Earnings: WPP Predicts Two Percent Drop In 2009 Revenue; 2008 Profits, Revenue Up

imageLast year was good, this year will be far worse and next year we might start to see some recovery in advertising spend and the economy. That’s a quick summary of WWP CEO Sir Martin Sorrell’s view of the tumultuous media landscape, which he gave after his company announced improved revenue and profits for 2008. Speaking after the release of the company’s preliminary 2008 results, he told Radio 4: “2009 is going to be a very difficult year, particularly in the first half and probably getting towards recovery in the second half.”

The company, which bought research firm TNS in October, had previously predicted flat year-on-year revenue growth for 2009 but is now forecasting a two percent drop.

Digital growth: WPP continues to grow its proportion of revenues from new media: online and mobile advertising, in the shape of display and video ads, now accounts for almost a quarter of group revenues. The company says “new technologies and new media have, once again, demonstrated the power of editorial publicity through…MySpace, YouTube, Facebook, Flickr and Wikipedia”, but admits there are still “difficulties and risks of making money on social networking sites through advertising.” More after the jump…

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Outlook: So WPP now expects a two percent revenue fall in in 2009 on a like-for-like basis and its GroupM ad agency forecasts that global ad spend will deteriorate by four percent, compared to two percent growth in 2008. Any success this year will be relative — if H209 looks good, it’s only because H208 was so bad. the first two months of 2009 have shown relatively strong like-for-like revenue growth.

2008 earnings: In the company’s preliminary full-year results released today, revenue was up 21 percent year on year to a healthy £7.5 billion, but that’s only a nine percent rise in constant currency terms and a 2.7 percent lift on a like-for-like basis. The company’s bookings rose 16.6 percent over the year to £36.9 billion. Pre-tax profits rose 3.8 percent to £747 million, EBITDA was up 20 percent to £1.29 billion and the a second interim dividend was 12.6 percent higher than last year’s at 10.28 pence per share. Sir Martin will be pleased with all of that, but he might be a little frustrated WPP couldn’t raise its operating margin from 15 percent to its 2008 target of 15.3 percent.

2008 in review: Last year was a game of two halves for WPP: organic revenue grew four percent in H108– compared to five percent in 2007 — but slowed to one percent growth in H208 as the banking system collapsed and US sub-prime mortgage crisis gathered pace. The company enjoyed some revenue stimulus from the Olympics, (a “Beijing bounce”) the US Presidential Election the UEFA Champions League football tournament — but despite all of that global ad expenditure only rose between two and three percent year on year.

Emerging markets up, Western markets down: Like its advertising rival Publicis, WPP sees the future in emerging economies: Asia Pacific, Latin America and EMEA remained growth areas in 2008 and the next 11 biggest growth areas were countries like Bangladesh, Egypt and Mexico. These markets accounted for 27 percent of overall revenues. Less hopeful is the outlook for Central Europe, “softer”; Russia, which is “under extreme pressure” due to oil prices and the weak Ruble though WPP expects it to recover quickly; the US, Western Europe remain “relatively weaker” with the recession biting hardest there and in Southern Europe.

Staff cuts: It’s a major part of WPP’s strategy to keep staff costs down and it estimates that half its 6.6 percent variable staffing costs can be halved in a recession — so in other words it plans to cut the overall salary budget by two to three percent, meaning there will be some cuts among its 112,000 staff. Asked about job cuts on Radio 4, Sorrell said: “We will see how it plays out in the year. The objective will be to match headcount with revenues”.

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