Global recovery sees stronger profits at WPP

Sir Martin Sorrell
Sir Martin Sorrell
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THE WORLD’S largest advertising company reported stronger than expected profit growth yesterday and its founder said clients were growing more confident about their business prospects.

Sir Martin Sorrell said WPP’s business was very strong in Russia in the first half of 2014, but he expected it to weaken in the second half as Western sanctions against Moscow over the conflict in Ukraine start to bite.

He said the situation in Ukraine and the impact of the West’s stand-off with Russia had replaced the health of the eurozone as the major geopolitical worry.

“Anxiety is height ened so it will make clients more cautious,” he said in an interview.

“It’s very difficult to see a way through these current problems between Russia and the rest of the world over Ukraine.”

But those concerns were outweighed by a small improvement in the global economy, which was encouraging companies to spend more of their ample cash reserves.

WPP reaffirmed its sales growth and profitability targets for the year.

Sir Martin has built WPP into the world number one by acquiring companies in the fast-growing digital advertising sector, and was a step ahead of rivals in moving aggressively into faster-growing markets in the Asia-Pacific region and elsewhere.

It has also benefited from a failed merger attempt by rivals Omnicom and Publicis – Sir Martin says his agencies picked up clients and staff from the two companies while they were wrapped up in the details of the alliance.

WPP posted adjusted pre-tax profit of £532m, up 1.5 per cent on a constant-currency basis. Analysts had expected pre-tax profit of £521m. Organic revenue grew 4.1 per cent.

Sir Martin said like-for-like revenue grew in all markets, with the United States, Britain and Asia Pacific strong, helped by growing demand for digital advertising.

Organic net sales in the second quarter rose 4.4 per cent, an improvement on 3.8 per cent in the first quarter.

Sir Martin said growth for the year would be “well over” 3 per cent. The group had previously guided for growth of at least 3 per cent.

Analysts at Numis, who have an “add” recommendation on WPP, said the results were slightly ahead of their expectations, but left their full-year profit forecast unchanged at £1.49bn due to the impact of currency swings on profit margins.

Edison Investment Research analyst Fiona Orford-Williams said: “WPP’s interim figures show the stark impact of currency shifts, but stripping these out, the progress is very encouraging.”

WPP, which employs nearly 180,000 people, said its net sales margin for the first half was 13 per cent. That was in line with its full-year target of a 0.3 percentage point improvement.

The group’s UK agencies include Burson-Marsteller, Ogilvy and RLM Finsbury.

WPP subsidiaries have offices in Yorkshire: out-of-home advertising specialist Kinetic in Harrogate and planner and buyer MediaCom and market research and information group Taylor Nelson Sofres in Leeds