WPP predicts profits boost

Advertising and media giant WPP today predicted a “marked improvement” in second-half profits but warned that consumer confidence remained fragile.

The company added that third quarter trading was “less worse” than the previous three months, with revenue declines slowing to 8.7 per cent.

But it said: “Confidence remains fragile amongst consumers, because of the shadow of high unemployment levels and amongst corporates, because Armageddon and Apocalypse Now were barely avoided in September 2008.”

The firm, which owns famous names such as Ogilvy & Mather and J Walter Thompson, slashed costs by cutting 10 per cent of its worldwide staff – more than 12,000 posts – since the start of the year.

WPP’s shares rose more than 4 per cent today as it also kept its guidance for 2010 intact.

The firm saw signs of improvement in US, Asia and Continental Europe, but detected softening markets in the UK, Middle East and Latin America.

In a colourfully-worded update, WPP added that increased confidence among senior management in the corporate world “is still not transferring to their cheque-writing hands” with firms reluctant to invest in brands during recession.

It expects its quarter-on-quarter improvement in trading to continue into 2010 due to weaker comparisons, but warned: “The real test may come when governments and independent central banks decide to reduce or withdraw fiscal and monetary support to avoid higher interest rates and inflation.”

The end of schemes such as car scrappage initiatives in the US and the UK could have the “impact of reducing demand dramatically”, it warned.

WPP also predicted a ‘LUV’-shaped recovery from recession for the global economy – an L-shaped recovery for Western Europe, a U-shape for the US, and a faster V-shaped fightback for emerging economies such as Brazil, Russia and India.

Numis analyst Lorna Tilbian said: “We are encouraged that the statement is more confident in the outlook than the Q2 release, where greater than anticipated revenue declines in Western Europe impacted margins.”