WPP Chief Projects Tough Ad Market as Customers Avoid Risks

  • Advertisers focusing on cost cutting, CEO Sorrell says
  • U.S. election, sports events to add just 1% to ad budgets

WPP Plc Chief Executive Officer Martin Sorrell predicted a challenging year for the advertising industry as companies focus on curbing costs amid concerns that global economic growth may lose steam.

Customers aren’t taking risks, with “continued caution being the watchword,” Sorrell, head of the world’s largest advertising company, said in an interview Friday. There’s no evidence to show such behaviors will change in 2016, he said.

WPP said marketers are focusing on keeping expenses in check rather than boosting revenue, with the European soccer championship in France, the Olympics in Brazil and the U.S. presidential election only set to boost marketing budgets by about 1 percent. WPP, the owner of ad agencies including Young & Rubicam and Ogilvy & Mather, said like-for-like sales are set to grow more than 3 percent this year, compared with 3.3 percent growth last year.

WPP added 5.6 billion pounds ($7.9 billion) in net new business last year, helped by what Sorrell has called a “tsunami” of clients reviewing accounts. WPP was awarded business from companies including Unilever, General Mills Inc. and L’Oreal SA while business from Ikea and Volkswagen AG have yet to be decided. 

“The pace of reviews has lessened a bit but there will continue to be significant reviews -- but not at the levels as in 2015,” Sorrell said. Spending among media and entertainment brands was strongest while financial services and automotive clients spent less, Sorrell said.

In January this year, like-for-like net sales increased 2.3 percent, the company said in a statement. Shares of WPP fell 0.7 percent to 1,529 pence at 10:38 a.m. in London after gaining as much as 3 percent. They are little changed this year.

Sorrell has expanded into digital operations and made acquisitions in a bid to outpace rivals Publicis Groupe SA and Omnicom Group Inc. as spending for ads in traditional media has sputtered in recent years.

French rival Publicis in recent months reported account losses from brands including L’Oreal, Procter & Gamble and Wal-Mart. 

Total revenue increased 6.1 percent to 12.2 billion pounds last year, London-based WPP said. That was in line with the average of analysts’ estimates compiled by Bloomberg. Profit before interest and tax rose 5.6 percent to 1.77 billion pounds.

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