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WPP faces worst year in a decade as advertisers cut spending WPP faces worst year in a decade as advertisers cut spending
(about 9 hours later)
Sir Martin Sorrell’s WPP is facing its worst year in a decade as the world’s largest advertising group was forced to slash growth forecasts for the second time after sales went into reverse in the first half. Sir Martin Sorrell has warned of a global economic slowdown as WPP slashed its growth forecast for the second time, leaving the world’s largest advertising group facing its worst year in a decade.
The company cut its full-year growth forecast for revenues and net sales to between zero and 1% after reporting a marked deterioration in the second quarter that missed City expectations by some distance. Sorrell said the election results in the UK and US, combined with erratic economic conditions in faster-growth economies such as China, had affected the global advertising market.
WPP’s share price fell by 11% in early trading on Wednesday as investors took fright at the company’s financial performance and market outlook. “In the last year or so, growth has become even more difficult to find, perhaps due to increasing social, political and economic volatility,” he said. “For example with the rise of populism typified by surprise election results in the United Kingdom and the United States and bumpy growth in... Brazil, Russia and China.”
A bear-ish Sorrell – one of the UK’s best-paid chief executives with a £48m pay packet last year – said there was unlikely to be any respite next year, pointing at factors including Donald Trump’s patchy performance as president to date. Advertising and marketing spend by multinational companies is viewed as a bellwether for the global economy, which has enhanced Sorrell’s reputation as a commentator on economic growth given the presence of the consumer goods group Unilever and carmaker Ford on the WPP client list. Sorrell, one of the UK’s best-paid chief executives with a £48m pay packet last year, said that next year is “unlikely to be much different” for a slowing global economy.
“There seems little reason for an upside breakout in growth in terms of worldwide GDP growth,” he said, adding that while interest rates were likely to rise, they would remain at relatively low levels for “longer than some think”.
Sorrell added that Donald Trump’s patchy performance as US president to date has not so far proved to be the boon to business that had been hoped.
“Trumponomics may well have resulted in an increase in the United States GDP growth rate … [but] the limitations of the new administration seem to be jeopardising the anti-regulatory, infrastructure and tax reduction programme that was promised,” he said.“Trumponomics may well have resulted in an increase in the United States GDP growth rate … [but] the limitations of the new administration seem to be jeopardising the anti-regulatory, infrastructure and tax reduction programme that was promised,” he said.
“The general atmosphere in relation to Trump and business has stuttered. The disbanding of the manufacturing council and the disbanding of the business council following Charlottesville, it is not as good as it was.” WPP’s share price tumbled 11% to £14 on Wednesday after the company made a shock cut in revenue and net sales forecasts, which wiped almost £50m off Sorrell’s paper fortune as it fell from around £412m to £365m.
Sorrell started the year forecasting that WPP would see growth of 3% but cut this in March to 2% to reflect “tepid” economic growth and weak new business trends. Sorrell was forced to cut WPP’s full-year forecasts for the second time this year after reporting a marked deterioration in the second quarter that missed City expectations by some distance. He started the year forecasting that WPP would see growth of 3% but cut this in March to 2% to reflect “tepid” economic growth and weak new business trends.
On Wednesday, he slashed that even further after reporting that net sales in the first half had fallen by 0.5% to £6.3bn, compared with analyst consensus expectations of 0.67% growth. The City expected growth in the second quarter of 0.5%, but WPP plummeted by 1.7% to £3.2bn. On Wednesday, he slashed that even further – to growth of between zero and 1% – after reporting that net sales in the first half had fallen by 0.5% to £6.3bn, missing analysts’ forecasts. The City expected growth in the second quarter of 0.5%, but WPP plummeted by 1.7% to £3.2bn.
“Following the pressure on client spending in the second quarter, particularly in the fast-moving consumer goods (FMCG) or packaged goods sector, the full year revised forecast has been revised down further, with both like-for-like revenue and net sales forecast to be between zero and 1.0% growth,” the company said. “Following the pressure on client spending in the second quarter, particularly in the fast-moving consumer goods (FMCG) or packaged goods sector, the full-year revised forecast has been revised down further, with both like-for-like revenue and net sales forecast to be between zero and 1.0% growth,” the company said.
Sorrell said there were no major job cuts planned imminently to help counter the worsening conditions, pointing out that WPP has shed more than 1,400 staff from the start of the year to 30 June. Sorrell said there were no major job cuts planned imminently to help to counter the worsening conditions, pointing out that WPP had shed more than 1,400 staff this year. The job losses, about 1% of its workforce of about 134,000, were largely due to IT changes. “We are controlling our headcount reasonably well,” he said.
He said that the job losses, about 1% of its workforce of about 134,000, was largely due to an “IT transformation” in the first half of the year.
“We are controlling our headcount reasonably well,” he said.
However, cuts appear to be on the horizon with WPP noting that “flexible staff costs remain close to historical highs of around 8% of net sales and should position the group well if current market conditions deteriorate”.
WPP painted a bleak picture of performance beyond the first half with net sales growth running down by 2.6% in July and net sales for the first seven months of the year down 0.8%.WPP painted a bleak picture of performance beyond the first half with net sales growth running down by 2.6% in July and net sales for the first seven months of the year down 0.8%.
“All regions, except the United Kingdom, Latin America and central and eastern Europe showed lower revenue than the prior year and all sectors were down, with advertising and media investment management and data investment management the most affected,” the company said. It means WPP is on track to record its worst year in growth terms since 2009, when the company reported a full-year fall of 8.1% during the depths of the credit crunch.
WPP is on track to record its worst year in growth terms since the ad recession of 2009 when the company reported a full year fall of 8.1%.
WPP’s net sales in North America, which accounts for about a third of its revenues, fell by 3.3% in the second quarter to £1.2bn. Western continental Europe net sales fell by 4.2% to £633m.
The UK was the best-performing region with net sales growth of 4% to £417m in the second quarter.
Sorrell said WPP was preparing for Brexit by increasing investment in operations in key European markets, adding that free movement of staff was imperative to maintaining UK growth.Sorrell said WPP was preparing for Brexit by increasing investment in operations in key European markets, adding that free movement of staff was imperative to maintaining UK growth.
“About 17% of the 14,000 to 15,000 people we have in the UK come from the European Union,” he said. “If there are severe restrictions on their movement inward or outward in the future that will obviously impact our business in the UK. Our response [to Brexit] is to increase investment in France, Germany, Italy and Spain. Those are four of our top 10 markets and we can’t afford to lose influence or position in those markets.”“About 17% of the 14,000 to 15,000 people we have in the UK come from the European Union,” he said. “If there are severe restrictions on their movement inward or outward in the future that will obviously impact our business in the UK. Our response [to Brexit] is to increase investment in France, Germany, Italy and Spain. Those are four of our top 10 markets and we can’t afford to lose influence or position in those markets.”
Net sales in all of WPP’s business sectors went into reverse in the second quarter with the biggest fall in advertising and media investment management. AMIM, the core of WPP’s business accounting for 44% of net sales, fell by 2.9% in the second quarter.
Sorrell complained that some rivals were offering hugely reduced fees and other enticements in order to win client business, a strategy he said was unsustainable and threatened to drag down the industry.
“Our industry may be in danger of losing the plot,” he said. “These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. As some say, you are only as strong as your weakest competitor.”