Sorrell under pressure as WPP readies first-half results
LONDON - Sir Martin Sorrell will be under pressure this week when WPP reports its first-half figures, as a string of acquisitions are hit by a weak UK market beset by a trading downturn and interest rate rises.
In June, WPP warned the UK was proving to be a tough market and that revenues were up just 3%. Figures on Friday will be hit by the weakened dollar, which is expected to pull revenue growth back further.
Analysts expect WPP to report pre-tax profits of £325m, up from £316m last time.
Shareholders will be looking at the value of recent acquisitions in light of a weakened UK market, under further scrutiny following the impact of the share slide in recent weeks, which followed fears that corporate lending was overheating.
WPP has spent heavily in the last year, snapping up a string of companies, many in the Far East. This strategy may be questioned if the price paid for acquisitions fails to justify the profits generated, leading to a write-down in goodwill value.
In recent months, WPP has bought: digital agency Refinery in the US; Star Echo in China; Interactive Television Private Limited in India; Blue Interactive in Singapore; and Lee & Jang, SRP Corporation and ComHaus in South Korea.
Bob Willott, editor of the Marketing Services Financial Intelligence report, said shareholders' funds at a number of companies would be hit if they had to write down the cost of acquisitions by a large amount because of under-performance, and if this resulted in an over-dependence on bank borrowing.
Willott said: "If companies continue to make healthy profits a certain amount of debt is not necessarily a bad thing. Difficulties only tend to arise if there is a convergence of seriously under-performing acquisitions, higher interest rates and a tightening of credit generally."
WPP has been on a digital shopping spree in 2007. In May, it paid $649m (£329m) cash for global digital agency 24/7 Real Media. In April, it acquired a stake in US-based firm VideoEgg, a video advertising network specialising in providing clients with advertising across more than 60 social networking sites, including Bebo and AOL. In January, WPP bought a 2.5% stake in mobile search company JumpTap.
WPP Group has bought its third agency in South Korea, the world's ninth-largest advertising market, with the acquisition of digital firm Lee & Jang.
The acquisition of Lee & Jang follows WPP's Wunderman network buying Seoul-based marketing services businesses SRP Corporation and ComHaus Korea in October.
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