WPP’s Sorrell says Europe a sideshow ahead of US

Tuesday, 29 November 2011 01:43 -     - {{hitsCtrl.values.hits}}

LONDON  (Reuters): Martin Sorrell, head of the world’s largest advertising company, warned on Monday that the debt crisis gripping the euro zone was merely a sideshow to the United States which will face its own funding crunch in 2013.

Speaking at the Reuters Global Media Summit, the chief executive of WPP said he did expect Europe eventually to find a solution to the problems that have seized the region, although he said he had himself almost given up on politicians and their ability to act.

He has become slightly more optimistic about the opportunities for WPP in 2012, as it will be lifted by the impact of the London Olympics, Euro 2012 soccer championships and the Presidential election in the United States.

But forecasts for 2013 are less clear.

“I think America is kicking the can down the road in terms of deficit reduction,” he said, speaking from New York via video link to London. “America really still has to deal with the deficit problem.

“And whilst the situation in Europe is very serious, I believe it’s a sideshow in a sense to what America has to do in dealing with its deficit.”

Sorrell, who employs over 150,000 people including associates in over 100 countries, said he was managing his business by controlling costs to further grow margins because he could not rely on politicians to settle the uncertainty sparked by high sovereign debt levels and sluggish growth.

Asked if the group had made any provisions for the exit of certain euro zone countries and their subsequent return to local currencies when writing contracts with clients, he admitted it was almost too complicated.

“The complexity fills everybody with such appalling fear and is so complicated that the last thing in the world you want to happen is that,” he said. “But the honest answer is that, like everybody else, you try and contingency plan for any break-up of the euro zone.

“Most business people have given up waiting for the political Godots. You just can’t run your business on the basis that something will turn up, so you have to plan on the basis that it doesn’t turn up.

“So you think about what legally and contractually it is going to mean. You also say ‘I’m going to run my balance sheet as conservatively as possible’.”

WPP has posted solid growth through 2011 and expects to achieve organic growth of 5 percent, due to strong trading in faster-growing markets such as China and India, a solid performance in the United States and an improving picture in Britain.

Sorrell said the Conservative-led coalition government in Britain had delivered on its pledge to slow public spending, but said it now needed to reveal its plans for growth.

“What they’ve done is moderate the increase in government spending -- that was the first half of the job,” he said. “This is a company they’ve taken over that’s in desperate trouble. So what do you do? You cut the costs but ... you can’t cut your way to prosperity.

“You have to have some growth plan.”

Finance Minister George Osborne will deliver his autumn statement on Tuesday and set out how he expects to boost the flagging economy.

Advertising markets in Britain should be boosted next year by the summer Olympics, and combined with the Euro soccer championships and U.S. election, Sorrell expects those three major events to account for around 1 percent growth next year.

He repeated his belief that the group should post organic revenue growth of around 4 percent next year.

“But the acid test is not 2012 but 2013, when we don’t have any major events,” he added.