Sorrell proves his worth

INVESTMENT COLUMN
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The Independent Online
Those who believe in performance-related pay will point gleefully at the full-year results at WPP, the advertising company where Martin Sorrell, the pounds 25m-contract man, is chief executive.

For the fourth year running, the company has posted improving profits, and the shares are now heading comfortably toward the 230p level, the first hurdle Mr Sorrell must reach if he is to activate part of his handsome package. Whatever you think of the technique, he is certainly incentivised. And whatever shareholders might think of the size of his pay, they will appreciate full-year profits of pounds 114m - particularly the way in which the 33 per cent profit improvement was achieved.

Far from relying on sharply higher revenues (difficult in the current uncertain market), Mr Sorrell has cut costs, increased billings per employee and raised the ratio of variable to fixed staffing costs, all of which has helped boost operating revenues to more than 12 per cent.

There are still a few problem areas, not least the under-performing public relations firm Hill & Knowlton. But the core agencies, J Walter Thompson and Ogilvy & Mather, look healthy.

Can the improving performance be sustained? The central forecast for this year of pounds 140m in pre-tax profits or 11p a share looks easily achievable, at least on present form. Next year is less certain, given the economic outlook, but pounds 165m or 13p a share is within reason. Current year forecasts suggest a ratio of 16 times at last night's close. The shares still have room to grow.

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