Interpublic reports loss and plans further cost cutting

NEW YORK - Interpublic Group has seen profits plunge in the first quarter of 2003, leading to a net loss of $8.6m and plans to accelerate a programme of cost cutting, but chief executive David Bell warned that the turnaround of the troubled group would 'take time'.

The loss for the quarter to March 31 compares with a profit of $59.8m (£37.25m) last year and comes after an extraordinarily difficult year for the US advertising giant, which dumped its CEO John Dooner after an accounting scandal at McCann-Erickson WorldGroup and a collapse in the group's share price. Dooner was demoted in February to CEO of McCanns.

Interpublic said revenue at many of its operations continued to reflect weak demand for services, while costs have increased, which it said was in part due to higher severance expense and professional fees.

Bell, who replaced Dooner as chairman and CEO, said Interpublic has major work ahead of it and it "is, and will remain, a work in progress".

Part of that work was seen yesterday when the group strengthened its senior management with an outside presence with the appointment of top pharmaceutical executive Christopher Coughlin as chief operating officer. Coughlin joined from Pharmacia, which merged with Pfizer earlier this year, where he was chief financial officer.

The appointment, according to Bell, will be instrumental in turning Interpublic around and implementing the new cost cuts the group plans.

Interpublic has continued to reduce its headcount, but salaries and related expenses have continued to rise, jumping 4.5% to $908.2m. At the end of the quarter, worldwide headcount was down to 49,400 compared with 50,800 at year end and 53,000 in March 2002.

"[He] will be vital in driving financial accountability and reliability within operating units. He will be instrumental in planning and implementing a cost-savings acceleration programme that is required in order to restore competitive margin performance."

He added: "Turnarounds take time. I believe our company's operating results in the second half of 2003 and the first half of 2004 will finally provide us with a firm baseline for the future performance of the real Interpublic."

Revenues for the first quarter increased by almost 1% to $1.4bn and Interpublic said the benefit of higher foreign exchange rates masked the continuing softness in demand for advertising and marketing services in international markets.

On a constant currency basis, revenue fell 3.6% and organic revenue fell 5.4% in the period, as uncertainty about the war in Iraq and SARS caused many clients to defer spending and cancel activity, mostly it said in public relations and other project-orientated businesses.

New-business wins totalled $1.3bn, including new or additional assignments from AstraZeneca, AT&T, Bank of America, Brown Forman, Budget Rent-a-Car, Genentech, HP, Johnson & Johnson, L'Oreal, Merck, Nikon, Novartis, Pfizer and Siemens.

Significant wins already announced in the second quarter include Capital One, Macy's, L'Oreal (Plenitude), Novartis (Lotril) and AG Edwards.

US operations, which account for 57% of the company's portfolio, generated revenue of $815.8m, compared with $831.7m last time. International revenue increased 4.9% to $617.2m, as market weakness notably in the UK, Brazil, India and Italy was masked by stronger international currencies.

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