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WPP Group PLC (WPP.LN), the world's largest marketing company by revenue, Wednesday said it expects profitability to improve in the second half, after organic revenue fell more sharply than budgeted in the first half, particularly in the second quarter, as clients cut spending amid the downturn.

Still, the group said it expects quarter-to-quarter comparisons for organic revenue to stabilize from now on as comparatives become easier - and that July already indicated a "less-worse" picture.

The Dublin-based group, which owns advertising agencies including Ogilvy & Mather, Young & Rubicam and JWT, said further cost actions have been taken in the second quarter that should improve the picture in the second half.

"The group's like-for-like headcount is now better balanced in comparison to the reduction in like-for-like revenues and the second-half is forecast to show a marked improvement in profitability, both absolutely and in terms of maintaining second half margins at prior years levels," the group said in a statement.

WPP's headcount was down almost 6% compared with June 2008 and over 7% compared with July 2008, the company said.

Net profit for the six months ended June 30 fell 48% to GBP108.4 million from GBP208.2 million last year, coming in below an average GBP200.8 million forecast by five analysts polled by Dow Jones Newswires. Profits were hit by its euro-denominated debt, with interest payments higher when translated into the weaker sterling.

Reported revenue for the period was GBP4.29 billion, up 28% from GBP3.34 billion in the same period last year, boosted by the first-time integration of market research firm Taylor Nelson Sofres and the benefit from a weaker sterling. Still, the figure was below analysts' expectations for GBP4.32 billion.

Organic revenue, which strips out the impact of acquisitions and exchange rate movements and is a closely watched metric in the advertising industry, fell 8.3% in the first six months of the year as advertisers continued to cut media spending across most regions. Analysts had forecast organic revenue to fall 7.6%.

The impact of the recession on profitability in the first half was severe, WPP said. Its headline operating margin before severance and one-off costs was 10%, WPP said.

The advertising industry has been hard hit by the global recession, as ad spending is cut back and companies lay off thousands of workers as revenue shrinks.

WPP PLC's (WPP.LN) unit GroupM currently forecasts global advertising spending to drop 5.5% in 2009 before slowly recovering in 2010 and Publicis's unit ZenithOptimedia has forecast global advertising spending will decline 8.5% this year.

Despite also reporting significant declines in revenue and profit, WPP's New York based rival Omnicom Group Inc. (OMC), as well as Interpublic Group of Cos (IPG) and French Publicis Groupe SA (PUB.FR), last month indicated that the worst of the advertising downturn is over.

WPP said it would pay an interim ordinary dividend of 5.19 pence per share, flat from last year, payable November 9.

Tuesday, WPP shares closed at 520p. The stock has gained about 29% since the start of the year despite the gloomy advertising outlook and fears about its balance sheet.

WPP's major clients include Unilever N.V.(UN) and Johnson & Johnson (JNJ).

 
   Company Web site: www.wpp.com 

-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 40; ruth.bender@dowjones.com