UPDATE 2-WPP beats H1 expectations; slowdown continues

(Adds CEO, analyst comments, shares, details, background)

By Georgina Prodhan, European Media Correspondent

LONDON, Aug 22 (Reuters) - Advertising group WPP (WPP.L) beat market expectations for first-half sales and profits and stuck to its full-year profit target on Friday although a slowdown that began in May continued in July.

WPP said it still aimed to raise its operating profit margin to 15.5 percent from 15.0 percent, after the margin rose by half a percentage point to 13.6 percent in the first half thanks to strict cost controls.

Sorrell said 2008 sales and billings should grow at a similar rate to 2007, when billings and like-for-like sales -- excluding currency and acquisition effects -- grew 5 percent.

But a slowdown in advertising spending driven by cooling developed economies that began in May has continued, Sorrell told Reuters by telephone. "July followed a similar pattern to the second quarter."

Sorrell reiterated his belief that Germany's GfK would not come up with an offer to better WPP's $2.2 billion hostile bid for British marketing group Taylor Nelson Sofres TNS.L, but said: "I'm never confident until the fat lady sings."

Shares in WPP, the world's second-biggest advertising and marketing group behind Omnicom (OMC.N), rose 1.6 percent to 483 pence by 0812 GMT, beating a 0.8 percent rise in the DJ Stoxx European media index .SXMP.

"While slower like-for-like growth will make these targets more difficult to deliver, we believe there is sufficient cost flexibility in the business that they are achievable in the absence of a dramatic, sharp slowdown," Numis analysts wrote.

WPP's first-half organic sales rose 4.3 percent to 3.339 billion pounds ($6.24 billion), beating analysts' consensus of 3.244 billion, driven by fast-growing economies in Asia, Latin America, Africa, the Middle East and central and eastern Europe.

Headline operating profit rose 9.2 percent in constant currencies to 453.4 million pounds.

OLYMPICS, ELECTION BOOST

"Spending behind the United States presidential election and around the Beijing Olympic Games should continue to boost 2008 revenues," said WPP, whose advertising agencies include Ogilvy & Mather and Young & Rubicam.

"However, the prospects for 2009 remain less certain, particularly if the United States and western European economies continue to be impacted by the financial crisis and commodity price increases."

Omnicom also said last month it remained cautious about the weak U.S. economy and saw a slowdown in the UK, Spain and Italy due to economic factors.

French rival Publicis (PUBP.PA), on the other hand, posted better-than-expected sales growth on the back of strong operations in digital advertising and emerging markets and predicted stronger growth if markets did not deteriorate.

WPP trades at 8.8 times expected 2009 earnings, according to Reuters Estimates, a discount to Omnicom at 11.6 times and Publicis at 9.1.

Both Omnicom and Publicis reported faster organic growth than WPP in the first half. Omnicom's operating profit margin was 13 percent and Publicis reported a 15 percent margin.

WPP raised its interim dividend by 20 percent to 5.19 pence per share and said it would continue to examine the alternatives of increasing dividends and accelerating share buybacks, which have been suspended since the TNS bid.

It said it would continue to examine possible acquisitions, after net debt rose to 1.857 billion pounds by end-June from 1.264 billion a year earlier due to acquisitions and buybacks. (Editing by Paul Bolding)