Multi-nationals finding it pays to advertise

ADVERTISING giant WPP yesterday suggested that the global economy is in better shape than had been thought, with cash-rich multinationals promoting their brands and helping the bellwether company generate record profits of £1 billion.

The firm, whose clients include Ford, Vodafone and Virgin Airlines, claimed record performances “on virtually whatever measure you care to name” last year, despite “difficult circumstances”.

Its 18.5 per cent rise in pre-tax profits surpassed analysts’ expectations, especially as the advertising industry is seen as being particularly vulnerable to wider economic sentiment.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “If the company is seen as a leading indicator since it reflects corporate investment in advertising, there may be rather brighter times ahead.”

Hailing a “landmark year” in which revenues topped £10bn, WPP noted that it had surpassed levels seen before the recession of 2009, when spending cutbacks by both consumers and corporates hit it hard.

It said: “The financial world did not, in fact, come to an end as some had predicted. Western based multi-national companies, which today are reputed to be sitting on as much as $2 trillion (£1.3tn) net cash with relatively un-leveraged balance sheets, were still fearful of making mistakes but prepared to invest in capacity and behind brands in fast growing markets.”

WPP argued that western firms wary of increasing their fixed costs with new products and markets had instead invested in advertising to gain market share at home. “This positive double-whammy has clearly benefited our industry over the last two years,” it added. “2012 may well be similar and we may benefit again.”

In further evidence of the rise of social media, chief executive Sir Martin Sorrell said WPP will double the amount spent with Facebook to about $400m in 2012.

But he said that while Facebook was a powerful branding tool, it remained more of a PR medium than an advertising one.

“It is a social network, so people engage with it on a social basis rather than a commercial basis,” he said.

WPP spent $1.6bn with Facebook’s larger peer Google last year.

The ad group’s UK division, which accounts for about 12 per cent of the company’s turnover, was one of the best performing regions, with revenues up 8.8 per cent last year from brands that include Grey, GroupM, Kantar and Oglivy.

The group, which employs 158,000 full-time staff in 107 countries after creating 12,000 jobs last year, also has strong operations in developing markets such as China, Latin America and Russia. It said the advertising industry should benefit from a cyclical boost this year as the European football championships, London Olympics and US presidential campaign add 1 per cent to global spending.