Continue to be bullish on India; expect 10% growth: Sorrell

In an interview to CNBC-TV18, Martin Sorrell, chief executive officer, WPP gives his expectations for the company's growth. He expects the company to grow at 10 % this fiscal and definitely be over USD 500 million next year.

Also read: Return to 'Normal' growth? Unlikely till 2017
Sorrell also continues to have a bullish stance on India despite observing a lack of self-confidence in the upper echelons of business in India. "Despite the lack of self-confidence, the Indian economy still functions. It is still growing at five percent. We would give a right teeth to get a projection of five percent. Our left and right arms are in the UK and we cannot get to 0.5-1 percent," he adds. Below is the edited transcript of Sorrell's interview to CNBC-TV18. Q: Reports suggest that you are here to boost India's self-confidence?
A: No, I was here to kick the tyres. It was just that everybody seemed to need a boost when I was here. I come and all the clouds are dispelled and currently England are 146/2, so what is wrong with that? Q: How much of a problem do you think the kind of negative sentiment that prevails in India affects business? How does it affect your business, because it is reflection of business sentiment, isn't it?
A: When we look at India, it is sort of interesting. Our business here is about USD 500 million. We will not quite get to USD 500 million of revenue here with 12,000 people by the end of this year, but next year we will definitely be over USD 500 million.
If I look at this year, we are up about 10 percent organic growth excluding acquisitions and the impact of currency which has now become significant in context of India.We are going to spend the next glorious two or three weeks in New York going through the preliminary budgets. If I have to look at next year and look at what my colleagues have said when last I have been in India, they are forecasting maybe a similar level for next year actually before we have gone through it. They tend to be a bit conservation a little later.
So despite the gloom and despite this lack of self-confidence that I detect here, particularly in the upper echelons of business in India, the Indian economy still functions. It is still growing at five percent. We would give a right teeth to get a projection of five percent. Our left and right arms are in the UK and we cannot get to 0.5-1 percent.

Q: When you compare the size of the Indian economy and when you look at what 5 percent as compared to the real growth, that would result from a 5 percent growth and in real terms what you have got with a 9 percent growth. That is when the problem arises.
A: Yes, except it is all about relatives. Brazil has surpassed not only in terms of playing football but also in terms of GDP. Brazil is the sixth largest economy in the world, it is bigger than UK. Somebody says if India continues to grow at 5 percent, we are growing at 10 percent so twice the GDP rate. If India continues to grow at 5 percent and Britain continues to grow at 0.5 percent, India would be in same positions as Brazil shortly. So these things are about relative growth. What has happened in the world is that the absolute growth rates have gone down, but the relative difference between India and the UK or India and the US has remained the same.
So that is why I find the lack of self-confidence. Obviously there are political issues. You got an election coming up that causes uncertainty. There are tensions clearly between the Congress party and the BJP. It is a very difficult situation. There are clearly big issues as far as corruption is concerned. There are big issues as far as regulations are concerned. People say measures are going to be put in place like retail and then, they get blocked. Bills that are sitting in Parliament undealt with. So this causes tremendous uncertainty and anxiety. However in a longer term, what is driving the Indian economy is the rise of the middle class and lower middle class. That is what is driving Brazil, Russia and China too. Q: In this prevailing 5 percent growth scenario, given the way your business is doing in India, given that it is inching close to USD 500 million, given that China as USD 1 billion, how soon before India closing in onto the USD 1 billion for WPP at this growth rate? How many years?
A: This is a dangerous thing to say. If I could compound it, I would give it somewhere between 10-15 percent. This year a lot of people would say has been an average year. I think it has been a pretty good year for us and I would say we expect 10 percent. A good year might be 15 percent if I was being a little more expansive, if England were 350/2 maybe I would be even better, more optimistic.
However, one could say 10-15 percent, so then you are talking about six to seven years as being the target. It is very dangerous to say that, because things like that have a habit of pouching you in the backside. Acquisitions cannot give us the growth. In a market like India if we are growing at 10 percent that means the organic growth is USD 50 million. You cannot find acquisitions. You might be lucky if you find an acquisition at USD 10-12 million or USD 5 million. It is interesting that when our competitors announce acquisitions, none of them give any detail. None, zero.
_PAGEBREAK_ Q: WPP and you have been making statements that the recent acquisitions we have seen in the Indian advertising industry - Omnicom taking control at Mudra and then Dentsu and Taproot, you say are ridiculous.
A: It just go show what a Wharton MBA can do. Wharton MBAs extract very strong prices from very aggressive people who want to catch up.

Q: So you are saying they are desperate. You are saying that these acquisitions have been done out of desperation.
A: Absolutely.

Q: This is not a case of the grapes are sour?
A: No. They are done out of desperation. They are economically unjustifiable.

Q: So you know exactly how much they paid for them?
A: Absolutely. We were told by the vendors how much they were paid. The vendors were trying to jack up the prices. We know exactly and it cannot work. It just economically cannot work.

Q: When you look at what Mudra would have offered WPP, Taproot a small tiny agency, but really working and doing some of the most talked about campaigns for brands that are actually on your agency's rosters?
A: We are not lost, you heard it first here.

Q: You are saying it on the record?
A: Absolutely, I am surrounded by 25 people here.

Q: So you do not think that you missed out in the context of these acquisitions?
A: No, I would like for us to grow organically and by acquisitions, organic growth. Funny coming from me, but organic growth is always stronger. However, to be very blunt on it, the price for Dentsu is not so much. Anil Ambani is an accomplished deal maker. There is a list of people that you should have, people you do not do deals with because they are smarter than you; he will be on that list. In the case of Dentsu, it is desperation because of the lack of growth in the Japanese market which continues to go bad.

Q: So you are putting their Aegis acquisition in the same boat?
A: Absolutely. It paid a 48 percent premium. If you go back and look at the history of premium in the UK for public company acquisitions over the last 10-15 years it ranges from 30 percent at the lowest to 50 percent at the highest. They paid the top-top price and there was no reason for them to do it, because there was no other bidder - zero.
_PAGEBREAK_ Q: So, there have been reports in papers like The Economics Times?
A: Usually, I am substantiating reports with zero sources. Q: You have denied reports and so has Sam Balsara about Dentsu and WPP actually lining up to buy the last big Indian agency?
A: I can’t speak for Dentsu. We have no negotiations with Sam. We have a joint company, MediaCom and so MediaCom works with Sam and that’s been very successful and grows very well. We are delighted with it and Sam is a great partner for Madison. Q: However, you would like it, if you could buy it at the right price ofcourse?
A: What you say is right, but what Dentsu has done and what Omnicom had done in the market is raise people’s expectations to unrealistic levels like we have seen in Brazil. It alters people’s view. There are three areas; Brazil, India, and Internet in the US, which in our view are excessively priced. That doesn’t mean if you don’t work hard that you can’t find things, but the difficulty for us and the problem with earn-outs in particular is, you buy around goodwill.
If there is any synergy between the company that comes into the group and your group, what you end up doing is, increasing the profits of the company that you are buying and paying a multiple on that increase. So every time you do something positive, you would pay them up. So, there is a limit to what you can do economically and that’s why I say economically it is unviable. It is quite different from how people run their company, how you run your group, whether there is a melding of the cultures and the clash of the cultures. Now do we make mistakes in acquisition? Sure we did. Not everything that we have done has been stunningly successful, I wish it was. So, it is a very difficult area.
What’s happening in the Brazil, Russia, India and China (BRICS) and the Next 11 is a desperate game of catch up. It sounds arrogant, but we do have a very strong position all over. In Brazil, Russia, India and China we have very strong market shares. Our competition want to jump in because they see the growth for the reason we are talking about the delta. Q: Are you saying that WPP is not going to look for acquisitions in an overheated market?
A: By and large we will be priced up. All our acquisitions, bar one or two where we are trying to reinforce a client or develop a client position, all our acquisitions are in those three sweet spots and India fills all of those areas. We can find things in India at the right price like obviously the new market.

Q: On 14th December, we will know whether WPP and some of the WPP subsidiaries are still party to that case that NDTV has filed?
A: We will see what the judge thinks. Q: We will see what the judge thinks, but in the meantime are you considering taking that statement that WPP made about wanting to sue NDTV for defamation? Was that a serious statement?
A: Absolutely. Matters of that nature are always under consideration. Q: You took that to an extreme in this case. Can I quote something that you told us on CNBC-TV18?
A: Before you quote, I am not extreme about this. If somebody attack us in terms of our practices or the way we are going about things, if somebody attacks our people and suggest that our people do things, I defend them if I think we have always done the correct thing, I always defend them. So, I wouldn’t describe and it is somewhat unfair to call it combative or of the like. All I am doing is defending what I think our people did and the way we went about things.
_PAGEBREAK_ Q: Reputationally, how much has this affected TAM, which is a joint venture between Nielsen and Kantar, which is WPP owned?
A: Media always get concerned about their share. CNBC would be concerned about their share. And they get concerned if their shares fall. I am not at all referring to the stock market shares. Q: You are talking about TV ratings and their market share?
A: In the case of NDTV, the share has fallen from about Rs 500, I think to Rs 75 currently and if that had happened to WPP, I would be extremely worried about it too. However, I wouldn’t use that perhaps as an excuse or a motivation to start talking about market shares. It is interesting that NDTV in some of their campaigns and publicity has actually used data from TAM to show that that they have a number one position or whatever it is. So, I think we have to be extremely careful. I think from what I have heard, there are people inside NDTV who even admit that the reason that they went to the new case, the new courts was to establish some sort of media frenzy, which they were successful in doing, atleast initially until we spoke out in response. Q: What has happened in the interim is that there have been broadcasters at different points of time, with problems or issues with TAM and they seek to address in different ways or with the 14 years the TAM has been in this country. What this has done is got them to articulate their problems and TAM has been on the back-foot?
A: That’s a little bit unfair. TAM always, whether it is TAM here or any other country always seeks to make what it does better. It wouldn’t be successful in doing what it is doing unless it ought to do that. It doesn’t matter where we are talking about, India or anywhere else in the world, for that matter whether you are talking about Nielsen, Kantar Media Research or whatever else it be. If you are business for the long run, which we are, we always try and seek to make a bet. Q: What has happened with this incident is that the Broadcasters Foundation and the Advertising Agencies Association of India have come together to form the Broadcast Audience Research Council?
A: If that results in a better service, fine. That is what we are in the business for. It is to provide the best we possibly can, given certain economics. That’s fine; if improvements can be made they will be made. Q: You are aware that there maybe a scenario where TAM from being a single or monopolistic service provider in the rating business, may become a vendor?
A: You can’t get away with that. It is not monopolistic. People are free to come into the market. It is a free market system, not a monopolistic system, which are talking about.
_PAGEBREAK_ Q: You are aware that in the future TAM could become a vendor to Broadcast Audience Research Council (BARC) and not a single service provider?
A: That is always a possibility. That has always been the case. There is no way that cannot be the case. The situation hasn’t changed.
sb_martinsorrell4_01dec Q: The government and Prasar Bharti, which runs the state-owned broadcasters in the country has also said that it is going to now ask the Competition Commission of India to look at the way TAM works. Is that a cause of concern?
A: No, because we are totally transparent in terms of the way it operates, it is fine. We will answer all questions inquiries and queries, no problem at all. Q: You referred to a media frenzy that happened. Do you think that you had the best PR advice in the way WPP handled this issue in India?
A: I think it was absolutely the right thing to do. The suit was filed, the media picked it up. What are you suggesting, we just sit there and ignore it? It was the right response. If somebody accuses our people of not doing the right thing and if after doing careful inquiry we find that they have done the wrong thing, obviously we will deal with it.  However, if they do the right thing, it is our responsibility to stand up and be counted. If you don't do that, the potential damage is far greater if you really think about it. Q: You had shareholders trouble last year. This year the trouble again is the remuneration.
A: The trouble this year is in relation to a non-binding vote.

Q: You have said that you need to have for companies like WPP to see the kind of success WPP has, the scale it is today as a British company, you need to remunerate its top executives like the best in the world. You have said things to this effect.
A: I have not said that. I do not play darks and greys with the stock. I have consistently over 28 years invested cash as well. I have paid tax on stock which I rolled over so effectively, putting more cash into business and built estate which is worth. Certainly in my terms, it is quite residual where most of my net worth is.
Hence I wrote the article in the Financial Times, I am an owner, not the owner, an owner and I act like one which I thought was always the important element of compensation, that you should make managers inside businesses feel like owners. It is critically important. So that is the background. The two important things were that firstly we should be competitive and the second thing which was equally important was consistence.
Proxy services like ISS, when they evaluate the proxy of Omnicom, ignore the fact that they have an 83 year old chairman who used to be the CEO of the company. Ignore the fact that the average age of the directors is 60 years and that the average length of service of the directors is 14 years, but then apply a totally different standard to WPP by virtue of the fact that this is located in London or Dublin as opposed to New York.

Q: Your arguments are well made. They are well taken and this is what you have been saying consistently.
A: Consistency is the hobgoblin of small minds.

Q: Where does this go from here? This seems to be something that comes out and you are dealing with it. At the end of the day it is a perception that?
A: First of all it is not something that I decide. There is a board of directors. They are about 16 people. Q: How are they going to address this forward?
A: There are 16 directors. There is a compensation committee. There is a process. You asked a question about how they deal with it. They talk to the shareholders and they are talking to the shareholders currently about what is the best structure for all these things that we are talking about and they will decide that’s it. Q: The point is that when you read all of this, it is the perception that you are left with. There is a lot of complex details in figuring what is out.
A: So what is the impression that you are left with? Q: Is Martin Sorrell a greedy man? That is all at the end of that people takeaway.
A: No, it is cannot be a question of greed. Martin Sorrell is a person who invests in the company which he tries to run. He has invested entrepreneurially in the company which started with two people in one room, 28 years ago and it is now a company with 163,000 people in 110 countries. Is that right or wrong? Is that what we want? Do we want to have a world leader in the context of the UK, a global leader like WPP? Should we have more of them or less of them? Those are the questions.

Q: So it is a communications job for the board and for your compensation committee?
A: It is not a communications job. It is a question of what people want. In difficult economic times, people look at issues of this nature differently and do you want to have lowest common denominators or highest common multiples? I am not a manager that has come into a company. I am not a manager who is coming as a turnaround artist. I am not somebody who has started the company. There are other people who built the company up and the question is, do we want to have companies like that where people invest in? To be very fair, we had those options which we bought and sold or we triggered when they vested, reloaded and continually cashed in and cashed out. However, what I have consistently done in this case, is make an investment in the company. The people talked about being an entrepreneur, and an entrepreneurial risk. The translation of that would mean risk taking. That is what it is about.