WPP more optimistic, increases forecast

Advertising group WPP has announced its first quarter results and has increased the forecast for 2010 from flat to two percent growth. In an interview with CNBC said that this adjusted forecast may still be on the cautious side.

You can watch the interview with sir Martin Sorell on CNBC or read the details below.



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In the first quarter of 2010, reported revenues were £2.078 billion, down just under 2% from last year. Revenues in constant currency were up 0.5%, reflecting the strength of the pound sterling against the US dollar and Euro. On a like-for-like basis, excluding the impact of acquisitions and currency fluctuations, revenues were flat with last year. Revenues have stabilised following declines of 5.8% in the same quarter last year and 7.2% in the last quarter of last year and over 8% last year. The first quarter saw sequential improvements each month, with March up 1%, the first monthly revenue growth for 14 months since December 2008.

2010 has started in a very different way to how 2009 ended. Although the last quarter of 2009 was certainly “less-worse”, the start to 2010 seems to indicate a change in client attitudes. Calendar 2009 budgets, which are the vast majority, were prepared during or just following the Lehman crisis, staring into the abyss. Calendar 2010 budgets, on the other hand, were prepared having avoided the apocalypse or Armageddon and, perhaps, with more focus on how to achieve top-line growth, rather than on just cutting costs. The most marked change and turnaround in direction has, so far, been in the United States, where the monetary and fiscal stimulus seems to have had, perhaps not surprisingly, the most marked effect.

As shown in appendix 1, on a constant currency basis, the Group’s revenue grew by 0.5%, well ahead of budget. In 2009 the economic pressure was most acute in the United States, with the United Kingdom less affected than Western Continental Europe and Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe least affected. In the more stable environment of 2010 (so far), the United States has recovered first with constant currency growth of almost 4%, followed by the United Kingdom also positive. Western Continental Europe probably remains the most challenged region with revenues down over 1%. Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe was down over 1%, although in the case of Latin America and the Middle East this is partly the result of stronger comparatives in the first quarter of 2009, when revenues were growing strongly. In Asia Pacific, Japan and Australia and New Zealand are still the most affected with constant currency revenues down almost 7%, but South East Asia saw revenue growth of over 5%, with all the Group’s major markets showing positive growth. The Group’s two biggest markets in Asia, Mainland China and India showed combined growth of over 5%. Latin America was not as strong as last year because of tougher comparatives.

By communications services sector, branding and identity, healthcare and specialist communications (including direct, digital and interactive) have recovered more quickly with like-for-like revenue growth of almost 2% in the first quarter and over 2% in March. The Group’s direct and interactive networks of Wunderman, OgilvyOne and G2 all showed like-for-like growth, with the Group’s specialist digital companies including 24/7 Real Media, Schematic, Blue Group and Quasar showing like-for-like growth of over 9%. Public relations and public affairs have also recovered with like-for-like growth of 0.7% in the quarter and over 4% growth in March. Consumer insight revenues recovered strongly in sequential quarters and fell slightly by 0.4%, comparing quarters year to year, with the United Kingdom still pressured. Advertising and media investment management revenues were down 0.9% on a like-for-like basis. Within this sector, the Group’s media investment management businesses saw a return to growth in the first quarter.

As a number of our competitors report in US dollars, Appendix 2 shows revenue growth by geography and communications services sector in reportable US dollars, for the first quarter of 2010. US dollar reportable revenues were up 6.6% in the first quarter to $3.234 billion, primarily reflecting the strength of the Euro and Japanese yen against the US dollar.

Net new business billings for the first quarter were up strongly against last year, at £1.066 billion ($1.705 billion) and the Group continues to benefit from consolidation trends in the industry, winning many assignments from existing and new clients. The Group heads all analysts’ net new business win tables for the first quarter by a considerable margin, a performance which has continued in April. The general economic situation continues to encourage a significant number of account reviews, consolidations and new business opportunities, particularly in media investment management.

In the first quarter, revenues, profits and operating margins were well above budget and profits and operating margins were well ahead of last year, despite a similar level of severance in the first quarter of 2010 compared with the first quarter of 2009. As a result of increased profitability, incentive pools began to be refilled. Actual revenues were tracking 3% above budget for the first quarter. As highlighted before in previous announcements, the Group budgeted flat revenues overall for 2010.

We are in the process of reviewing our quarter one revised forecasts, but early indications are that the improvement in revenues, compared with budget, seen in the first quarter, will continue for the balance of year, with full year like-for-like revenue growth of around 2%. There is evidence of some pressure on salaries following the brutal 2009 and as our operating companies are more positive about 2010, we are beginning to see some hiring and investment, particularly in the faster growing markets.

Following the actions taken throughout 2009 to balance the fall in revenues with staff costs, the number of people in the Group, on a proforma basis excluding associates, was down 8.9% or 9,749 at 31 March 2010 to 100,001, as compared to 31 March 2009. That figure of 100,001 at 31 March 2010 compared to 99,062 at 1 January 2010, a rise of almost 1%, reflecting the withdrawal of the overall hiring freeze in our better performing companies, as revenues stabilised. On the same basis, in the first quarter of 2010, the number of people in the Group averaged 99,556, down 10.2% or 11,370 from the average for the same period last year.

Marco | Editor

Editor at large and founder of a bunch of stockphoto businesses