March 4, 2011 – By Kate Holton
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LONDON (Reuters) - The world's biggest advertising group WPP <WPP.L> is winning new business from companies flush with cash but reluctant to commit to longer term investments, driving strong growth in the U.S. and in TV.
Together with a good performance in fast growing markets such as China, the trend helped the British based group follow peers and post strong full-year results on Friday with a solid outlook for 2011.
"In Western markets we are seeing companies who are not investing in capacity, they're afraid of making a mistake, so instead they invest in the brand," Chief Executive Martin Sorrell told Reuters.
"You have two trillion dollars plus sitting on the balance sheets of Western multinationals and they're not spending it."
The same hesitation to commit to longer term spending appeared to favor staffing companies in the fourth quarter which have reported strong growth in the temporary worker sector.
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WPP <WPP.L> said the robust trading had also continued into January, although its stock slipped in early trading after strong results from rivals Omnicom and Publicis pushed expectations and the WPP share price up strongly in recent weeks.
The new dynamic meant markets such as the U.S., Germany and Britain performed well while traditional advertising such as free-to-air television also showed strong growth.
That compared to Omnicom however which reported fourth quarter growth of 10 percent, giving it a total of 6.4 percent for the year and Publicis which posted growth of 12.5 percent for the last three months of the year and 8.3 percent for 2010.
Headline operating profit before interest and tax was up 21 percent to 1.2 billion pounds and in line with forecasts.
For 2011 WPP expects the key industry metric of like-for-like growth, which strips out the impact of acquisitions and currency moves, of 5 percent and operating margins to rise 0.5 margin points to 13.7 percent.
"Overall, the results look robust but with stock up 8 percent in the past month post peers strong results, and trading at 13.5 times 2011 forecasted earnings, close to a historic high relative to the FTSE, we struggle to see significant catalysts to drive notable out-performance," UBS said.
The results do however mark a sharp rebound for WPP which posted organic revenues down 8 percent in 2009.
A solid update by another peer Interpublic <IPG.N> and reports from media groups that ad markets were growing strongly has also added to the sense in recent weeks that the industry is well into a recovery from one of the toughest downturns in recent history.
Sorrell said he hoped his 2011 forecast of around 5 percent growth would prove a little bit conservative although he noted that there were still reasons to be cautious, including fears over the eurozone debt crisis and the unrest in the Middle East.
The 2011 growth is expected to be driven by the faster growing markets such as India and China as the U.S. and Europe return to more normal rates and Sorrell also tipped digital marketing to pick up any drop off from traditional sources.
Overall reported revenue was up 7.4 percent to 9.3 billion pounds ($15.14 billion), compared with an analyst forecast of 9.2 billion pounds. The group also said it would target a divided pay-out ratio of around 40 percent over the medium term from around 30 percent.
(Reporting by Kate Holton; editing by Matthew Scuffham and Andrew Callus)