Pre-tax profits before one-off items and investment write-downs fell 19% to �400.6m ($639.4m).

Group revenues fell nearly 3% to �3.9bn, and when the effects of currency movements and acquisitions are stripped out revenue fell nearly 6%.

WPP, which owns the J Walter Thompson and Young & Rubicam agencies, said the coming year would remain difficult.

Recovery hopes

The global economic slowdown has led to a torrid time for the advertising industry, with under-pressure companies slashing marketing budgets in an attempt to cut costs.

While there have been signs that the industry is beginning to emerge from the worst of the downturn, there are fears that the jitters over possible military action in Iraq could squash any recovery.

WPP said like-for-like revenues were expected to remain flat this year, and chief executive Martin Sorrell said the advertising industry would not see any sustained revival until 2004.

"2002 was a very difficult year," Mr Sorrell said.

"2003 will also be difficult but hopefully a little easier. Early indications are that worldwide advertising and marketing services expenditure will be up slightly.

"2004 may well be better."

Speaking to BBC Radio 4'd Today programme, Mr Sorrell said war worries were already starting to have an effect.

"We've already started to see the impact of the uncertainty because of the potential Iraqi invasion and war," he said.

"I think we will see some impact in the short term - the question is how long any such conflict went on for and the long-term implications for the Middle East."