WPP Profit Rises as Margins Improve on Digital InvestmentsKristen Schweizer
WPP Plc, the world’s largest advertising company, said 2012 earnings increased as the business boosted investment in digital and emerging markets and profit margins improved.
Profit before interest and taxation rose 7.1 percent to 1.53 billion pounds ($2.3 billion), matching analysts’ average estimate in a Bloomberg survey. Sales advanced 3.5 percent to 10.4 billion pounds, the London-based company said in a statement today.
WPP, which owns the Ogilvy & Mather and Young & Rubicam ad agencies, has acquired digital advertising assets and companies in developing markets such as China and Brazil in recent years to counter slower and saturated markets in the west. Chief Executive Officer Martin Sorrell said today that while clients had more confidence in 2012, greater economic and political uncertainty meant they were unwilling to take further risks.
“We see little reason, if any, for this pattern of behavior to change in 2013, with continued caution being the watchwords,” he said in the statement.
The shares were unchanged at 1,054 pence as of 10:30 a.m. in London. The stock has advanced 19 percent this year, giving the company a market value of 13.3 billion pounds.
WPP clients last year were unwilling to take risks in slow-growth markets and instead focused on fast-growing areas, Sorrell said in a phone interview.
“The irony is that companies are in better positions than in 2008 with more cash but the situation is there are all these” areas of economic and political uncertainty, he said.
Like-for-like revenue in January 2013 rose 2 percent, ahead of budget, and WPP is targeting full-year like-for-like sales and gross margin growth of about 3 percent, according to the statement.
Sorrell said he expects “increased client confidence” in 2013 to balance the lack of a major event such as the Olympics or a U.S. presidential election. He said next year shows signs of promise with the soccer World Cup in Brazil and Winter Olympics in Sochi, Russia.
Billings fell “slightly” to 44.4 billion pounds in 2012, reflecting the strength of sterling, WPP said. Revenue in western Europe dropped 2.6 percent, while sales rose 7.7 percent in the U.K. and gained 4.7 percent in North America.
The company last year made 65 acquisitions. WPP said it has a budget of 300 million pounds to 400 million pounds a year to buy small and medium-sized targets.
WPP said it has a long-term target to deliver revenue and gross-margin growth exceeding the industry average, including acquisitions. WPP also aims for growth in annual profit before interest and taxation of 10 percent to 15 percent.
The global advertising industry is predicted to grow by 4.1 percent to $518 billion this year, led by developing markets, Publicis Groupe SA-owned ZenithOptimedia said last month. Internet advertising will increase 15 percent in 2013, while traditional media will grow 1.7 percent, according to the market researcher.
Speaking about consolidation in the advertising industry, Sorrell added it was “inevitable” that French competitor Publicis would merge with New York-based advertising company Interpublic Group of Cos. at some point.
He also said spending was rising fastest among government clients, followed by automotive, oil and personal care. Spending was slower among customers in the computer, drinks and electronics industries, he said.
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