Sorrell sees advertising recovery

HOPES of a revival in Britain's advertising market received a boost today when WPP, the world's third-largest communications group, signalled the first tentative signs of a recovery.

Chief executive Sir Martin Sorrell, who famously declared last year that the advertising recovery would be 'bath-shaped', said the industry now appears to be 'climbing out of the bath'.

WPP's pre-tax profits fell 4.7% to £202.9m in the six months to 30 June. Net revenue was down 2.5% to £1.91bn from £1.95bn a year ago but on a constant currency basis increased by 1.8%.

The latest results are the first since WPP won the battle for cash-strapped Cordiant Communications but the deal was completed after the period covered by the results.

Intense competition in the UK market continued to pose problems with revenue falling by 1.8% to £306.5m in Britain. But WPP is betting on a reversal of fortunes as Cordiant starts contributing to earnings and clients invest in advertising to grow their own revenues.

'We've found the UK to be the toughest market,' Sorrell said. 'The United Kingdom continues to be the most affected by the recession.'

Strong growth in US government spending, which he said was greater than at any time since the Vietnam War in 1967, is also set to provide a major boost to an industry that has been in the doldrums for three years.

WPP has seen 10 months of like-for-like sales growth in the US, and that was promising because the US historically leads European markets by between six and nine months. 'Certainly, it seems as though we are starting to climb out of the bath,' Sorrell said.

'Most importantly, significant government spending is stimulating the US economy, in particular in preparation for the 2004 Presidential election.'

Sorrell predicts growth of 3%-4% for the global ad industry in 2004 based on what he calls the 'quadrennial' effect on advertising spending - the traditional burst in growth when there is a US election and an Olympic Games in the same year. The European Football Championships will also provide a boost.

WPP, which owns the J Walter Thompson and Young & Rubicam agencies, said its operating margin fell to 12.3% in the first half from 13% a year earlier. Its shares, which have outperformed the European media sector by 15% over the past 12 months, rose 8 3/4p to 578 3/4p.

The recovery called today by Sorrell marks the end of the bleakest three-year stretch in the history of the advertising industry, a sector that, apart from the occasional blip, had really experienced only the good times before.

In the Eighties and Nineties, advertising revelled in a glamour image eclipsed only by the ascent of the dotcoms. It was the tech crash of 2000 and resulting global economic slowdown, hastened by the events of 9/11, that triggered the long Adland recession.