The world's biggest advertising firm had a good first quarter, but warns that clients are giving away less business.
During the first three months of 2015, like-for-like sales went up by 2.5 per cent for WPP, mainly driven higher by a strong performance in North America. Revenue was also up 8.3 per cent at £2.8bn.
The advertising giant won less new business - £1bn, down from £1.3bn during the equivalent period last year. The company said this reflected an industry-wide trend, with clients generally less willing to fork out for big advertising campaigns.
Why it's interesting
The news won't come as a big surprise to investors – in March WPP said 2015 had got off to a good start, with “standout performances” in the US and China leading to an increase in January trading.
This was is an improvement in sentiment compared to six months ago – in October, WPP reported an unexpected slowdown in the third quarter of 2014, with sales not missing expectations.
The company’s focus on acquisitions is also likely to give it a boost – it has earmarked £400m for exactly this purpose in 2015, and last month it made its first big deal by paying $300m (£202m) for a stake in ComScore, a US-based company that measures internet audiences.
Now it has its eyes on Dunnhumby, the customer data company that created the Tesco clubcard. It has lodged a bid for it, and if it is successful WPP will have access to shopping data from over one billion customers around the world. It would also give the company access to data that helps conglomerates such as Kellogg’s and Coca-Cola set prices and promotions.
What WPP says
Chief executive Martin Sorrell warned that geopolitical and economic uncertainty were combining to cause a general disinclination towards putting money into advertising:
Whilst clients are certainly more confident than they were in September 2008 post-Lehman...sub-trend global GDP growth at around 3.0-3.5 per cent real and 5.0-5.5 per cent nominal, combined with these levels of geopolitical uncertainty, low inflation or fears of deflation...short-term focused activist investors and strengthened corporate governance scrutiny, make them unwilling to take further risks and, therefore, focus on costs.Another demanding year, although a weaker UK pound against a stronger US dollar may continue to provide some modest currency tailwind, partly offset by a stronger pound against the euro, although a modest impact on profits, unlike the fierce currency headwind in 2014.
Since October last year, investors have shown more faith in WPP, with its share price currently on an upward trajectory.
The caution Sorrell issued ahead of the fourth quarter last year did not cause disturbance, and once more there has been little reaction, with shares staying fairly steady at 1586 pence per share in trading this morning.