Emerging markets, including the Middle East, helped WPP Group post a 14 per cent increase in its first-half profit, according to an official communique of the world's second-biggest advertising company.
Asia and Latin America made up for slower growth in Europe and the US as net income climbed to £208.2 million from £181.9m, the London-based company said in a statement. Earnings before interest and tax advanced 15 per cent to £389.1m, beating the £366.8m median estimate of five analysts surveyed by new agency Bloomberg News, prior to the declaration of the results.
Emerging markets in Asia, Africa, Latin America and the Middle East made up 23 per cent of revenue. North America accounted for 37 per cent of sales, the UK made up 14 per cent and continental Europe was 26 per cent.
WPP in the recent past has taken an aggressive initiative and invested in the emerging markets, especially in the Middle East. Earlier this year, WPP Group increased their shares in Middle East communications leader The Holding Group (THG).
THG, in which WPP has held a minority stake since 1999, operates in the Middle East and North Africa through firms such as Team Y&R, Asda'a, Intermarkets, Mediaedge:cia, Polaris and Wunderman. Joseph Ghossoub, chairman of the group, while commenting on the union had said: "It's a merger between the two companies that add to their respective strengths."
Merger talks with the UAE-based THG were initiated more than 18 months before the union, according to industry sources, and they were finally sealed and conveyed by WPP on February 29.
THG has significant operations in the UAE, Saudi Arabia, Lebanon, Kuwait, Morocco, Jordan, Qatar and Oman and employs more than 1,200 people. Major clients include Emaar, etisalat, Ford, Microsoft, Sony Ericsson and Visa. Team Y&R's unaudited consolidated revenues for 2007 were $100m (Dh367m), with gross assets for the same period at $242m. The stake investment continues WPP's strategy of developing its networks in fast growing markets and sectors.
Commenting on the future, WPP Chief Executive Officer Martin Sorrell said 2009 may be a difficult year. He has made purchases in Brazil, Russia, India and China to spur sales. WPP, which owns Ogilvy & Mather Worldwide and public relations firm Hill & Knowlton, also made a £1.1bn bid on July 9 for market researcher Taylor Nelson Sofres Plc to cut its dependence on ad revenue.
WPP gained 16 pence, or 3.4 per cent, to 491.5 pence in London trading. Before Friday, the stock had declined 27 per cent this year, valuing the company at £5.57bn.
"We've said it consistently that usually the first year after the Olympics is the weakest of the quadrennial," Sorrell said in a phone interview. WPP made 29 acquisitions and investments in the first half, he said.
WPP, which operates in 106 countries, won £1.29bn worth of new business in the period. Account wins included contracts with Time Warner, Motorola and the Hong Kong Tourist Board.
Sales gained 14 per cent to £3.34bn, compared with the median estimate by analysts of £3.29bn. Revenue excluding acquisitions and currency swings climbed 4.3 per cent.
WPP said June 24 sales growth on that basis was 4.5 per cent in the first five months of the year, compared with 5.2 per cent a year earlier.
These results imply that sales growth in June slowed to the three per cent to 3.5 per cent range, Citigroup analyst Thomas Singlehurst said in a note to clients yesterday. He had predicted 3.5 per cent to four per cent growth.
While advertising during the Summer Olympics in China and the US elections will raise second-half profit at WPP, volatile economic conditions may dent earnings next year, said Lorna Tilbian, an analyst at Numis Securities, who lowered her estimate for WPP's profit in 2009 "in light of a tougher macroeconomic outlook."
WPP said its operating margin rose by 0.5 percentage point to 13.6 per cent, and the company reiterated its long-term target of improving operating profit by 10 per cent to 15 per cent and improving operating margins by 0.5 to one percentage point a year. The dividend was raised 20 per cent to 5.19 pence a share.
WPP's offer for Taylor Nelson broke up the market researcher's plans to merge with GfK AG, Germany's largest market research company. That industry is more resilient to an economic decline than other media businesses, according to Johnathan Barrett, an analyst at Kaupthing Singer & Friedlander.
WPP is seeking to merge Taylor Nelson with its Kantar market research unit. Taylor Nelson, which studies consumer habits for Procter & Gamble and Nestle, has urged shareholders to reject WPP's bid as too low. The cash-and-stock offer expires August 29, and can be extended.
GfK said last week it may make a counterbid, and is in no hurry to decide.
"We're quite concerned that GfK is misleading the market," Sorrell said. "Germany is not coming up with anything other than a lot of talk and the market should be informed as to what GfK is doing or not doing."