Markets crisis could prompt new spending dip, says Sorrell
Thursday 25 August 2011
The world's largest advertising group, WPP, has warned the latest stock-market crisis could hit client spending in 2012, as emerging-market and digital services helped it to post a surge in first-half profits.
WPP's chief executive, Sir Martin Sorrell, also expressed his concern that stock exchanges are "rarely wrong" about what lies ahead for the global economy. But he pointed to the boost the advertising industry will receive from the US presidential election and major sporting events, including the London Olympics, next year.
Pre-tax profits at WPP, whose agencies include JWT and Ogilvy & Mather, rose 37 per cent to £334m, on revenues up 6 per cent to £4.7bn during the six months to 30 June. However, this was characterised by strong differences in its sales growth across different regions, with Brazil, Russia, India and China, the so-called Bric countries, leading the way.
Sir Martin said that last year America and "traditional media" contributed strongly to its growth but "this year it is about China and India and the internet reasserting itself".
In terms of its like-for-like revenues, WPP's Asia-Pacific, Latin America, Africa and Middle East and central and eastern Europe division was the star performer, delivering a 10.5 per cent sales growth. This compares with a lowly 2.9 per cent in western continental Europe, though the UK fared better by posting a 5.1 per cent sales growth and an 8.5 per cent rise in margins. Sir Martin said: "The world is moving at different speeds."
Investors gave its results the thumbs-up as shares in WPP jumped by 43p, or 7.4 per cent, to 623p. Its shares had fallen by around a quarter since it upgraded its 2011 outlook in April. The company said: "So far, so good in 2011, with forecasts in reasonable heart, but there are storm clouds and we still have to see how the latest stock-market crisis affects consumer and client thinking and actions."
WPP warned that the "impact may not be felt until 2012", as most client budgets and plans are based on the calendar year. But Sir Martin struck an upbeat note on the boost in worldwide demand for advertising and marketing of between 1 and 2 per cent that the US presidential elections, football's European Championship and the London Olympics and Paralympics bring. Political spending for the US elections alone may reach $4bn.
However, Sir Martin said a key concern was the impact that a divided election result could have on the US economy and its deficit-reduction strategy in 2013. This could occur if President Obama gets re-elected, but the Republicans get control of Congress. He said: "There would be deadlock again," in a reference to the recent negotiations between the Republicans and Democrats to raise the country's debt ceiling.
WPP's digital revenues surged in the first half to account for 28 per cent, or $2.1bn, of the group's total revenues.
The group also increased its targeted acquisition spend from £200m to £400m in 2011. The group said: "There is a very significant pipeline of reasonably priced small and medium-sized potential acquisitions.
"As a result, deals done continue to be of small and medium-sized companies, focused on new markets, new media and consumer insight, and will not now be limited to £100m per annum, but will more likely total around £400m this year."
* Sir Martin Sorrell, the chief executive of WPP, has never ceased to fascinate his followers with his colourful descriptions of paths expected for global economies. Yesterday, he was sticking to his earlier theory of the LuV - and LuVVy-shaped recovery, but said it was "battered". The V recovery is for Brazil, Russia, India and China, and the "Next 11", or the non-Bric countries, including Bangladesh, Indonesia and Mexico. Meanwhile, the US was on a U- or V-shaped path and Europe was flat or L-shaped.
* This year, he used football to describe the "Premier League", which comprised the Bric countries and the Next 11, as well as the Civets – Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. Of course, the Championship – England's old second division – was dominated by Germany and the US.
* Back in 2005, he was also in full flow with bathroom metaphors to describe his outlook for the advertising sector. He told a rather bemused bunch of analysts: "We're definitely out of the bath – but watch out for the shower."
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