WPP's non-advertising investments fail to pay off
LONDON - Shares in WPP Group dropped this morning after the group announced that third-quarter revenues were down by 3% to £928.5m, and that its strategy of investing in non-advertising related media had not made it recession-proof.
The results call into question group chief executive Sir Martin Sorrell's strategy of investing in non-advertising and media services during a recession.
Hardest hit have been WPP's public relations interests. These include Hill & Knowlton, Burson-Marsteller and Cohn & Wolfe, which combined saw revenues fall by 7.8%, compared with the same period last year, down to £107.9m. Shares in WPP fell by as much as 4% when markets opened. They had pulled back slightly by 8.40am, but were still trading down 2.58%, or 12p, to 438.75p.
The advertising and media operations, which include Mediaedge:CIA, J Walter Thompson and Ogilvy & Mather, saw revenues decline by 1.9% for the quarter to £419.1m. New-business wins for the quarter were as high as £700m, and included the £400m Gillette win by MindShare and the $40m (£19.2m) Novell win by JWT.
The good news for the UK marketing industry is that it proved to be more resilient, with revenues up by 0.7% for the quarter ending September 30 to £156.2m, compared with the US, which fell by 6.8% to £406.3m.
WPP said that it had cut as much as 4% of its staff on a global basis, bringing the headcount down to 49,957 on September 30. It also anticipates further layoffs, with a statement saying: "The group continues to focus on its key objectives of improving operating profits and margins, increasing cost flexibility (particularly in the areas of staff and property costs)."
In August, WPP reported pre-tax profits down by 17% over the first half of the year to £210.4m, and the group does not expect any significant improvement for the rest of the year.
Sir Martin has consistently said he sees little likelihood of significant improvement to its performance in 2002 and that any recovery will have to wait until 2003 or, more likely, 2004, which will coincide with the US presidential elections and the Olympics.
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