A tougher advertising market is hindering turnround plans at Media Square.

The Aim-traded marketing group reported an operating loss of £20.6m for the year to February 29, including £4.1m of restructuring costs and a £16.8m goodwill impairment revealed at the interim stage. Revenue fell from £186.4m to £155.8m.

Roger Parry, who was brought in as executive chairman in March 2007, said: "This business was far, far more screwed up than I thought it was." Most of the problems stemmed from dissatisfied clients, notably Deutsche Telekom, and other issues that persisted as recently as January.

But he said this was only one factor in the timetable for a turnround being push- ed out until 2010, with more significant problems being caused by the "amazing speed with which the advertising economy has tanked out in the past six months".

"The level to which confidence has fallen away is really scary," he said.

Mr Parry said he had achieved his initial "structural goals" of selling smaller, poorly performing businesses such as Coutts Retail Communications, and reorganising the business from more than 30 operations into 14 business units, with hubs in London, New York and Hong Kong. Priorities were winning new business, improving margins and paying down debt.

Profitability depends on revenue growth and increasing staff utilisation, but Med- ia Square's recovery is "getting no help whatsoever by the economy", Mr Parry said, setting a two-year timetable for reaching "at least" industry standard margins. "Since the end of the financial year there's been clear evidence in the UK of a significant advertising downturn."

Although Media Square accelerated debt repayments to a total of £13m last year, net debt of £16.5m is "still too high for a small business like this", Mr Parry said.

Media Square's shares on Tuesday closed up 0.25p at 5.88p.