'LUV' in the Air for 'Less Worse' WPP

WPP has reported a like-for-like revenue decline of 8.7% for the third quarter - a smaller drop than was seen in the second quarter. Consumer insight revenues stayed depressed although margin was better. The firm also pointed to strong regional differences and predicted a 'LUV' shaped recession.

Today's update of selected financial information saw reported revenue up 16.7% year-on-year from £1.72bn to £2.01bn, but this arose from acquisitions, principally that of TNS. In constant currencies, revenue was up 6.7%, reflecting the weakness of the pound sterling against the US dollar and Euro. The like-for-like revenue fall of 8.7% was improved from the decline of 10.5% in the second quarter.

WPP said like-for-like operating margins fell 0.7 percentage points, much better than the -5.6% seen in Q2; and said second-half margins would be in line with last year. However the group was cautious going forward, the statement pointing to easier comparatives this quarter, and adding: 'This sequential quarterly improvement should continue into the fourth quarter of 2009 and into 2010, for the same reasons, although the real test may come when governments and independent central banks decide to reduce or withdraw fiscal and monetary support to avoid higher interest rates and inflation.'

Western Continental Europe continues to be WPP's worst affected region, followed by the US and UK; however, in the third quarter, the US showed 'a marked improvement' with revenues down 6.1%, the best quarterly performance so far this year. The UK by contrast saw 'a slight softening', with like-for-like revenue down 9.0%, compared with -8.2% in the second quarter.

All services sectors saw an improvement compared with the second quarter. The insight division enjoyed 'a marked improvement' in like-for-like growth with revenues down 10.0%, compared with -13.4% in the second quarter. Gross margin for the division was down 7.4% in the third quarter, another improvement on the second quarter (-11.1%).

As foreshadowed in comments made by Sorrell in the Spring, headcount has been reduced roughly in line with the fall in revenue, with the like-for-like number of people in the Group (excluding associates) at 30 September at 101,333, compared with 112,565 at 31 December 2008, a decrease of 10.0%.

The firm's statement also borrowed a new expression from Stella Dawson, Treasury Correspondent of Thomson Reuters, in predicting a 'LUV'-shaped world economic recovery: this suggests an L-shaped recovery (very slow) for Western Europe, a U-shaped one (a trough but then a respectable rise) for North America and a V-shape (an immediate bounce back) for the BRICs and Next 11 countries. The concept develops CEO Sir Martin Sorrell's earlier prediction of a 'bath-shaped' recession and - if one is not focused mostly on Europe - appears fractionally more optimistic.

Shares in WPP rose today on favourable comparisons with other ad / marketing services groups, whose third quarters have on the whole shown no better than their second.

In August, WPP reported net profit halved in the first six months of the year, and predicted a brighter performance for the rest of 2009: today's announcement does not contradict that, but much depends on the fourth quarter.

Web site: www.wppinvestor.com .

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

• TNS (USA)
• All news