WPP's pre-tax profit rises to £1.09bn

Sir Martin Sorrell says that marketing group 'got there ugly' and warns economy may be only halfway through 'a lost decade'

Marketing and advertising group WPP enjoyed record pre-tax profits of more than £1bn for the second year running in 2012, although founder Sir Martin Sorrell admitted "we got there ugly" and warned that the global economy may only be half way through a "lost decade" following the financial crash.

WPP, the world's biggest marketing services group, reported pre-tax profits up 8.3% year-on-year to £1.09bn in its preliminary results published on Friday. Global revenues were £10.37bn, up 3.5% and topping £10bn for the second successive year.

But overall profits after tax, which climbed more than a third in 2011, slipped back 2.4% to £894.7m as taxation on profits nearly doubled year on year to £197.2m.

Sorrell, who twice cut the company's forecasts for 2012 during the course of last year, said: "2012, the group's 27th year, was like the previous year, a record year, but it felt very different. We reached our targets, but we got there ugly."

WPP spent £93m restructuring its business in western continental Europe, where income fell 2.6% to £2.4bn. But Sorrell said the company did not cut costs quickly enough in response to sliding revenues in the second and third quarter of last year.

Sorrell warned that 2013 would be another demanding year, with slow or stagnant growth in western continental Europe (excluding the UK) likely to continue for some time. He added: "We may well only be half way through a lost decade, post-Lehman."

Sorrell said the US budget deficit remained the "elephant in the room" and last-minute attempts in the US Congress to deal with the problem on New Year's Eve "only succeeded in kicking the can further down the road".

At the risk of mixing his metaphors, Sorrell said the US deficit was the most threatening of the five of his so-called "grey swans", the "known unknowns" affecting the global economic outlook (unlike "black swans", which take the market by surprise).

Along with the Eurozone crisis, turmoil in the Middle East and a slowdown in fast-growing economies such as China, Brazil and India, Sorrell's grey swans also include David Cameron's decision to have a referendum for the UK's membership of the European Union, which he said added "further uncertainty" to the UK economy.

WPP's UK revenues were up 7.7% to £1.27bn, boosted by the London 2012 Olympics, while revenues in north America were up 4.7% to £3.55bn.

Globally, like-for-like revenues in January 2013 were up more than 2% for the month, ahead of budget and similar to the final quarter of 2012. It is targeting 3% like-for-like growth in 2013.

WPP's share price, after early gains on Friday morning, had settled back to £10.52, down 2p, just before 2pm.

Sorrell said the outlook for 2013 looked similar to 2012, with increased client confidence balancing the lack of big events to match last year's Olympics and the US presidential elections.

But Sorrell said the US elections and London 2012 games, along with the European Football Championships, had not quite been the boon people had anticipated.

"The three maxi-quadrennial events of 2012 … did underpin industry growth but not, perhaps, as much as was thought, with money being switched from existing budgets, particularly in the cases of the Uefa Championships and Olympics," said Sorrell.

Looking further ahead, he said 2014 was a "better prospect" with the football World Cup in Brazil and more elections – the mid-term congressionals – in the US.

"Although both consumers and corporates seem to be increasingly cautious and risk averse, they should continue to purchase or invest in brands in both fast and slow growth markets to stimulate top-line sales growth," added Sorrell.

"As a leading chief investment officer of one of the largest investment institutions said recently, companies may be running out of ways of reducing costs and have to focus more on top-line growth."

WPP's like-for-like growth of 2.9% in 2012 beat market expectations of 2.6% and was in line with the company's own targets.

With a portfolio of businesses including ad agency networks Ogilvy & Mather and Young & Rubicam, WPP's strongest growth last year was in the emerging markets, where revenues were up by 5.7% to £3.11bn. WPP increased its dividend payout by almost 16% to 28.5p.

Paul Richards, analyst at Numis Securities, said the results were "slightly ahead of our and consensus estimates". Organic growth was 2.9% including a "solid" 2.5% in the fourth quarter of last year, according to Numis.

But while revenue in advertising and media were up, consumer insight and PR revenues were broadly flat. WPP said it had been a "more difficult year" for its public relations and public affairs businesses, with full-year growth of 4.2% but like-for-like revenues down 1%.

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John Plunkett

The GuardianTramp

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