Sorrell talks up advertising revival as WPP reports profit margin surge

WPP, the world's largest advertising firm by sales, is optimistic that profit margins will soon return to pre-recession levels, amid solid growth and the expectation that global economies will avoid a much-feared double-dip recession.

• Sir Martin Sorrell is confident that WPP's profit margins are due to bounce back Picture: Getty Images

Sir Martin Sorrell's media and advertising empire said 2010 operating profit margins should return to levels seen before the recession, thanks to better-than-expected revenue growth.

The group, which owns advertising agency names such as Ogilvy & Mather and J Walter Thompson, lifted its outlook for the year after a strong performance from the US and traditional media resulted in solid growth in the first seven months.

However, shares in WPP fell on the news, as strong performances from rivals pushed up expectations ahead of the update. They closed the day down almost 4 per cent at 644.5p.

Omnicom Group reported forecast-beating quarterly results in July and said major clients were back on the spending offensive, while Publicis also posted strong results and raised its outlook.

Analysts at UBS said WPP's first-half numbers were lacklustre in comparison, while July's performance was better and the outlook encouraging. "Given relatively high expectations, we could see some initial disappointment and share price weakness," they said in a note.

WPP, whose clients include Vodafone and Unilever, posted a 36 per cent jump in interim pre-tax profits to 243.9 million, while revenues rose 3.1 per cent for the first seven months, boosted by "remarkably strong growth" in the US.

Like-for-like revenues across the Atlantic improved from a drop of 6 per cent in the fourth quarter of 2009 to growth of almost 4 per cent in the first quarter of 2010 and 8 per cent in the second. WPP said in a statement: "In our 25 years of existence, we cannot remember a more speedy recovery or turnaround of a region."

An improved performance in Britain and strong growth in southeast Asia also helped to drive revenues, with WPP saying that full-year revenue growth was on course to beat market expectations. It had previously forecast a full-year target of 2 per cent.

However, WPP also said it was still seeing caution from major companies, due to uncertainty in Europe around the impact of austerity measures, fiscal contagion from Greece, Portugal, Spain and Ireland and concerns over US growth.

Sorrell said: "We're seeing a continual improvement but there are still concerns in Europe and the US. Chief executives are hesitant to over-promise. There is a generally cautious tone. But it's moving in the right direction."

WPP raised its interim dividend by 15 per cent to 5.97p - the first increase in 18 months.