WPP trims full-year revenue forecast

Global advertising conglomerate WPP saw like-for-like (LFL) revenue growth slow in July and is set to achieve a full-year LFL increase some way short of the figure for which it had budgeted.

The group is forecasting LFL revenue growth for 2012 of 3.5%, versus a budgeted improvement of 4.0%.

In the first half of the year the grew saw LFL revenue growth of 3.6% year-on-year, but this rate slowed to "over 3.0%" in July, bringing the cumulative seven-month growth in LFL revenues down to 3.5%.

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Revenue in the first half of the year rose 5.5%, or 6.8% on a constant exchange rate (CER) basis, to £4,972m from £4,713m the year before.

Revenue growth was "slightly softer" in the second quarter than the first, the group revealed; first quarter LFL revenue growth was 4.0% while the second quarter saw this growth rate slow to 3.2%.

Billings rose 1.2%, or 2.8% on a CER basis, to £21,651m from £21,392m in the first half of 2011.

Headline earnings before interest, tax, depreciation and amortisation rose by a tenth, or 13.0% on a CER basis, to £682m from £620m in the corresponding period of 2011, and represented 13.7% of revenues, up from 13.2% the year before.

Headline profit before interest and tax climbed 10.1% (CER: +13.5%) to £570m from £518m in the first half of 2011. Headline profit before tax was up 11.9% to £467m from £417m a year earlier, or up 17.1% in constant currencies.

Reported profit before tax rose by 7.0% to £358m from £334m the year before. In constant currencies, reported profit before tax for the first half of 2012 rose by 13.4%.

Diluted headline earnings per share rose by 13.2% to 25.8p from 22.8p in the first half of 2011. In constant currencies, earnings per share on the same basis rose by 18.6%. Diluted reported earnings per share were up 19.3% to 21.6p and up 26.1% in constant currencies.

The group has previously announced that it will be paying a greater proportion of post-tax earnings out as dividends, lifting the ratio from around one-third to two-fifths; despite this, the interim dividend, although increased by 18% from last year to 8.8p, is still only 34% of earnings per share, but the group noted that its final dividend is typically higher than the interim dividend, so presumably the final payment for the year will see the group hit its target of a full-year payment that is 40% of earnings.

WPP, a global giant of the advertising industry, is often seen as a reliable harbinger of economic conditions to come and so the nudging down of full-year revenue growth forecasts will be of concern, although it is worth noting that WPP raised its full-year growth forecasts as recently as April.

"Quarter two saw a continuation of the strength of advertising spending in fast moving consumer goods, especially. Nonetheless, clients understandably continue to demand increased effectiveness and efficiency, i.e. better value for money," the group's statement said.

"Although corporate balance sheets are much stronger than pre-Lehman and confidence is higher as a result, the Eurozone, Middle East, China hard or soft landing and US deficit uncertainties demand caution. The $2trn net cash lying virtually idle in those balance sheets, seems destined to remain so," WPP suggested.

WPP warned that 2013 is set to be even more challenging than 2012 without big events like the Olympics and international football championships to generate advertising demand.

The group confirmed that, subject to shareholder approval, it intends to change its tax domicile back to the UK, having legged it off to Dublin in 2008 in protest at the UK's tax treatment of overseas profits earned by multi-national companies.

On the subject of overseas earnings, WPP said its wholly-owned Ogilvy & Mather subsidiary will form a joint venture with A&B Expedio, a marketing company based in the Philippines with expertise in events management. The joint venture company, to be called OgilvyAction, will operate in the Philippines and will be based in Metro Manila.

JH