Marketing and PR firm Freshwater is bracing itself for a rough ride in the new year, predicting that advertising and marketing budgets will be cut as the economic crisis deepens.

The company posted successful results for the year ending August 31, with an increase in gross profits of 61 per cent, but warned that the forthcoming year was not looking as robust.

Chairman Baroness Cohen of Pimlico said: “The results show that we are financially strong, with a substantial positive cash flow from trading. They also highlight the benefits of a large and diverse client base and a high level of revenue visibility.”

The nationwide company, which has a strong regional presence in Birmingham, had a turnover of £9.52million -up 46 per cent from £6.54million the previous year. Chief executive Steve Howell said: “Thanks to a combination of acquisitions and organic growth, Freshwater has enjoyed its eighth consecutive profitable year resulting in a 61 per cent increase in revenue and a 27 per cent increase in profit before income tax.

“Our robust business model has meant that any shortfalls in the sectors most hit by the economic downturn have been balanced by strong revenues from defensive sectors, such as utilities, healthcare, transport and the public sector.”

But Mr Howell warned that the business was facing worsening trading conditions. Freshwater has already announced cost-cutting measures, including reducing their board from eight members to six, and is preparing for a reduction in revenues.

“Trading in the fourth quarter of 2007/8 was strong but the first quarter of 2008/9 will be disappointing as a result of the downturn. The group is restoring margins by taking action to cut costs, and has visibility over 90 per cent of its revenue in the second quarter of the financial year. We have also taken steps to streamline our plc overheads.”