WPP, the world’s largest marketing and communications group by revenues, reported a “severe” fall in first-half profitability and warned that growth was unlikely in 2010.
WPP’s operating margin, a closely-watched metric among analysts, fell to 8 per cent from 13.6 per cent in the first half of last year, below market expectations of about 10 per cent.
“I think we’d have to admit we should have moved quicker” in cutting costs, Sir Martin Sorrell, chief executive, told the Financial Times.
Western Europe is the “toughest region in the world” facing the “slowest growth rate out of the recession”, Sir Martin said. As a result, WPP is focusing on faster-growth markets such as Brazil and China, digital marketing and data services.
WPP’s failure to cut costs fast enough to cope with the recession has reopened questions about how easy it is to manage large marketing holding groups.
Groups such as Omnicom, Publicis, Interpublic and WPP are all comprised of many small agencies, with varying degrees of integration and co-ordination by their parent. Even when bosses such as Sir Martin Sorrell foresee revenue contractions ahead, subsidiary agencies are not always responsive to demands to cut staff and other overheads.
“It’s not like GM saying they are going to shut down a factory or a line. They can make a decision based on macro-economic factors quite easily,” says Anthony de Larrinaga, media analyst at Jefferies. “[Advertising] is not a homogeneous business, it’s a people-based business. It’s difficult to micromanage tens of thousands of staff.”
Budgets are typically set by canvassing individual agency chiefs, who may be misled or flattered by ebullient clients. WPP said on Wednesday that as recently as last November it was budgeting for flat revenues in 2009.
After missing budgets for each of the first five months of 2009, only in June were costs brought into line with revenues.
“With the benefit of hindsight,” said Sir Martin, “you would have taken out more cost in the fourth quarter of 2008.
The higher costs and longer timescales of cutting jobs in western Europe, compared with the rest of the world, was also a significant factor in higher-than-expected severance costs, he said.
http://www.ft.com/cms/s/0/5c776f08-9265-11de-b63b-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058
