Gideon Spanier
Nov 1, 2017

WPP net sales down 1.1% as it talks of 'a changing industry'

Holding company outlines a "new normal of a low growth, low inflation, limited pricing power world".

WPP net sales down 1.1% as it talks of 'a changing industry'

WPP's net sales fell 1.1% in the third quarter, better than the previous three months, but there was no sign of significant improvement as it expects annual sales will be "broadly flat" and reduced its profit margin target.

The world’s biggest ad group also warned shareholders that it could be facing "a changing industry" because of changing client behaviour and new entrants.

WPP said it would review its full-year forecasts in early November but it expects "broadly flat like-for-like revenue and net sales growth" and "headline net sales operating margin improvement" is "now targeted flat".

The group, led by chief executive Sir Martin Sorrell, had said at its half-year results that like-for-like sales growth would be "between zero and 1%" and operating margin would increase by 0.3%.

The UK and Western Continental Europe regions, as well as WPP's advertising and media investment management divisions, were among the best performers.

The group won $2.12 billion in new billings in the third quarter and $6.36 billion in the first nine months, "up significantly" on the first nine months of last year.

Under the heading, "A changing industry?", WPP admitted in today's third-quarter report that all the big ad groups are facing challenges.

"For certain, the advertising and marketing industry has had a good run for the last seven years since the Lehman crisis of September 2008, and a very weak year in 2009, with your company experiencing a V-shaped recovery in 2010 and sequentially record years from 2011 onwards until 2016," the company said in its third-quarter results.

"2017 has, however, been a different kettle of fish, with top line growth slowing across the industry. What may have brought about this significant shift, which seems to have started almost in the first quarter of this year?"

WPP identified three potential factors: advertisers buying directly from tech platforms such as Google and Facebook; the rise of management consultants, which WPP said was over-hyped; and clients cutting costs, such as FMCG giants Procter & Gamble and Unilever.

"It does seem that in the new normal of a low growth, low inflation, limited pricing power world, there is an increasing focus on cost reduction, exacerbated by a management consultant emphasis on cost reduction and the close to zero cost of capital funding of activist investors and zero-based budgeters," WPP said.

WPP reported 0.8% sales growth in the first quarter and a 1.7% plunge in the second quarter, which spooked investors and sent the shares down 11% in August in their worst-one day fall since 1998.

Rival groups reported have disappointing growth in the third quarter earlier this month, sending shares in all the big ad groups sliding.

Interpublic’s revenue rose 0.5% on a like-for-like basis, Publicis Groupe was up 1.2% and Omnicom climbed 2.8%.

WPP’s revenues fell 2%. WPP prefers to use net sales as a measure of growth because it says revenue includes "pass-through" costs.

Paul Richards, an analyst at Numis Securities, said: "After soft Q3 results from its peers, we believe the market was braced for a challenging quarter for WPP and we expect there will be some relief on revenue trends. Offsetting this, we believe the margin guidance will be taken as disappointing."

Campaign UK

Related Articles

Just Published

3 hours ago

Kraft Heinz CMO: Ecommerce 'a hit to profitability'

As ecommerce retailers undercut each other with discounts, brands' profit margins are becoming squeezed.

4 hours ago

The often-hidden costs of in-house agencies

The founder and CEO of marketing consultancy TrinityP3 uses a side-by-side comparison to dig into the costs you might not have considered.

4 hours ago

Ice cream anime: Magnum tells 'pleasure tales'

The Unilever ice cream brand debuted two lovely little animated films at Sydney's Japanese Film Festival.

6 hours ago

Is the whole greater than the sum of its parts for ...

AGENCY REPORT CARD: As Zenith, Starcom and Spark Foundry meld together under the group's 'Power of one' philosophy, we grade them as one entity for the first time.