Ad giant WPP predicts strong year ahead before 2009 slowdown

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The Independent Online

America will not slide into recession and the financial crises that have rocked global financial markets will have "little to no effect" on the advertising industry this year, according to the WPP chief executive Sir Martin Sorrell, who yesterday unveiled a healthy set of annual results at the world's second-largest advertising group.

The company's pre-tax profits rose by 6.7 per cent to £817m on turnover of £6.2bn last year. The growth was slightly muted by the falling value of the dollar – America accounts for more than a third of WPP's turnover. However, its revenues have continued to rise into 2008 – its revenues last month were up 5 per cent on a year ago.

WPP said in a statement: "On the basis of these data, 2008 should be a better year than 2007, against the views of most economic forecasters, who predict a gloomy 2008." It again predicted that it would meet previously stated revenue and earnings targets, and achieve margin growth to 15.5 per cent this year and 16 per cent in 2009.

The company expects to receive a boost from the Beijing Olympics – an advertising bonanza for the world's largest companies, many of which rely on WPP to tell them how to spend their marketing budgets. Yet it did sound a note of caution beyond this year. "It seems inevitable that the 'real' world will at some point in time be affected by the private equity, sub-prime, insurance monoline and housing market crises that we have seen," WPP said.

"This seems more likely to be in 2009, when a slowdown (not a recession) in the US will be hard to avoid, particularly as a new President tries to deal with heavy government spending and twin deficits, and 'kitchen sinks' his or her budgets."

WPP said internet advertising was becoming more important, with 23 per cent of its turnover coming from online activities in 2007. The traditional advertising powerhouse – network television – had become characterised by "price inflation and declining audiences", it added.

Sir Martin expects developing economies such as those in Latin America, China and India to be the engine for earnings. While America grew by 4 per cent last year, China and India spiked by 31 per cent and 23 per cent respectively. As the US slows down, the performance of those markets, which many economists argue have evolved to a point that they are no longer directly reliant on the world's largest economy, will be crucial.

WPP said: "The decoupling theories will also be challenged, as China may pause a little after the the Beijing Olympics, and the world continues to catch a cold when America sneezes – if not influenza, as it used to be."

WPP shares fell by 15p, or 2.5 per cent, to 596.5p but analysts said this was a function of a bad day for the stock market rather than any message from the company. "The whole market is bearish right now, so it is good to hear the upbeat outlook," said Alex DeGroote, an analyst at Panmure Gordon.

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