"In some ways, we are seeing the beginning of a business-to-business recovery," Mr. Sorrell said.

`the top line'

Additionally, he noted clients have begun to focus on increasing sales, which bodes well for marketing spending. "Clients are starting to focus more on the top line," Mr. Sorrell said. "There are some signs of an increase in innovation and new-product activity."

Separately, Mr. Sorrell noted the integration of Cordiant Communications Group is "going pretty well," after closing the deal in early August. He noted WPP has already consolidated the European business of Bates Worldwide into WPP's Red Cell, and into J. Walter Thomson in the U.S. and London, while leaving Bates on its own in Asia. The Healthworld health-care unit and Fitch Worldwide design unit will be retained as separate brands, positioned along with WPP's existing units.

Fast Facts

WPP Group (WPPGY)

First Half 2003

Revenue: $14.3 billion, down 2.5%

Net income: $157.1 million, down 13.4%

Source: Company report.

Percentage change is vs. year-ago period.

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