WPP: 2012 Was 'Ugly,' This Year Doesn't Look Much Prettier
by Joe Mandese, Mar 1, 2013, 8:41 AM
Despite turning in its 27th consecutive year of record growth, WPP said 2012 “felt very different” in an earnings statement released this morning. “We reached our target, but we got there ugly,” said the world’s largest advertising company, and the parent of GroupM, tenthavenue, Xaxis and some Madison Avenue’s leading ad agency brands.
Total revenues rose only 3.5% over 2011, due largely to the performance of its media-buying, advertising, PR, branding and health care marketing services units, while its marketing and media research divisions were essentially flat.
“So why was 2012 such a difficult year?,” the agency holding company posed, noting: “ Clients were certainly in stronger shape with profits at an all-time high as a proportion of GDP, margins generally stronger, share prices rising as institutional investors rotated out of government securities and sitting on, in the case of U.S.-based multinationals, over $2 trillion in cash with relatively unleveraged balance sheets.”
The reason, WPP continued, is that big marketers “still lacked the necessary confidence given the 'grey swans,' or known unknowns. Black swans are the unknown unknowns which by definition we do not know what they are.”
Specifically, WPP cited “least four, perhaps five,” including the “fragility” of the Eurozone; turmoil in the Mideast; a “hard or soft landing” in previously high growth among BRIC nations, especially China; record U.S. debt; and the U.K.’s possible withdrawal from the Eurozone.
“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 concluded, adding that most big clients remain focused on high-growth markets -- geographically and functionally (especially digital) -- and that their behavior is not likely to change this year.
“The pattern for 2013 looks very similar to 2012, perhaps with increased client confidence balancing the lack of maxi- or mini-quadrennial events. Forecasts of worldwide real GDP growth still hover around 3%, with inflation of 2% giving nominal GDP growth of around 5% for 2013, although they have been reduced recently and may be reduced further in due course,” WPP said, adding that advertising as a percentage of GDP would likely remain “constant overall,” although it is still at “relatively depressed historical levels.”
Among its media operating units, WPP said 2012 was a banner new business year, with GroupM, Xaxis and tenthavenue generating net new business billings of $3.437 billion.