WPP warns of tough year as clients face political and economic challenges

Shares in advertising giant drop 8pc after boss Sir Martin Sorrell describes ‘very difficult environment’

SHARES in WPP fell 8pc yesterday after the advertising giant disappointed investors with a gloomy outlook for the new year, despite enjoying a record 2016.

Shares dropped 152p to £17.59 as WPP revealed a slow start to 2017, with its chief executive Sir Martin Sorrell warning of “a very difficult environment”, as clients focused on cost amid low growth and inflation.

The financial fortunes of WPP, the world’s largest advertising group, have long been seen as a good barometer for the strength of the global economy, as marketing budgets are often the first to be cut in times of difficulty.

And in its preliminary results for 2016, WPP warned that its clients face a challenging year in 2017 as Europe is gripped by political and economic uncertainty.

“The four leading Western continental European economies, Germany, France, Italy and Spain, let alone the Netherlands and Greece, also all face political uncertainty, although Germany and Spain are strengthening eco- nomically,” the company said.

“In these circumstances, clients face challenging top-line growth opportunities and uncertainties. And although inflation may pick up in the United States because of stimulative economic policy and in the United Kingdom because of the weakness of sterling, generally inflation remains at low levels, resulting in limited pricing power.” Sir Martin, however, called for patience in a difficult environment.

“At a time when all external pressures seem to call for instant, shortterm responses, an understanding of the value of confidence, consistency and continuity has never itself been more valuable,” he said.

The downcast outlook comes despite the FTSE 100 company posting a 26.7pc jump in profit before tax, to £1.9bn, in 2016. Revenues were up 17.6pc from 2015 to £14.4bn as WPP hailed a sixth consecutive record year, boosted by the weakness of sterling since the vote to leave the European Union.

However, the company lost two big accounts in the shape of VW and AT&T last year. Revenue growth also slowed down in the fourth quarter against strong comparatives, leaving revenue growth in the quarter at its slowest since 2012. Net sales were up just 1.2pc in January 2017, leading the company to lower its target to around 2pc growth for the year.

‘In these circumstances, clients face challenging top-line growth opportunities and uncertainties’