Sorrell seeks 1% pick-up for 2003 as WPP shares slide

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Joe Gill,

October 24, 2002

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Sorrell seeks 1% pick-up for 2003 as WPP shares slide

LONDON - Shares in WPP Group fell by more than 6% on news that third-quarter revenues were down 3% on the same period last year, as chief executive Sir Martin Sorrell said second-half operating profits would fall to below 13%.

Sir Martin predicted that next year's revenues would be flat or up 1%-2%, and repeated predictions that the advertising market as a whole would not recover until 2004. Analysts predicted WPP 2002 operating margins of around 12.5%.

"I would say our objective continues to be to improve operating margins by 1% per annum. We've failed to achieve margin targets for two years, so I'm a bit hesistant to forecast but that would be our objective. Before today's announcement, analysts were expecting between 12.5%-13% and I think they'll be around 12%-13% now," Sir Martin said.

Sir Martin showed no sign of changing his attitude towards recovery, which, he continued to say, will not kick fully in until 2004.

At midday, WPP shares were down 6.06%, or 28.2p, to 421.75p after opening down 4%.

This morning's results call into question Sir Martin'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.

WPP's 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 just under 50,000 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)."

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