Bob Willott on the bottom line

BOB WILLOTT

Profits and margins at WPP Group actually fell last year despite achieving a 20% growth in revenues - by far the best growth rate achieved among the five global "majors" as predicted currency movements made a sizeable contribution (see WPP could benefit from currency windfall).  Even after excluding the benefits of favourable currency movements, WPP showed the biggest revenue growth.

Apart from margin erosion, the main causes of WPP's profit setback were higher finance costs and higher taxation.  Group post-tax profit fell very slightly to £513.9 million from £515.1 million reported in 2007, but after deducting the proportion of profit attributable to minority shareholders, the profit available to WPP's own shareholders fell by nearly 6% to £439.1 million from £465.9 million in 2007.

Operating profit margins before amortisation and asset impairment charges fell from 14.7% to 14.2%.  After such charges, the margin dropped from 13% to 11.7%.  Contributing to the decline was a £30.5 million write-down in the value of minority shareholdings in certain US and European businesses.

WPP's results include the impact of the acquisition of Taylor Nelson Sofres two months before the year end.  As a result net debt rose to £3 billion at 31 December 2008 from £1.3 billion at 31 December 2007.  Shareholders funds at 31 December 2008 were £6 billion.  The group continues to rely on creditors to fund a small part of its working capital.

WPP expects revenues to fall slightly in 2009 and to rely increasingly on regions offering above-average growth prospects. Nevertheless, with WPP enjoying a full year's contribution from Taylor Nelson next year, Omnicom will have to work hard to retain its place as the world's biggest marketing services group.

© Fintellect Ltd