WPP cuts growth forecast as second quarter sales slow

Shares in WPP fell by more than 10% at the start of trading after the advertising giant reported slowing sales and warned about future growth.

The company said that group performance had been “much tougher” for the first seven months of its financial year.

It blamed growing economic uncertainty, including due to a “rise of populism” in the UK and the US, and “bumpy” growth in Brazil, Russia and China.

WPP now expects sales growth of 0%-1% compared to previous forecasts of 2%.

The reduced forecast puts WPP on course for its worse year since 2009 when like-for-like sales fell by 8.1% during the global recession.

Total group revenue rose to £7.4bn for the six months to June from £6.5bn. Pre-tax profit grew by 52.4% to £779.2m.

However, WPP said that like-for-like revenue decelerated over the six months to June, in particular the second quarter when client spending was “under considerable pressure” in the fast moving consumer goods or packaged goods sectors which chief executive Sir Martin Sorrell said make up a third of its business.

Conditions worsened in July when like-for-like revenue shrank by 4.1%. The company said that like-for-like sales are down 0.9% for the year to date.

Sir Martin said that there has been a “trifecta” of pressures on the business.

He said that “digital disruption” was forcing companies to change their business models and reach customers in different ways.

Activist shareholders, fuelled by cheaper money, were pushing businesses to cut costs.

US worries

Also, some investors were practising “zero-based budgeting”, where they start with a blank balance sheet and all expenses have to be justified.

WPP said that new business wins and increased client spending should help turnover in the second half of its financial year as well as into 2018, buoyed by events such as the Russian World Cup, the mid-term Congressional elections and the PyeongChang Winter Olympics.

However, the company also indicated that uncertainty would continue next year because of economic and political worries in the US.

Sir Martin told the BBC Today programme: “Like it or not, the Trump administration has been much more open to business than the Obama administration, certainly in terms of connection.”

But he said: “That hasn’t translated into significant policy change for a number of reasons.”

In a statement earlier, WPP said: “The limitations of the new [Trump] administration seem to be jeopardising the anti-regulatory, infrastructure and tax reduction programme that was promised.”

But it added: “America First, if the new administration’s plans are finally implemented, will almost definitely mean a stronger American economy, at least in the short-to medium-term.”