Ad Buyers Aren't Buying the Market Gloom

By the Financial Times (Financial Times) -- Gathering "storm clouds" over marketing budgets failed to darken an upbeat outlook from WPP as Martin Sorrell's advertising group shrugged off macroeconomic uncertainty and doubled its acquisition budget for the second time this year.

Reporting a 37% increase in first-half profits on Wednesday, the chief of the world's largest marketing services group by revenues suggested operating margins could continue to improve next year even if revenue growth slowed.

WPP's confidence comes after recent results from competitors Interpublic and Publicis missed analysts' forecasts amid concern that media spending would be hit by weaker business confidence. On Wednesday, shares rose 7.4% to 623p (£6.23), having declined by more than 25% in the year to date.

Sir Martin said a "dissonance" existed between recent macroeconomic turbulence and clients' maintenance of advertising spending, even as they refrain from capital expenditure.

"I think people have lost perspective," he said, referring to recent stock market fluctuations. "Maybe the markets are rarely wrong, but then they do swing too far one way or another." Compared with the financial world, "the people running businesses, the people that we deal with in the real world, are not as gloomy". He added that among marketers there was "no evidence to date of a change in attitude".

Sir Martin warned that there may be some impact on spending as budgets are set for 2012.

But he said that was likely to be offset by continuing strength in fast-growing markets such as China and Brazil as well as by an uplift from the London Olympics, U.S. presidential election campaigning and Uefa European football championships.

Sir Martin said WPP was monitoring staff hiring, but flexible costs -- such as using freelancers and incentive payments -- gave the group a "big buffer if economic conditions deteriorate".

The group expects to spend about £400m on acquisitions in 2011, including deals already struck -- twice its previous estimate.

WPP had doubled its previous guidance for acquisitions in April after its debt-to-earnings ratio fell.

WPP said that it would focus on small to midsized deals rather than larger acquisitions.

For the six months to June 30, WPP posted sales of £4.71 billion, up 6% on a year earlier.

On a like-for-like basis that excludes acquisitions and currency fluctuations, sales also rose 6.1 per cent, in line with previous guidance for 2011.

WPP's sales growth in emerging markets was just over 10%, while North America and the U.K. both produced growth of more than 5%.

Pre-tax profit rose 37% to £334.3m. Diluted earnings per share rose 51 per cent to 18.1p.

A first interim dividend of 7.46p has been declared, up 25%.

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