WPP defies gloom with good results for 2008, but warns of tougher 2009
Global marketing giant WPP has exceeded expectations with an excellent set of preliminary financial results.
The company put out guidance over the weekend that revenue and profits were both up last year, partly because it has already been squeezing its costs.
Reporting a headline profit of around $2.5bn for 2008, the company said revenue had risen by 20%. However, it warned that if, as expected, revenues fall, it will cut short term staff in particular.
In its guidance, it said: “Part of the Group’s strategy is to continue to ensure that variable staff costs are a significant proportion of total staff costs and revenue, as this provides flexibility to deal with volatility in revenues and recessions or slow-downs. These variable staff costs provide a “shock absorber” to operating margins as revenues come under increasing pressure. We estimate that at least half of these variable staff costs can be reduced in the course of a recession.”
The company, which is headquartered in Europe, but has a strong presence in Australia – including media agencies Mindshare, Mediacom, Mediaedge CIA and Maxus, ad agencies JWT and Grey and PR agencies Hill & Knowlton and Burson-Marsteller- said that most of its growth came in the first half of 2008, with a far slower second half.
It described its Asia Pacific Latin America, Africa and Middle East group as an “engine”, with revenues up by 23%. However, it said that within that “Japan and Australia were weaker”.
The company said it was budgeting on revenues being down by 2% in 2009.
Company boss Sir Martin Sorrell’s outlook on the world economy is always highly scrutinised. At the end of its update, WPP offers this assessment:
“Although the economic gloom has heightened recently, with further earnings disappointments, surprise dividend cuts, continued financial restructurings and rights issues, we still believe there will be a recovery of sorts in 2010, partly driven by weak comparatives, as the massive Keynesian fiscal injections, quantitative easings and interest rate reductions take hold. These already approximate to $12 trillion or approximately 20% of worldwide GDP of $64 trillion.
“The more interesting question, probably, is how the West, in particular, will emerge from the current crisis and reduce the colossal government deficit needed to fund the early stage of the recovery. There seem to be two possible routes. First, the more prudent and painful – reduce government spending, increase taxes and unemployment and learn to save again. Secondly, inflate our way out of the problem and continue to spend and lend, with significant resultant increases in inflation and long-term interest rates.
“Given the politically unpleasant implications of the first route, the second course is more likely. As a result, those countries that are capital rich and have saved – like Brazil, China, India, Japan and eventually, when the oil price rises again, Russia – will benefit even more.
“In the long-term, the outlook for the advertising and marketing services industry appears favourable. Overcapacity of production in most sectors and the shortage of human capital, the developments in new technologies and media, the growth in importance of internal communications, the need to influence distribution and the new focus on corporate responsibility issues such as climate change, underpin the need for our clients to continue to differentiate their products and services both tangibly and intangibly.
“Advertising and marketing services expenditure as a proportion of gross national product should eventually resume its growth, although, in these difficult times we are committed to working with our clients to improve the effectiveness and efficiency of their spending.”
Tim Burrowes founded Mumbrella in 2008. He worked on Mumbrella until 2021. At various points he was editor, content director and editor-at-large.
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