WPP profits on advertising market rebound

Watch: 'Western companies are going to be cautious' says WPP's Martin Sorrell

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Marketing group WPP saw profits in 2010 rise by almost a third to £851m, thanks in part to a rebound in US advertising in the final quarter.

Like-for-like revenue growth - ignoring the effect of acquisitions - hit 8.5% in the last three months of the year.

For the year as a whole, the group saw like-for-like revenue growth of 5.3%

The results were slightly better than expected, and follow similarly strong upturns at industry rivals Omnicom of the US and Publicis of France.

Omnicom reported 10% revenue growth for the fourth quarter, while Publicis saw a 12.5% rise.

Profit taking

WPP said it expects its own growth to continue at a 5% clip into this year, and raised its dividend by 15%.

The numbers were widely anticipated, but the company's share price fell 2% in early trading, making it the worst performer in the FTSE 100 index.

The sell-off was due to "profit-taking", according to brokerage Hargreaves Lansdown, with investors seeking to lock in their gains from a 39% rise in WPP's share price since July.

The company's robust financial results were driven by continuing strong growth in China as well as the rapid recovery in the US market.

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The recovery in advertising reflects nervousness, caution among corporate bosses about what the future has in store”

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"The United States behaved more like a fast-growing, or as some others insist on calling them, an emerging market, growing at 7%, against GDP growth of around 3%," noted the firm in its preliminary results.

However, speaking at the Davos summit earlier this year, chief executive Sir Martin Sorrell warned that, while he expected the recovery to continue this year, much would turn on how the US government tackles its budget deficit, which he called the "big gorilla in the room".

'Closed system'

The headline is "traditional media in the United States bit back" Sir Martin told BBC Radio 4's Today programme on Friday, noting that TV and radio advertising has done particularly well.

He attributed some of the pick-up in spending by Western companies to a "dead cat bounce" because 2009 was so difficult.

But the caution of US and European companies may also have worked in the advertising industry's favour, with many clients choosing to invest more in their brand instead of in additional capacity, he said.

Sir Martin also downplayed the impact on his industry of the iPad, criticising Apple for operating a "closed system" unfriendly to advertisers.

"People were euphoric about it at the beginning," he noted. "I think there was a view that it would generate more revenues for traditional media than it has done."

Nonetheless, the company expects new markets and new media to take up an increasing share of business, with WPP raising its targeted share of revenues from 33% to 35-40%.

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