Bob Willott on the bottom line

BOB WILLOTT

As we predicted in March (see Revenue up 20% but profit down at WPP), WPP has overtaken Omnicom as the biggest marketing services group in the world.  But at the same time the group has warned of lower margins in 2009 as revenues fall below budget.

Boosted by the acquisition of Taylor Nelson Sofres, WPP's revenues in the first quarter of 2009 were $3,035 million - well ahead of Omnicom's $2,747 million. But on a like-for-like basis revenues actually fell by 5.8% and the outlook is even more gloomy: "Given the first quarter overall performance and the preliminary quarter one forecast for the year, it will be difficult to maintain operating margins at the level achieved in 2008", the company said.  "The short term focus will continue to be on balancing the likely fall in revenues against staff costs and headcount."

WPP has regularly fallen short of achieving its targeted profit margins and the acquisition of the research business of Taylor Nelson, where margins were normally lower, will not help.  However, the group's future performance is likely to be hit not only by lower profit margins and declining revenues but also by extra financing costs.  The group is carrying well over £1 billion of extra debt following the Taylor Nelson purchase and this will add a considerable amount to its interest burden despite the currently lower interest rates.

Publicis Groupe is the only other major global business to report any growth in revenues in the first quarter of 2009 (see chart). Its 1.3% rise was very modest and was helped by a substantially bigger contribution from its digital activities. These provided over 20% of revenues in the first quarter of 2009 compared with 17.6% in the corresponding quarter of 2008.

Another of the global players - The Interpublic Group of Companies - announced an 11% downturn in revenues in the first quarter. The drop was less substantial than experienced by Omnicom, but enough to push up its post-tax loss to $73.9 million from $69.7 million in the same quarter last year. Interpublic's operating margin remained very low at 6.2% compared with an industry benchmark of 15% and a lowly 3.9% for the corresponding quarter last year.

© Fintellect Ltd