By Dow Jones Business News, March 01, 2013, 03:01:00 AM EDT
By Ruth Bender
PARIS--Advertising giant WPP PLC (WPP.LN) Friday warned that marketers look set to remain cautious in their spending
on advertising throughout the year even though the toughest market, Europe, showed some improvement in the last quarter
of 2012.
WPP, the world's largest advertising company said clients generally are slightly more confident than they were during
the 2008 financial crisis, though concerns over the euro-zone, political instability in Italy but also in the Middle
East and the ongoing concern over the U.S. debt pile will continue to weigh on clients' minds.
"Whilst clients may be more confident than they were in September 2008 pre-Lehman, with stronger balance sheets, these
increased levels of uncertainty combined with strengthened corporate governance scrutiny make them unwilling to take
further risks," WPP said in a statement.
Ad agencies have been feeling the pain from marketers cutting back on advertising spending notably in recession-hit
Europe. In September, agencies saw sharp drops in sales as clients preferred to postpone or cancel campaigns amid
heightened concerns over the euro-zone.
Yet after sharp drops in September, most agencies finished the year on a better note. Revenue from Western Continental
Europe fell 0.7% on an organic basis in the fourth quarter, compared with a 2.1% fall in the third quarter as Italy,
Turkey and even Greece grew. Other markets however, including France, Portugal and Scandinavia were tougher, WPP said.
WPP said organic revenue--a closely-watched figure in the industry stripping out exchange rate movements, acquisitions
and disposals--rose 2.9% to GBP10.37 billion in 2012. In the fourth quarter, organic revenue growth improved to 2.5%
from the 1.9% growth posted in the third quarter as all regions, except the U.S. grew strongly. This, however, was lower
than the 3.9% growth posted by rival Publicis Groupe SA (PUB.FR) and the 2.7% from U.S. rival Omnicom Group Inc. ( OMC ).
In January, organic revenue growth was up 2%, WPP said.
For 2013, WPP is targeting organic revenue growth of around 3%, a budget it called slightly more conservative than
usual after the group last year had to lower its guidance twice due to a worsening market environment.
WPP's outlook echoes that of rivals.
Earlier this month, Publicis warned that 2013 looks set to be even more difficult than 2012 but aimed for organic
revenue growth of more than the 2.9% it posted in 2012. NY-based Interpublic Group of Cos. ( IPG ) has targeted organic
revenue growth of between 2% and 3% for this year. Omnicom, the world's second-largest ad holding company, said growth
would be modest in 2013 in the absence of big events such as the Olympics and ongoing weakness in Europe.
WPP's net profit fell 2.1% to GBP822.7 million from GBP840.1 million a year earlier when the release of provisions
lowered tax. Revenue rose to GBP10.37 billion, slightly above consensus expectations of GBP10.35 billion, as the boost
from acquisitions partly offset the drag from a stronger sterling compared with the euro.
Profit before interest, taxes, and exceptional items--the key figure tracked by analysts--rose to GBP1.53 billion in
2012 from GBP1.43 billion a year earlier, meeting market expectations. WPP's operating margin rose 0.5 percentage point
to 14.8%, in line with the group's target.
WPP, which owns ad agencies including Young & Rubicam and Ogilvy & Mather, said it targets a further improvement in
its margin to 15.3% this year.
WPP shares closed on Thursday at 1,054 pence, valuing the company at GBP13.33 billion.
-Write to Ruth Bender at ruth.bender@dowjones.com
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