While there was no mention of a bath-shaped recession, Sir Martin Sorrell’s crystal ball yesterday forecast a rough year ahead for global business, including his own, WPP.

Reporting third-quarter results, the world’s second-largest advertising group offered a snapshot of how the economic slowdown is affecting different regions of the world.

Revenue from the United States was flat and UK turnover increased by only 2.9 per cent as consumer spending fell and the credit crunch tightened its grip.

Sir Martin, who famously identified the last advertising recession as being “bath-shaped” (meaning a steep climb back to economic health), said: “2009 is going to be very tough and the rest of this year will be difficult but we will do whatever is legal to make sure we hit our 15.5 per cent margin target.”

Advertising is closely linked to wider economic forces and WPP’s results for the three months to the end of September show the shift in the balance of economic power to the East, according to Sir Martin.

WPP said that revenues from Asia, the Middle East and Latin America continued to boom, with growth of 16.5 per cent. Sir Martin said: “If you look at GDP forecasts for the world, they are 2 per cent to 3 per cent. Growth in the West – the US and Europe – is likely to be zero or negative, while the rest of the world – Asia, Africa, Middle East – will still grow at up to 6 per cent.”

He added: “Next year, India is probably in the strongest position, with China, Brazil and then Russia as the weakest of the BRIC countries. Their significantly greater growth means the divergence between mature economies and rapidly growing ones will grow wider.”

Similarly, WPP expects further divergence between growth in digital and traditional media as advertisers increasingly flock to the internet, which is typically a cheaper medium than television.

However, Sir Martin points out that the pricing of advertising with ITV, the UK’s largest commercial broadcaster, has fallen to such an extent that it has “become attractive again”: He said: “The question is whether people have the vim and vigour to buy them – a bit like equities, which are looking cheap but is that enough.”

Last month, Sir Martin forecast that next year the internet would take more advertising by revenue than television. Yet, he pointed out that TV is heavily regulated and the internet is not. “Google is effectively the biggest media owner in the UK and it is unregulated.”

As broadcasters struggle with declining audiences and falling advertising revenues, Sir Martin believes that the Government should be more open to new revenue streams, such as product placement.

WPP, which owns the JWT and Ogilvy & Mather agencies, admitted that weakness in its Western markets would make this a very tough year and it would struggle to hit its profit margin target of 15.5 per cent. WPP also said that the Beijing Olympics had not created the advertising bounce that had been hoped for.

Across all regions, the company’s like-for-like revenue growth was 3 per cent in the third quarter. Its total revenue increased by 16.2 per cent to £1.72 billion.

WPP’s share price has fallen by more than half this year on fears that a recession would cut its earnings. Addressing these concerns, the company said: “It is not likely that our budget will reflect the Armageddon currently predicted by the fall in stock prices.”

The company said recently that it would move its headquarters to Ireland, before expected changes to Britain’s corporate tax regime, but WPP will continue to have its primary stock listing in London. Its shares closed up 31p (9.3 per cent) at 363.5p.

Sir Martin's world view

On TNS, a target for WPP, discussing a merger with GfK

“Mergers of equals don't really work. Mergers of equals tend to be the two drunkards being propped up by the lamp-post. They haven't even examined our proposal. They are, I think, prejudiced, for whatever reason, against engaging with us.”

On Google

“Google is effectively the biggest media owner in the UK and is unregulated.”

On China, in 2006

“There are 1.5 billion Chinese and I'm sure there's a Brin or a Page knocking around in that group. There may be five or six graduates sitting in a shed in Shanghai about to come up with the next big idea that makes them the Chinese Google.”

On WPP

“Founding a company and developing a company is as close as a man can come to physically giving birth.”

On his legacy

“I suppose it would be that he founded and was instrumental in building the best company in our industry and that means everywhere in the world.”

Source: Times Archives

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