WPP-Watchers Cautious; Brits Generally Optimistic

Analysts expect ad giant and Kantar owner WPP to cut its sales forecast again this week. However the firm's debt position and strategic focus are considered solid, while buoyant reports in the UK press suggest business confidence in general has turned the corner.

UK papers the Times and Telegraph (www.timesonline.co.uk and www.telegraph.co.uk ) anticipate WPP revenues of about £4.27bn and quote analysts as saying that WPP clients like Vodafone and Ford have spent less during May and June, driving half-year sales down c.7.9% versus H1 2008. This would mean missing even the revised target set by CEO Sir Martin Sorrell in April.

WPP's cost cutting measures include shedding close to 7,000 staff, with Sorrell suggesting that staff cuts should match the fall in revenues in percentage terms. Redundancy costs are expected to depress operating margins in the first half to less than 10% compared with expectations of 12.3% for the full year.

Ratings agencies Standard & Poor's and Moody's rate WPP very low, but questionably given that it is not heavily debt laden, and appears to have already raised the funds it needs to make interest payments next year: net debt to earnings is 2.3 times, well within the Group's covenant of 3.5 times.

The Group reports on Wednesday (26 August). Rivals Interpublic, Publicis Groupe and Omnicom have already reported for the period, with revenues in the three months to 30 June falling 14.5%, 9% (6.6%) and 11% respectively.

Shares in WPP have risen this morning in anticipation of upbeat views from Sorrell. They will not have been hurt by the general buoyancy of business in its British heartland, as cheerful London office workers return from an Ashes-winning weekend and the stock exchange climbs. Meanwhile a newly-released survey of professionals by the Institute of Chartered Accountants in England and Wales (ICAEW) shows optimism may already be rife: the confidence measure leapt from -28.2 in March to +4.8 at the end of June, the biggest improvement since the survey's inception in 2003. The ICAEW predicts 0.5% growth in the economy this quarter, breaking five quarters of falling output and suggesting, according to the body's CEO Michael Izza, that 'the UK recession is at an end'.

Group web site: www.wpp.com .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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