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| WPP cuts forecasts again – but says Brexit is boosting UK business | WPP cuts forecasts again – but says Brexit is boosting UK business |
| (12 days later) | |
| The advertising group WPP has lowered its growth forecasts for the third time this year amid shrinking client budgets, but said its UK business was benefiting from Brexit uncertainty. | The advertising group WPP has lowered its growth forecasts for the third time this year amid shrinking client budgets, but said its UK business was benefiting from Brexit uncertainty. |
| Sir Martin Sorrell, the WPP chief executive, said the UK market was stronger than other parts of the world as firms opted to invest in advertising and marketing campaigns rather than commit to major spending on buildings and machinery. | Sir Martin Sorrell, the WPP chief executive, said the UK market was stronger than other parts of the world as firms opted to invest in advertising and marketing campaigns rather than commit to major spending on buildings and machinery. |
| “It is slightly perverse because increased uncertainty is driving variable investment rather than fixed capital investment, which is not good for the long-term economy but has a temporary benefit for us,” he said. | “It is slightly perverse because increased uncertainty is driving variable investment rather than fixed capital investment, which is not good for the long-term economy but has a temporary benefit for us,” he said. |
| He made the comments as WPP published its third-quarter trading update, revealing a second successive quarterly fall in like-for-like sales, which were down by 1.1%. The company said cost-cutting among clients, including those in the consumer goods sector, was having an impact on business. | He made the comments as WPP published its third-quarter trading update, revealing a second successive quarterly fall in like-for-like sales, which were down by 1.1%. The company said cost-cutting among clients, including those in the consumer goods sector, was having an impact on business. |
| The global group said like-for-like net sales and operating margins would both be flat this year, lower than the respective growth of up to 1% and 0.3% it was predicting in August. | The global group said like-for-like net sales and operating margins would both be flat this year, lower than the respective growth of up to 1% and 0.3% it was predicting in August. |
| Sorrell said the shift to “the new normal of a low growth, low inflation, limited pricing power world”, was driving greater focus on reducing costs, while ultra-low borrowing costs were encouraging intervention from activist investors that tends to result in squeezed budgets. | Sorrell said the shift to “the new normal of a low growth, low inflation, limited pricing power world”, was driving greater focus on reducing costs, while ultra-low borrowing costs were encouraging intervention from activist investors that tends to result in squeezed budgets. |
| Laith Khalaf, a senior analyst at Hargreaves Lansdown, said WPP was having a “difficult year”. | Laith Khalaf, a senior analyst at Hargreaves Lansdown, said WPP was having a “difficult year”. |
| “The group says the main cause of the slowdown is a change in spending patterns at big companies. Unilever’s focus on margin and Reckitt Benckiser’s zero-based budgeting are two high-profile consumer goods examples, and we can see how this has put the squeeze on the world’s biggest advertising agency. | “The group says the main cause of the slowdown is a change in spending patterns at big companies. Unilever’s focus on margin and Reckitt Benckiser’s zero-based budgeting are two high-profile consumer goods examples, and we can see how this has put the squeeze on the world’s biggest advertising agency. |
| “An increased focus on high-growth areas like emerging markets and digital media makes sense to us, but there’s no denying a weak third quarter has put pressure on the group to finish the year strongly. While it’s not time to hit the panic button, one has to worry whether things might get worse before they get better.” | “An increased focus on high-growth areas like emerging markets and digital media makes sense to us, but there’s no denying a weak third quarter has put pressure on the group to finish the year strongly. While it’s not time to hit the panic button, one has to worry whether things might get worse before they get better.” |
| Sorrell said that major events planned for 2018 could potentially help to offset the broader trend of shrinking advertising budgets. | Sorrell said that major events planned for 2018 could potentially help to offset the broader trend of shrinking advertising budgets. |
| “Whilst it is too early to comment on prospects for 2018 as three-year plans and budgets are in the course of preparation, any further marketing investment reduction may well be countered by the mini-quadrennial events of 2018 – the Winter Olympics in South Korea; the Fifa World Cup in Russia; and the mid-term congressional elections in the United States,” he said. | “Whilst it is too early to comment on prospects for 2018 as three-year plans and budgets are in the course of preparation, any further marketing investment reduction may well be countered by the mini-quadrennial events of 2018 – the Winter Olympics in South Korea; the Fifa World Cup in Russia; and the mid-term congressional elections in the United States,” he said. |