WPP sees profit rise, but faces mixed outlook

30 Aug 2012 | News - Comment now

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WPP sees profit rise, but faces mixed outlook

Advertising giant WPP (LON:WPP) has boasted a 10 per cent increase in its first-half profit, but with the caveat that the next 18 months will be tough.

In the six months to 30 June, the group posted a headline pre-tax profit of £570 million, a tenth above the £518 million achieved in the same period of 2011. Impressively, profit growth outstripped revenue growth, which was only 5.5 per cent higher at £4.97 billion.

The results were feted by Sir Martin Sorrell, WPP’s chief executive. ‘Following the group’s record year in 2011’, he observed in a statement, ‘2012 started reasonably well with a strong first quarter.’

But WPP also warned investors that the rest of the year and 2013 would present a more difficult trading environment.

The firm acknowledged that the Olympics and US elections ‘should underpin industry growth by 1 per cent alone this year’, but cited two imminent dangers.

First, ‘There remain continuing concerns over the Eurozone, Iran and the Middle East and the impact of these on faster growing markets’ growth rates.’

Second, ‘There is also the elephant in the room that many ignore: the growing US fiscal deficit, which with the nomination of Paul Ryan as the Republican Vice Presidential nominee, looks set to be the defining issue of the 2012 US Presidential campaign.’

Moreover, the company deemed 2013 ‘likely to be more challenging’. Having a particular impact on advertising will be the lack of a major sporting or political event, which is likely to offset faster economic recovery for the sector.

WPP hoped 2014 would be ‘a better prospect’, specifying the boost to advertising from ‘the World Cup in Brazil, the Winter Olympics in Sochi and the mid-term Congressional elections in America’.

Despite this mixed outlook, WPP reaffirmed its commitment to deliver annual profit growth of between 10 and 15 per cent. Shareholders will also be buoyed by the group’s decision to raise its dividend to 8.8p per share, an increase of 18 per cent.

The market nevertheless responded negatively, with the company's share price falling more than 4 per cent to 795p in early trading. But in the wake of the firm’s strong performance over the year, the stock is still currently valued 35 per cent higher than it was 12 months ago.

Related topics: Advertising, Sir Martin Sorrell, WPP

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