Sir Martin Sorrell says WPP's emerging world businesses are doing well and the developed world ones are not. Headcount grew faster than revenue in the first nine months, which means layoffs. The first two quarters of next year will be brutal. Hopefully it gets better after that, but Sir Martin doesn't think so. He's looking for a recovery in 2010.
Transcript courtesy CNBC:
CNBC’s David Faber: I'M DAVID FABER HERE WITH SIR MARTIN SORRELL, CHIEF EXECUTIVE OF WPP.
Sir Martin Sorrell: GOOD MORNING, DAVID.
Faber: GOOD MORNING. YOU'RE STILL STANDING. I SAW IT.
Sorrell: I DON'T STAND VERY HIGH. YOU KNOW, YOU DON'T NOTICE THE DIFFERENCE.
Faber: NOR DO I. TELL ME AT THIS MEDIA CONFERENCE, A LOT OF FOCUS ON ADVERTISING. YOU CERTAINLY HAVE A VERY GOOD INSIGHT INTO THAT GIVEN YOUR AGENCIES AND EVERYTHING ELSE.
Sorrell: HOPEFULLY WE DO, YES.
Faber: WHAT DO YOU SEE FOR 2009?
Sorrell: EVERYBODY COMPLAINS THERE IS NO VISIBILITY. I DON'T LIKE THE USE OF THAT WORD. BASICALLY THEY DON'T KNOW OR THEY CAN'T FORECAST EASILY WHAT'S HAPPENING. WE'RE STARTING TO LOOK AT OUR BUDGETS THIS MONTH AND THIS MORNING HAVING A LOOK AT PART OF THEM AND WE'LL SPEND THE NEXT COUPLE OF WEEKS GOING THROUGH THEM. IT IS VERY DIFFICULT TO FORECAST, TO BE FAIR. BUT WHAT WE SEE IS WHAT WE'VE BEEN SAYING FOR A LONG TIME, IS YOU SEE PARTS OF THE WORLD LIKE ASIA, AND LATIN AMERICA, AND AFRICA, THE MIDDLE EAST AND CENTRAL AND EASTERN EUROPE LOOKING BETTER, ALTHOUGH RUSSIA IN THE CONTEXT OF CENTRAL EASTERN EUROPE IS GOING TO HAVE A VERY HARD TIME NEXT YEAR. FUNCTIONALLY OR BY MEDIA TYPE YOU SEE NEW MEDIA, PC-DRIVEN, MOBILE-DRIVEN, VIDEO CONTENT-DRIVEN BEING MORE GROWTH THERE BUT NOT AS MUCH AS WE'VE SEEN BEFORE. THAT APPLIES TO CHINA AND THE INTERNET TOGETHER. IT IS THOSE TWO.
Faber: CHINA AND THE INTERNET.
Sorrell: THE CHARTS THAT I'M GOING TO USE THIS MORNING, THE INTERNET IS GOING TO GIVE US MORE THAN 100% OF GROWTH IN 2009 BECAUSE TRADITIONAL MEDIA WILL BE DOWN WORLDWIDE.
Faber: 100% ON A VERY SMALL BASIS, STILL NOT EXACTLY MAKING ANYBODY'S YEAR.
Sorrell: I MEAN IN THE UK NEXT YEAR WE'LL HAVE ABOUT 23%, 24% OF THE MARKET. WE'LL BE INTERNET-DRIVEN. MOST OF IT E-COMMERCE DRIVEN AND SEARCH DRIVEN. OTHER PARTS OF THE WORLD WILL CATCH UP ON THAT. CLIENTS ARE STARTING TO EXPERIMENT MORE. THERE WILL BE SOME INTERESTING THINGS GOING ON NEXT YEAR. CLASSIC TELEVISION, FREE TO AIR TELEVISION WILL LOOK CHEAPER. IT WILL PROBABLY BE AT AN ALL-TIME BARGAIN LOW, CERTAINLY FOR THE LAST NINE OR TEN YEARS. COMPANIES WILL HAVE PRESSURE FROM CATEGORIES SUCH AS AUTOMOBILES AND FINANCE WHICH ARE GOING TO DRIVE SPENDING DOWN AND ARE GOING TO HAVE A BIG IMPACT ON SOME OLD MEDIA IN THE DEVELOPED MARKETS. WE'VE SEEN THIS MORNING RUMORS ABOUT NEWSPAPER GROUPS BEING UNDER EXTREME PRESSURE. THAT WILL CONTINUE AGAIN THROUGH 2009.
Faber: WHAT YOU'RE TELLING ME IS YOU DON'T HAVE A LOT OF VISIBILITY EITHER.
Sorrell: I THINK THE DIFFICULTY FOR US IS THAT PEOPLE RUNNING OUR BUSINESSES TEND TO BE OPTIMISTIC. OTHERWISE THEY WOULDN'T DO WHAT THEY'RE DOING. YOU HAVE TO BE OPTIMISTIC IN OUR BUSINESS. AND IT'S A QUESTION OF TRYING TO TEMPER THEIR ENTHUSIASM WITH WHAT ARE REALISTIC BUDGETS. OUR COMPANIES FRANKLY ARE COMING IN FLAT OR UP FOR 2009 AND WE AT THE CENTER ARE NOT SAYING THAT'S PARTICULARLY REALISTIC. ALL MAJOR COMMENTATORS THIS MORNING AT THE CONFERENCE TALKING ABOUT FLAT GROWTH FOR THE YEAR WORLDWIDE, GLOBALLY. IN THE U.S. , DOWN BY 3% OR 4%. THAT'S TEMPERED OR IMPROVED BY INTERNET SPENDING. IT IS VERY DIFFICULT TO GET THE BALANCE RIGHT. AND OBVIOUSLY I THINK THE FIRST HALF OF NEXT YEAR IS GOING TO BE A VERY, VERY DIFFICULT, WHAT WE HEAR FROM CLIENTS. THEY'RE EXTREMELY CAUTIOUS ABOUT THE FIRST HALF. IF THERE IS ANY IMPROVEMENT GOING TO COME, IT WILL COME IN THE SECOND HALF. MY VIEW IS THAT 2009 IS GOING TO BE VERY, VERY TOUGH. ANY IMPROVEMENT WE SEE COMING WILL COME IN 2010. I THINK THE FINANCIAL MARKETS, MARKETS YOU FOLLOW VERY CLOSELY ON CNBC, WILL START TO IMPROVE MAYBE THE MIDDLE OF '09. BUT I DON'T THINK THAT'S NECESSARILY AN OPTIMISTIC SCENARIO. I THINK THAT'S --
Faber: YOU'RE NOT MAKING MARKET PROGNOSTICATIONS?
Sorrell: NO, I DON'T DO THAT. BUT THE MARKET DOES GO AHEAD, AS YOU KNOW. WE'RE ALL WAITING FOR PRESIDENT-ELECT OBAMA TO ACT AND PUT MASSIVE INFUSIONS, FISCAL INFUSIONS, INTO THE ECONOMY. NOT ONLY TO HELP THE AUTOMOBILE COMPANIES, BUT TO GET THE ECONOMY --
Faber: TELL ME ABOUT AUTOS CERTAINLY HERE IN THE STATES, CERTAINLY AN IMPORTANT COMPONENT OF YOUR REVENUE BASE.
Sorrell: ABOUT 8% OR 9% OF OUR REVENUE BASE NEXT YEAR. FOR OUR COMPETITORS IT IS AS MUCH AS 15%. IMPORTANT BOTH IN THE U.S. AND IN WESTERN EUROPE NOT JUST THE BIG THREE IN DETROIT , BUT OTHER EUROPEAN MANUFACTURERS AS WELL. SOME OF THE EUROPEAN MANUFACTURERS I THINK ARE IN A LITTLE BIT BETTER POSITION. OBVIOUSLY HERE IN THE UNITED STATES THE BIG THREE ARE UNDER
EXTREME PRESSURE.AND WILL COME UNDER PRESSURE IF THEY ARE GIVEN EXTRA FINANCE TO COME UP WITH A REALISTIC PLAN FOR THE FUTURE WHICH MAY BE CUTTING BACK AS WELL.WE'LL HAVE TO SEE WHAT HAPPENS.
Faber: IN TERMS OF CUTBACKS, A LOT OF CONVERSATION HERE ABOUT YOUR BALANCE SHEETS. IN OTHER WORDS, ALL THE CEOs, THAT'S WHAT INVESTORS WANT TO HEAR ABOUT. WHAT ARE YOUR DEBT MATURITIES IN '09 AND '10?
Sorrell: NO MATURITIES TO CONCERN OURSELVES ABOUT THAT. LIQUIDITY IN A GOOD POSITION, COVENANT RATIOS IN GOOD POSITION. WE SPENT A LOT OF TIME TAKING INVESTORS THROUGH -- QUITE RIGHTLY, THEY ARE CONCERNED.
Faber: 1990 OR '91?
Sorrell: WE HAD A LOT OF TROUBLE. A LOT OF TROUBLE. BUT THAT WAS DIFFERENT. THIS IS A RECESSION SOME PEOPLE HAVE SAID TO ME THAT THE LENDERS HAVE GONE BEFORE THE BORROWERS IN THIS RECESSION. OBVIOUSLY IT IS EXTREMELY DIFFICULT. LIQUIDITY IS EXTREMELY IMPORTANT. REFINANCING ISSUES ARE VERY IMPORTANT AND WE DON'T HAVE THAT ISSUE CERTAINLY FOR THE NEXT COUPLE OF YEARS.T AND S IS BEING COMPLETED. WE STARTED TO CONSOLIDATE THE RESULTS INTO NOVEMBER AND DECEMBER. WE'LL LOOK INTERESTINGLY, THEY'RE VERY OPTIMISTIC ABOUT NEXT YEAR.
Faber: THEY'RE FOCUSED ON --
Sorrell: MARKET RESEARCH. INTERESTING THING ABOUT OUR BUSINESS, WE'RE NOW $4 BILLION OF OUR $15 BILLION IN REVENUE IS IN INFORMATION INSIGHT AND CONSULTANCY.IF YOU LOOK AT US AS AN INFORMATION COMPANY WE’RE ACTUALLY THE 4th LARGEST IN THE WORLD AFTER THOMPSON, REUTERS, BLOOMBERG, NIELSEN AND OURSELVES.
Faber: WHEN YOU LOOK AHEAD, ANY LAYOFFS AT WPP OR YOU FEEL COMFORTABLE WITH WHERE YOU ARE?
Sorrell: HEADCOUNT IN THE FIRST NINE MONTHS OF THIS YEAR AND THROUGH OCTOBER, NOVEMBER, HEAD COUNT WENT FASTER OR GREW FASTER THAN REVENUES. IN OUR BUSINESS, THAT ALWAYS MEANS TROUBLE. OR CERTAINLY MARGIN PRESSURE DEPENDING ON WHERE YOU ARE ON THE MARGIN CURVE. SO THE ANSWER TO YOUR QUESTION IS THAT IN THE WESTERN MARKETS, IN THE DEVELOPED MARKETS, AND IN THE DEVELOPED AREAS OF OUR BUSINESS, MATURE PARTS, THAT'S THE POLITE PHRASE FOR THEM, THERE WILL BE PRESSURE ON HEAD COUNT. IN OTHER WORDS, THERE WILL BE CUTS.
Faber: GOING TO BE LENGTHY.
Sorrell: IN THE FASTER-GROWING MARKETS OF THE WORLD, ASIA, LATIN AMERICA, AFRICA, CENTRAL AND EASTERN EUROPE AND IN OUR NEW MEDIA PARTS THERE WILL BE ADDITIONS. GETTING THE BALANCE RIGHT IS GOING TO BE VERY DIFFICULT. INTERESTING THING IS THAT THE INTERNET AND CHINA , ALL THOSE FASTER-GROWING COUNTRIES, GIVE US 100% OF GROWTH NEXT YEAR. THAT'S WHERE WE'LL HAVE TO BE MAKING INVESTMENT. THAT WILL BE VERY DIFFICULT FOR ANGLO-AMERICAN DOMINATED COMPANIES OR EUROPEAN-AMERICAN DOMINATED COMPANIES WHO HAVE BEEN TRADITIONALLY IN THE POSITION WHERE THEY'VE MADE THEIR INVESTMENTS IN PEOPLE, IN CAPITAL, IN SALARIES, IN BONUSES, IN THE MATURE MARKET AND HAVE IGNORED THAT INVESTMENT. GETTING THE BALANCE RIGHT NEXT YEAR IS THE SECONDARY ISSUE. GETTING THE NUMBERS RIGHT IS THE FIRST. GETTING THE BALANCE RIGHT, MAKING THE INVESTMENTS WHERE YOU NEED TO MAKE THEM. PEOPLE IN CHINA AND INDIA , ALTHOUGH THEY ARE WORRIED ABOUT THE TERRIBLE EVENTS IN MUMBAI, OR ABOUT SOCIAL HARMONY IN CHINA, THE GROWTH RATES THERE ARE CERTAINLY GOING TO BE 5%, 6%, 7%, 8% AND WE WOULD GIVE OUR RIGHT ARMS AND PROBABLY OUR LEFT ARMS AS WELL AS OUR LEGS FOR GROWTH OF THAT SORT.
Faber: SIR MARTIN, I HAVE TO LEAVE IT THERE. BACK TO YOU GUYS.
