Sorrell warns on UK growth
WPP chief executive Sir Martin Sorrell warned sales growth in the UK has slowed as nervous company bosses cut costs.
The world’s largest advertising group, which is seen as a bellwether of the global economy, used a third quarter trading update to reveal its clients have reduced their marketing budgets due to fears about the future.
Top of the list of concerns was the economic slowdown in both China and Brazil. Although trading has improved slightly in China in recent months, the world’s second largest economy remains volatile.
Sorrell said another concern is that bosses of established businesses are under pressure from upstarts offering similar services in different and more convenient ways – citing examples such as taxi firm Uber and holiday accommodation group Airbnb.
Activist investors trying to shakeup companies by forcing them to sell off parts of their businesses to make a short-term profit have also created a sense of fear, he said.
‘Not surprising then that corporate leaders tend to be risk adverse,’ said Sorrell. ‘One of two institutional investors are saying that they are tiring of some companies’ total focus on short-term cost cutting and would favour strategies based more on the long-term.’
WPP, whose business includes JWT and Kantar, saw third quarter sales increase 5.9pc to £ 2.9bn across all the different companies that contribute to the group.
Sales at the UK business grew by 1.1pc – significantly slower than the 4pc growth seen in the previous quarter. Sorrell said the market in the UK had begun to ‘soften’.
‘The Chancellor’s attempt to get the budget to balance has had an impact on demand,’ he added.
‘Savings on healthcare, social security, and other benefits have reduced spending. People aren’t buying as much and that makes businesses more cautious.’
WPP said trading in the United States had remained solid while it enjoyed good demand in Germany, Spain and to a lesser degree Italy.
The firm said this was because it had taken longer in these markets to see the positive impact of changes it had made in its business practices after the financial crisis.
In America it has won more clients and held onto existing accounts amid a ‘tsunami’ of firms reviewing whether they want to change the companies managing their advertising accounts.
He predictably called on firms to spend more on advertising and ‘invest in brands’ which he claimed would boost their businesses.
WPP said it was ‘characteristically cautious’ about the outlook but said it is on course to hit its fullyear targets. The update was more upbeat than third- quarter sales from rival Publicis which cut its full-year outlook last week.
However, arch rivals Omnicom and Interpublic all out performed WPP, whose shares fell 32p to 1448p – making it one of the worst performers on the FTSE 100 index.
Analysts said next year should see a pick up in advertising around the Rio Olympics in Brazil, as well as the US presidential election, and the Euro 2016 football championships.
Charles Huggins, an analyst at Hargreaves Lansdown, welcomed ‘solid’ third quarter results from WPP. He said: ‘As long as the global economy behaves itself, WPP should be capable of strong growth, although the shares are likely to remain volatile while concerns over China persist.’
Sorrell faced an investor rebellion last year over his £43m pay package – a sum that made him the highest paid chief executive in the FTSE 100 index.
Asked about his own future, the 70-year- old said he was happy to carry on as chief executive adding: ‘They haven’t carted me off to the glue factory yet.’