WPP will increase its sales by four per cent next year CEO Sir Martin Sorrell says, to just over £10bn. This compares with a sales increase of just over six per cent this year (2011) so hardly joy unconfined but not a disaster either.
“A couple of months ago had you said to me what will I expect from the 2012 budget, I would have estimated two to three per cent” sales growth, Sorrell told a Morgan Stanley media conference in Barcelona. “I don’t think that 2012 is going to be as bad as some of the doom mongers would have you believe.”
He also said that the company, the world’s biggest marcoms operator by sales, would aim for a profit margin of four per cent next year compared to this year’s likely 5.7 per cent. So down then.
On the face of it this doesn’t look particularly good but Sorrell is clearly damping down expectations, presumably in the hope that WPP can exceed them. And a speech in Barcelona made at a time when the cost of Spanish government borrowing neared the dreaded seven per cent in a bond auction isn’t a bad opportunity to slip out a little bad news.
All the major marcoms companies have surged back from the credit crunch strongly this year but it’s now beginning to look rather like a ‘dead cat’s bounce’ as fears of a further recession in the Eurozone and associated economies like the UK gather strength.
Publicis Groupe boss Maurice Levy told the same gathering that the company was instituting a freeze on hiring following evidence of “some leakage” in client budgets. He also claimed, rather contrarily, that if the company won 60 per cent all the digital projects it was pitching for it wouldn’t be able to handle them because of a shortage of talent.
Fortunes next year will be helped to a degree by the US presidential elections, the London Olympics and the Euro football finals. Sorrell has said consistently that 2013 looks likely to be a bummer because of the high US government deficit.
As for WPP specifically Sorrell said that it would spend between £200 and £300m on acquisitions next year compared to this year’s £400m. Students of WPP will recall that 2011’s budget was originally £200m but, as usual, this was exceeded.
Being the biggest matters to WPP and if its rivals, Omnicom, Publicis Groupe and Interpublic, were to start brandishing their cheque books Sorrell would surely see the need to compete.
But it does look as though he’s ruling out a really big deal, like the near-disastrous investment of £1.1bn in Anglo-French researcher TNS in 2008.
This may have reinforced WPP’s Kantar research division’s status as the world’s second-largest after US-based Nielsen but, in 2011 anyway, Kantar is making hardly any money. In the rest of 2011 and into 2012 Kantar has to compete with strengthened French firm Ipsos, which splashed out £528m to buy Synovate from Aegis, and Germany’s solid GfK.
Making a decent return on Kantar is key to WPP’s chances of improving its margins to the levels Sorrell hopes for.