WPP Group Sees Revenue Fall 3%, Eyes Tough 2003
Despite winning net new billings of more than $3.6 billion, profit before tax last year fell 50 percent to $308.8 million. The Sept. 11 aftereffects, stock market nerves about corporate ethics, poor consumer confidence and a possible double-dip recession were blamed for the performance.
"Worldwide economic conditions are likely to remain difficult in 2003, particularly given the uncertainty created by the prospect of a war in Iraq," an annual shareholder report signed off by WPP chairman Sir Martin Sorrell said.
"A bath-shaped or saucer-shaped recovery, where the upturn is gradual, still seems most likely, although the bath does seem to have deep corrugations," the report said. "The economy still seems to be paying the price for the overexpansion of the late nineties."
Despite cost-cutting measures like staff reductions, the London-based conglomerate saw a decline in each quarter of 2002. However, its U.S. businesses did register growth in the last quarter, the first such upswing in two years. But even those gains are threatened by a possible invasion of Iraq, increasing the levels of uncertainty, it said.
Last year was pockmarked by network television price inflation, declining audiences, fragmenting traditional media and the rapid growth of new technologies. In 1998, WPP's marketing services offerings accounted for 50 percent of revenue. These include direct and interactive marketing, branding, healthcare and consulting. They totaled 53 percent last year, slightly less than in 2001.
"In 2002, our narrowly defined Internet-related revenue was over $300 million, or over 2 percent of our worldwide reported revenue," the report stated. "This compares with approximately 5 percent for online media's share of total advertising spend in the United States and approximately 3 percent share worldwide. The new media continue to build their share of client spending."
Branding and identity, healthcare and specialist communications including direct and interactive marketing last year accounted for 26.8 percent of total group revenue and 24 percent of the operating profit. Their growth declined 0.2 percent in 2002 vs. 2001.
Top performers in this sector were DM agency Wunderman's offices in New York, Chicago and San Francisco. Internationally, offices in Canada, Britain, France, Germany, Italy, the Netherlands, Spain and Chile posted good results. Wunderman is part of Y&R Advertising and a sibling to ad agency Young & Rubicam.
OgilvyOne, yet another direct shop and part of O&M, cited offices across Belgium, France, Germany, Spain, India, Japan, Singapore, Thailand and Mexico for a good showing.
Though direct and other marketing services did well, the advertising and media investment management continued to lead the WPP portfolio. That sector accounted for 46.5 percent of total revenue and 57.4 percent of operating profit. Year-on-year growth was 2.5 percent.
Revenue from information and consultancy services rose 4 percent. That sector accounted for 15.3 percent of group revenue and 8.9 percent of operating profit.
Public relations and public affairs fared worst. That sector accounted for 11.4 percent of total revenue and 9.7 percent of operating profit. But growth was down 8 percent in 2002.
WPP expects growth in advertising and marketing services expenditure this year to remain flat or low. But its geographical and functional spread are expected to help the group weather the year.
Almost writing off 2003 as "another difficult year," WPP now pins its hopes on 2004. It is banking on the positive effects from quadrennial factors like higher rates for political ads for the U.S. presidential election, the Summer Olympic Games in Athens and the European football championships.
The company identified three strategic priorities to benefit from short- and long-term trends. In the short term, it seeks to weather the recession. Integrating the mergers of Y&R and the recently acquired Tempus media agency is a medium-term objective.
Finally, it will continue to focus on faster-growing markets like Asia-Pacific, Latin America, Central and Eastern Europe, Africa and the Middle East. More importantly, it will focus on functional areas of marketing services like direct, interactive and market research, the company said.
"2002 was a very difficult year," the report said. "2003 will also be difficult, but hopefully a little easier. Early indications are that worldwide advertising and marketing services expenditure will be up slightly. 2004 may well be better."