Wednesday, British advertising group WPP Group Plc (WPPGY, WPP.L) reported a sharp fall in profit for the first six months of fiscal 2009, as higher operating costs nearly offset a double-digit growth in revenues. Revenue on a constant currency basis grew 8.6%, but dropped 8.3% on a like-for-like basis. Further, WPP declared a flat first interim ordinary dividend, and said that 2010 top line will probably be 'even Steven'.
Profit for the first-half fell 41.7% to GBP 138.3 million from prior year's GBP 237.3 million. Profit attributable to equity holders of the parent declined 47.9% to GBP 108.4 million from GBP 208.2 million a year ago. On a per share basis, the decline in earnings was 50.6% to 8.8 pence from 17.8 pence last year.
According to WPP, the impact of the recession on its profitability was severe in the first half, which also reflected further cost actions taken in the second quarter.
In US dollar terms, first-half profit plunged 53.7% to $217.0 million from prior year's $469.1 million, and profit attributable to equity holders of the parent fell 58.8% to $169.7 million from $411.7 million last year. Earnings per share declined 61% in the period to 13.7 US cents from 35.1 US cents a year earlier.
Excluding certain items, first-half headline earnings declined to GBP 159.8 million from GBP 255.2 million a year ago, and headline earnings per share dropped 40.8% to 12.9 pence from 21.8 pence in 2008. In dollar terms, headline earnings per share were down 54% to 19.8 US cents from last year's 43.0 US cents.
Profit before tax declined 47% in the six months to GBP 179.3 million from GBP 338.5 million in the prior year period, and headline profit before tax was down 35.2% to GBP 252.2 million from GBP 389.1 million last year.
Pre-tax profit, in dollar terms, fell 58.2% to $279.4 million from $669.1 million a year ago, while headline pre-tax profit dropped 49.8% to $386.2 million from prior year's $768.8 million.
In the first six months, the company's revenues, however, grew 28.4% to GBP 4.29 billion from GBP 3.34 billion in the year ago period. The company attributed the growth in revenues to the acquisition of market research firm Taylor Nelson Sofres plc, or TNS. The company added that the results continue to reflect the impact of the significant global economic contraction on most regions and service sectors.
Revenue on a constant currency basis, was up 8.6%, mainly reflecting the weakness of the pound sterling against the US dollar and Euro, while on a like-for-like, or LFL, basis, excluding the impact of acquisitions and currency, revenues dropped 8.3% in the first half.
Meanwhile, revenues in US dollar terms dropped 2.9% to $6.403 billion from $6.595 billion a year ago.
First-half billings rose 11.1% to GBP 18.74 billion from GBP 16.87 billion last year, while billings at constant currency dropped 5.6%. In dollar terms, billings dropped 16% to $27.99 billion from $33.32 billion a year ago.
On a segmental basis, revenues from Advertising, Media Investment Management rose 8.1% year-over-year to GBP 1.64 billion, while revenues dropped 7.5% at constant currency and 7.8% on LFL basis. In Consumer Insight segment, revenues for the period surged 131% to GBP 1.12 billion, mainly reflecting the acquisition of TNS in October 2008. At constant currency, the segmental revenue growth was 97.4%, but fell 10.33% on LFL basis.
Public Relations & Public Affairs revenues rose 13.3% to GBP 403.4 million on a reported basis, but declined 6.9% at constant currency and 8.2% on LFL basis. Branding & Identity, Healthcare and Specialist Communications revenues also grew 14.5% to GBP 1.12 billion, but revenues at constant currency fell 4.5% and LFL dropped 6.9%.
On a geographical basis, first-half revenues from North America climbed 29.6% year-over-year to GBP 1.54 billion, but dropped 1.2% in constant currency and 10.1% in LFL basis. In the United Kingdom, revenues grew 13.1% to GBP 509.3 million, but LFL revenue fell 5.3%. Revenues from Western Continental Europe climbed 35.9% to GBP 1.13 billion, and in constant currency grew 19.7%. But, LFL revenues fell 10.5% in the region. The company recorded revenues of GBP 1.11 billion from Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe region, which grew 27.6% on a reported basis, and 11.5% at constant currency, but declined 4.7% on LFL basis.
WPP said in a statement, "Geographically, the impact of the recession was most keenly felt in the United States and Western Continental Europe in the first six months, with the United Kingdom and Western Continental Europe more affected in the second quarter, along with other regions. Only Latin America and Africa remained relatively unscathed, the only region or continent showing like-for-like growth in the first-half."
In the first half of 2009, over 26% of the company's total revenues came from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, a similar percentage to last year.
In the first six months, gross profit climbed 25.2% to GBP 3.96 billion from GBP 3.16 billion a year ago. Meanwhile, operating profit plunged 47.4% to GBP 198.7 million from last year's GBP 377.8 million, mainly reflecting a 35.1% rise in operating costs to GBP 3.76 billion.
Headline operating profit declined 24.5% to GBP 342.2 million from GBP 453.4 million last year. Headline operating margins were down 5.6 margin points to 8.0% from 13.6% in the first half of last year. Headline earnings before interest, depreciation and amortization, or EBITDA, declined 14.3% to GBP 455.7 million.
Among peers, New York-based advertising and marketing services provider Interpublic Group of Companies Inc. (IPG) in late July reported first six-month net loss of $42.2 million, compared to net income of $34.9 million in the previous year. Net loss available to common stockholders was $53 million or $0.11 per share, in comparison with net income of $18.2 million or $0.04 per share in the preceding year. Total revenues for the period declined 15.7% to $2.8 billion from $3.32 billion in the same period last year, with an organic revenue decrease of 10.5%.
Further, WPP said its Board declared a flat first interim ordinary dividend of 5.19 pence per share. The record date for the first interim dividend is October 9, 2009, payable on November 9, 2009.
The company said its estimated net new business billings are GBP 1.208 billion or $1.872 billion.
Looking ahead, WPP said, "Although it is still very early to budget or forecast what may happen in 2010, top line revenues will probably be "even Steven", despite the positive impact of the Winter Olympics in Vancouver, the World Expo in Shanghai, the Asian Games in Guangzhou, the FIFA World Cup in South Africa and the mid-term Congressional elections in the United States."
The company also noted that despite the current environment, it continues to concentrate on its long-term targets and strategic objectives of improving operating profits by 10% to 15%, improving operating margins by half to one margin point per annum or more depending on revenue growth, and growing revenue faster than industry averages and encouraging co-operation among Group companies, among other things.
Meanwhile, media reported Wednesday that WPP Chief Executive Martin Sorrell said he doesn't think the company needs to raise new capital to shore up its balance sheet after taking on new debt to fund the GBP 1.1 billion acquisition of TNS. As per the report, the CEO is quite happy with the company's current financial structure and there are no immediate issues as there is no debt maturing until 2011 or 2012.
In a research note on Monday, August 24, Deutsche Bank upgraded its rating on WPP to 'buy' from 'hold'.
WPPGY closed Tuesday's regular trading session at $42.31, down $0.31 or 0.73%, on a volume of 105,838 shares.
On the London Stock Exchange, WPP.L is currently trading at 500.00 pence, down 20.00 pence or 3.85%, on a volume of 7 million shares.
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