Calls for New Emphasis on Product Innovation and Branding

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NEW YORK (AdAge.com) -- The chief executive of WPP Group, Martin Sorrell, told the Credit Suisse Conference today that 2004 "was a relatively good year" and that the agency holding company expects to achieve 3% to 4% growth as the industry grows by the same amount.

Speaking in the Grand Ballroom of the Plaza Hotel here, Mr. Sorrell kicked off the "Media and Telcom Week" gathering with his 8 a.m. presentation.

Trade promotions
Mr. Sorrell predicted that the advertising industry's expansion will slow in 2005. Factors contributing to this, he said, include the U.S. fiscal deficit, a weak dollar and inflated prices for commodities. He also noted that marketers continue to use trade promotion to spur growth, a trend he characterized as troubling.

"The inexorable march of [retail companies like] Wal-Mart, Tesco and Carrefour put pressure on manufacturers," he said. "We are concerned by the emphasis on trade promotion. That's a recipe for disaster in our view," because consumers become used to waiting for sales. The better approach to lead to growth, he said, is to rely on innovation in product development and branding.

Mr. Sorrell forecasts industry growth of 2% to 3% in 2005, and WPP expects to be at "the top end of the range." Profit margins are targeted at 14%.

WPP profit margins
For the current year WPP estimated organic growth of 3% to 4%, and Mr. Sorrell expects "we'll come in to the north of that." Regarding profit margins, "the market is expecting 13.8% this year, and we think we'll do that," he said. Earnings-per-share growth is expected at more than 15%.

In new business, Mr. Sorrell had much to crow about: The "unprecedented level" of new-business activity cited in October by WPP management for the first nine months of 2004 is continuing. The company has added $3 billion in new billings in the fourth quarter to the $3.2 billion already tallied for the first nine months. "It's very pleasing to start the fourth quarter" with another account win, he said, referring to a $200 million global account from Samsung that WPP vied for against Publicis Groupe and Interpublic Group of Cos. Other wins include roughly half of Nestle's global media buying and planning business and media buying and planning for Unilever.

IPG's David Bell
At a separate session, Interpublic's president-CEO, David Bell, was bullish on his company's future while offering fewer specifics about its performance. Interpublic, which owns McCann WorldGroup and Foote Cone & Belding, is the midst of a 24- to 36-month turnaround that began in June 2003. Mr. Bell said that in the past year the company had made strides in a range of areas, from organic growth to attracting talent to stabilizing the financial performance of a company that's still coping with the hangover from a late 1990s acquisition spree.

IPG culture in flux
Mr. Bell also noted that Intepublic's culture is in flux, with its agencies changing from "fiercely independent to fiercely interdependent."

This evolution could extend to its three main media properties. Company officials are currently planning to reorganize those units, which include negotiating unit Magna Global and buying and planning units Initiative Media and Universal McCann. In his address Mr. Bell confirmed a report that initially appeared in Advertising Age that the company is looking to a plan in which "media assets report into a common leadership structure." He gave no further details on who would lead this structure.

Interpublic has also seen increasing involvement of late from Chairman Michael Roth, though Mr. Roth did not take part in the company's presentation.

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