WPP beats profit estimates with advance to pounds 24m: Strong performances in US and Far East overcome conditions

A SHARP cut in interest costs and higher revenues amid difficult trading conditions helped WPP, the debt-laden advertising group, to boost profits thirteenfold in the half-year to 30 June.

The taxable surplus surged ahead from about pounds 2m to pounds 24m, better than market estimates, on a 16 per cent advance in revenues to pounds 700m.

WPP, whose advertising clients range from Kelloggs to Persil, is also returning to the dividend list after three years, with an interim payout of 0.35p a share, in line with its forecast last March, when it made a pounds 90m rights issue.

Earnings per share amounted to 2.5p against a loss of 7.6p last time.

The profit increase stemmed partly from strong contributions from the group's two advertising agencies, J Walter Thompson and Ogilvy & Mather, in America and the Far East.

US revenues grew by 9 per cent compared with a 3 per cent decline in Britain and a flat performance in Continental Europe. In the rest of the world, including South-east Asia and Latin America, they rose by 10 per cent. Although the company gained from favourable currency movements, the underlying revenue advance amounted to 4.8 per cent, improving profit margins.

However, Martin Sorrell, WPP's chief executive, was cautious about prospects. 'Economic recovery remains delicate and unsettled, especially in the US and the UK,' he said. 'Conditions remain uncertain in Continental Europe. It is possible the recovery will be delayed for some time.

'In these circumstances plans, budgets and forecasts of revenues are being made on a conservative basis and considerable attention is being focused on achieving staff cost-to-revenue and margin targets.'

Despite the downbeat statement, City analysts upgraded profits estimates for the full year. Lorna Tilbian, of Warburg Securities, revised her forecast by pounds 6m to pounds 64m for 1993 and by pounds 14m to pounds 92m for next year.

The group incurred almost pounds 7m exceptional charges, down from pounds 13m, relating to a reorganisation at some of its operating subsidiaries. They included Hill & Knowlton, the public relations firm, which made a pounds 4.8m operating loss due to weak demand and management problems in the US.

The firm is thought to have cut about 100 staff worldwide to improve its performance, although WPP's overall manpower was virtually unchanged at about 20,600 due to expansion elsewhere.

Thanks to the four-for-five cash call, group interest charges dropped by a quarter to pounds 15.6m. Net debt at the half-year averaged pounds 372m compared with pounds 467m at the same time last year. The group generated pounds 20m cash flow from operations, but this was more than offset by pounds 8m of capital spending and pounds 23m earn-out payments for past acquisitions.

WPP is continuing to examine ways to reduce its debt further through the sale of Scali McCabe Sloves, the US agency. The disposal was proposed more than two years ago, but WPP has yet to reach an agreement with potential buyers. The latest discussions, understood to be with Interpublic, the US advertising group, are making better progress but do not involve some of Scali's assets.

In addition, WPP is considering the flotation of its market research businesses as well as its South-east Asian agency interests. Separately, it is also looking to restructure its debts with the possible issue of more than dollars 200m of unsecured loan notes with a seven-year maturity.

The company confirmed yesterday that its banking syndicate was planning to sell up to 58 million WPP shares through 'an orderly and organised sale'.

Under the terms of a dollars 272m debt-for-equity swap last year, the banks will next week be allowed to convert 25 per cent of their WPP preference stock into ordinary shares at a notional price of 60p each.

Although the move could result in a glut of WPP paper on the market, the shares rose 3p to 93p yesterday.

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