Underlying Growth Slows At WPP

The broker points to a fall from 6% revenue growth in the first quarter, to ‘almost 4%’ for the first five months of this year. This indicates a growth rate of less than 1% in April and May, a worrying figure given that WPP’s Q2 comparables are not particularly tough.

As WPP itself admits, almost 4% growth is significantly less than the 15% of last year. The drop reflects the impact of the US business-to-business recession which started in the fourth quarter of 2000, initially affecting the technology, media and telecommunications sectors and then spreading into the ‘old’ economy, although more patchily, says the statement.

However, at the same time the company said that its merger with the Young & Rubicam network has helped to boost worldwide revenues by 62% at constant currencies. Revenues in North America were up over 62%. In Europe, the UK was up almost 35% and Continental Europe was up almost 89%. Asia Pacific, Latin America, Africa and the Middle East grew by over 63%.

By sector, advertising and media investment management was up over 59%; information and consultancy up 15%; public relations and public affairs up over 109% and branding and identity, healthcare and specialist communications up almost 85%.

All these figures are substantially boosted by the integration of Y&R into WPP’s business. However, the slowing rate of organic growth could indicate that this integration is not going as well as it might, particularly as WPP should be boosted by new business wins during 2000, according to ABN.

WPP must continue to win new business in what is, at present, a retracting marketplace. Whilst its 2001 targets are achievable with stringent cost-cutting, the 2002 targets are looking less and less likely.

French ad agency Publicis – part of WPP’s peer group – recently offered a cautious but optimistic outlook for the coming year (see Publicis Cautiously Optimistic For 2001)

By mid-afternoon today shares in WPP were up 19p at 674p following the trading statement. In recent weeks shares have tumbled following negative announcements by WPP’s peers, including Interpublic Group and True North.