NEW YORK WPP Group today revised downward its 2009 margin targets and said more layoffs are on the way, adding further gloom to the ad industry's prospects for the year. But the London-based holding company was more confident about 2010, predicting a tempered recovery.
 
"2009 was always likely to be a weaker year, but the unprecedented current financial crisis has triggered a vicious recession across the globe," the company said in its 2008 earnings statement. "Although the economic gloom has heightened recently, with further earnings disappointments, surprise dividend cuts, continued financial restructurings and rights issues, we still believe there will be a recovery of sorts in 2010."

WPP, which initiated staff reductions and a hiring freeze in the fourth quarter, has set an additional target of cutting 2,000 jobs this year, about 2 percent of its global headcount of 112,262.

WPP said its 2008 operating margin was 15 percent, below its target of 15.3 percent. The company lowered its 2009 target to 14.3 percent. WPP had estimated margins could improve to 16 percent in 2009, but that projection was made a year ago, well before the economy began its steep decline.
 
In 2008, WPP's pre-tax profit climbed 3.8 percent to nearly $1.1 billion on a 20 percent revenue increase to $10.7 billion. However, in constant currency terms, pre-tax profit slipped 13 percent on a 9 percent increase in revenue. (Click here for complete WPP financials.)
 
North America, which accounts for 35 percent of the company's revenue, turned in the worst performance: it was flat on a like-to-like basis. Emerging markets in Asia Pacific, Latin America, Africa and the Middle East, which total 24 percent of the company's overall revenue, rung up an 8 percent increase.


 
Advertising and media investment management -- accounting for about 44 percent of the group's revenue -- saw only a 3.6 percent increase on a like-to-like basis. WPP's advertising, branding, identity and specialist communications, remain under the "greatest pressure," the company said.

WPP said that while 2009 budgets initially indicated flat like-for-like revenue growth, the company has revised estimates for 2009, with like-for-like revenue down 2 percent. (GroupM forecasts that global advertising spending (equivalent to approximately 40 percent of the Group's revenue) will fall by 4 percent vs. 2 percent growth in 2008.) Accordingly, the company is keeping headcount ratios in line with revenue changes. Per WPP's earnings statement: "These variable staff costs provide a 'shock absorber' to operating margins as revenues come under increasing pressure. We estimate that at least half of these variable staff costs can be reduced in the course of a recession. There is, therefore, a potential buffer of 2-3 margin points."

WPP noted that while the UEFA football championship, Beijing Olympics and the U.S. Presidential Election provided a quadrennial boost to client spending, worldwide advertising and marketing expenditures only rose about 2-3 percent in 2008. WPP said it benefited from "a strong first half," in which organic revenue grew more than 4 percent. The last six months were more challenging, with the pace slowing to slightly more than 1 percent.
 
WPP said that its incentive plans this year "will place increased emphasis on operating margins in conjunction with operating profit growth."

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