WPP profits hit £235m as recovery takes hold

By Ian Darby, campaignlive.co.uk, Friday, 27 August 2004 12:00AM

WPP has issued a healthy set of interim results, with revenue for the first six months of the year rising 6 per cent to £2.03 billion.

Its profits increased 16 per cent to £234.7 million on the back of strong revenue growth in the majority of markets. Turnover was up 6 per cent to £9.16 billion.

However, WPP raised concerns over continued growth in 2005 because of potential difficulties in the US economy after the presidential election and increasing consumer debt.

The latest figures coincided with increased speculation that WPP is to table a bid for Grey Global. Reports suggest it is set to raise £500 million from a rights issue to fund this. Sir Martin Sorrell, WPP's group chief executive, confirmed last week WPP is conducting due diligence on Grey.

WPP said revenues at its advertising and media networks, which include Ogilvy & Mather, J. Walter Thompson, Y&R Advertising, MindShare and Mediaedge:cia, grew by 15 per cent compared with the same period in 2003. Its revenues were also helped by an improvement in fortunes for its public relations and healthcare businesses.

Revenues grew by 11.2 per cent in North America, 12 per cent in the UK, 8.5 per cent in continental Europe and 28.9 per cent across Asia-Pacific, Latin America and the Middle East and Africa.

WPP expects levels of activity to match those seen during the dotcom boom in 2000. In a statement, it announced: "Our revenue forecasts for the year continue to be in excess of budget and there are significant new-business opportunities at both network and parent company levels."

Lorna Tilbian, an analyst at Numis Securities, said: "WPP's progress confirms our view that the marketing services industry is just over a year in to a cyclical recovery, which, according to experience from past advertising cycles, should last six to eight years."

The target for the group is to reach an operating margin of 20 per cent.

It expects to reach 13.8 per cent this year and 14.5 per cent in 2005.

Doubts have been raised over the wisdom of WPP purchasing Grey because of the single-digit operating margin at Grey.

However, Tilbian said: "We believe there is no structural reason why Grey's single-digit operating margin cannot approach the mid-double-digit levels achieved by WPP."

WPP's share price closed down 1.3p to 488p following WPP's caution on its 2005 forecast. By Wednesday, the shares stood at 490p.

This article was first published on campaignlive.co.uk

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