WPP Profit Dropped 47% in Second Quarter

More Than Half of Company's Revenue Came From Nontraditional Advertising

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NEW YORK (AdAge.com) -- Using words such as "severe" and "surprise" to describe the recession's impact on its business, WPP, the world's largest advertising conglomerate, said today that its profit was down 47% for the second quarter. And WPP Chief Executive Martin Sorrell said it will be a while before marketing executives begin to spend and take chances the way they did just a few years back.

Mr. Sorrell said going forward WPP would be focused on three key areas: 'the faster-growing markets,' the 'Next 11' emerging economies in Asian and Africa, and marketing services.
Mr. Sorrell said going forward WPP would be focused on three key areas: 'the faster-growing markets,' the 'Next 11' emerging economies in Asian and Africa, and marketing services. Credit: Tom Stockill
"Given the fact that we stared into the abyss six or nine months ago, people are going to take a long time to go back to where they were," Mr. Sorrell said. "It's going to be a long time before this generation of managers, who were managing businesses that are faced with the extinction of credit lines, severe sales compression and inventory being eradicated, begin to take risks. They won't until they are 100% sure things are on the uptrend."

While WPP's earnings are by far the strongest example of how serious a toll the recession and marketer cutbacks have exacted from the ad industry, its earnings report also highlights another trend -- the shift away from traditional advertising. More than 61% of the holding company's revenue came from nontraditional services such as direct, digital, PR and research.

WPP -- whose agencies include creative shops Y&R, Ogilvy & Mather and JWT; media-agency giant Mindshare; direct shop Wunderman; and PR agency Burson-Marsteller -- reported a profit of $290 million for the second quarter, a sharp drop from $548 million in the same period a year ago. Revenue was down 8.3%, more than doubling the 4% drop the group was anticipating.

In the past year, the group reduced overall staff by 5.8% (6,525 people), but it said employee and discretionary cuts weren't enough to offset the recession's impact. "Although action was taken to reduce staff and discretionary costs -- such as travel, training and personal costs -- as revenues came under pressure, this reduction was insufficient as revenues fell faster than budgeted," WPP said in a statement.

The group's advertising and media-investment-management services sector saw revenue drop 7.8%; PR and public affairs slid 8.2%; and branding and identity, health-care and specialist communications, which include direct, internet and interactive, fell 6.9%. But WPP's consumer-insights division, which now houses TNS, took the biggest hit, with a 10.3% drop in revenue. The company also noted that direct and digital activities now account for roughly one quarter of its total revenues.

Western Europe hit hardest
Regionally, North America's revenue growth was down 10.1%. The area hit hardest was Western Continental Europe, which was down 10.5%. The U.K. (down 5.3%), Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe (down 4.7%) saw declines at about half that rate.

On the conference call this morning, Mr. Sorrell said that while it was too early to predict a bounce back for the industry, going forward WPP would be focused on three key areas: "the faster-growing markets" such as the Brazil, Russia, India and China group (BRIC); the "Next 11," emerging economies in Asian and Africa that Mr. Sorrell expects to eventually represent a third of its business; and marketing services, including new media and quantitative disciplines such as digital, interactive, internet and consumer insight. The group is projecting that top-line revenue in 2010 will "probably" be flat, despite some major events that would normally provide a jump in ad spending, such as the Winter Olympics in Vancouver, the FIFA World Cup in South Africa and midterm congressional elections in the U.S.

Some of WPP's biggest wins in 2009 include the $225 million Activision Blizzard media account by Mediaedge:cia, the $200 million worldwide Microsoft direct account by Wunderman and the $160 million NFL creative account by Grey. Major losses include the $420 million global Bristol-Myers Squibb media accountby Mindshare, the $260 million global Nokia account by MediaCom and the $250 million Wrigley media account by Mindshare.

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