• by Steve McClellan  @mp_mcclellan, September 21, 2011

While advertisers are sticking to their 2011 budgets, for now, WPP CEO Sir Martin Sorrell told a crowd of investors and analysts in New York Wednesday afternoon that "the watchword is caution."

"I have to be honest -- we all feel nervous," Sorrell said, of both himself and his senior management team. Speaking at the Goldman Sachs Communacopia Conference, Sorrell noted that WPP will be starting its 2012 budget process soon, with an eye toward keeping expenses flat next year.

Sorrell stressed that business is not bad and that WPP "is in good shape." But the general mood among consumers and business leaders, he said, is "uniformly gloomy." In part, he said, the gloom is a reaction to all the press accounts and analyst reports about how shaky the economy is.

And there are real economic concerns, Sorrell noted, as well as a lack of leadership in dealing with some of them. Most notably, the debt crisis in Greece has contributed to the pessimism on the part of both consumers and businesses.

But while a Greece default and its impact on other European countries is a serious concern, more worrisome is what happens in the U.S. in 2013. Sorrell said that President Obama "probably" would be re-elected, and most likely will be handcuffed by a Republican-controlled Congress. Emerging markets may be booming, but the U.S. -- a $15 trillion economic powerhouse -- "still drives the world economy," he said.

At a recent meeting of business leaders, Sorrell said, an informal poll showed that most companies were sticking to 2011 budgets -- barring some sort of Lehman Bros.-type event that preceded that last recession. But next year companies are planning tighter budgets -- either flat or up to 5% declines versus 2011, he said.

And while Western Europe and the U.S. remain slow-growth regions for advertising expenditures, other parts of the world remain robust, Sorrell said. He noted that WPP will generate $1.1 billion in revenue from China this year -- about $100 million more than the company budgeted for. In Brazil, the company's revenue will hit $700 million this year. "The challenge," he said, is "maintaining the growth." Next year, organic growth for the company in China will reach 15% or between $100 and $150 million.

In 2012, said Sorrell, industry-wide ad spending growth will probably be between 2% and 3% -- "and I would hope we would do a little better." The London Olympics and the U.S. elections should help, he said.

Sorrell noted that 30% of WPP's revenue now comes from digital, including about $850 million from OgilvyOne and $950 million from Wunderman. "I wish I had more of it," he said. He noted that increasingly, new client relationships are established through a digital assignment and expanded from there.

Sorrell said the biggest disappointment at WPP in terms of operating divisions is research arm Kantar. And the biggest problem there is on the custom research side of the business, particularly in the U.S. and Western Europe where revenue growth is the issue.

WPP's last major purchase was market research firm Taylor Nelson Sofres, which it acquired in 2008 for about $1.9 billion, and which was folded into Kantar. But at least for the foreseeable future, Sorrell said the company would not make any more billion-dollar acquisitions. More likely, upcoming acquisitions would be what he termed "small or medium-sized" purchases of digitally focused agencies or consumer insight firms in new and emerging markets.

After his session ended, Sorrell told reporters that all signs point to WPP moving its headquarters back to London in late 2012 or 2013 as the U.K. looks to alter its corporate tax structure. The move back would have to be approved by shareholders, Sorrell said. WPP moved its headquarters to Dublin in 2008, largely because of tax issues.