WPP finds cautious firms favor ad spending

By @ibtimes on

Western companies flush with cash but reluctant to commit to longer-term investments spent heavily on advertising in 2010 and especially on TV, boosting the world's biggest ad group WPP in the U.S. and Britain.

Combined with a good performance in fast-growing markets such as China, the British-based group followed peers to post strong full-year results with a solid outlook for 2011.

In Western markets we are seeing companies who are not investing in capacity, they're afraid of making a mistake, so instead they invest in the brand, Chief Executive Martin Sorrell told Reuters on Friday.

You have two trillion dollars plus sitting on the balance sheets of Western multinationals and they're not spending it.

The same hesitation to commit to longer term spending appeared to favor staffing companies in the fourth quarter which have reported strong growth in the temporary sector.

WPP said the robust trading had continued into January, although its stock slipped on Friday after strong results from rivals Omnicom and Publicis pushed expectations and the WPP share price up strongly in recent weeks.

It was down 2.6 percent at 1012 GMT on Friday.

Full-year results were robust and ahead of consensus though with peers Publicis and Omnicom reporting even larger beats, this won't surprise, UBS analyst Alastair Reid said.

The new dynamic meant markets such as the U.S., Germany and Britain performed well while traditional advertising such as free-to-air television also showed strong growth.

STRONG GROWTH

WPP, whose ad agencies include JWT and Ogilvy & Mather, posted fourth quarter organic revenue growth of 8.5 percent, comfortably ahead of a Reuters poll of 8 analysts forecasting 7.3 percent growth, and a full-year figure of 5.3 percent compared with a forecast of 4.9 percent.

That compared to Omnicom however which reported fourth quarter growth of 10 percent, giving it a total of 6.4 percent for the year and Publicis which posted growth of 12.5 percent for the last three months of the year and 8.3 percent for 2010.

Headline operating profit before interest and tax was up 21 percent to 1.2 billion pounds and in line with forecasts.

For 2011 WPP expects the key industry metric of like-for-like growth, which strips out the impact of acquisitions and currency moves, of 5 percent and operating margins to rise 0.5 margin points to 13.7 percent.

Without an upgrade the shares may be vulnerable today, although if market confidence recovers this global macro bellwether stock could push higher, Singer analysts said.

The results mark a sharp rebound for WPP which posted organic revenues down 8 percent in 2009.

A solid update by another peer Interpublic and reports from media groups that ad markets were growing strongly has also added to the sense in recent weeks that the industry is well into a recovery from one of the toughest downturns in recent history.

Sorrell said he hoped his 2011 forecast of around 5 percent growth would prove a little bit conservative although he noted that there were still reasons to be cautious, including fears over the eurozone debt crisis and the unrest in the Middle East.

The 2011 growth is expected to be driven by the faster growing markets such as India and China as the U.S. and Europe return to more normal rates and Sorrell also tipped digital marketing to pick up any drop off from traditional sources.

Overall reported revenue was up 7.4 percent to 9.3 billion pounds ($15.14 billion), compared with an analyst forecast of 9.2 billion pounds. The group also said it would target a divided pay-out ratio of around 40 percent over the medium term from around 30 percent.

To see a Reuters Insider interview please click on: http://link.reuters.com/nez38r

(Reporting by Kate Holton; Editing by Andrew Callus and Erica Billingham)

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