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WPP blames squeezed client budgets for flatlining revenue
WPP blamed squeezed client marketing budgets for flatlining annual revenue as the world's biggest advertising company said it made a slow start to 2018.
Pre-tax profit, excluding gains and losses on disposals and other items, rose 5.4% to £2.09bn in the year to the end of December - matching analysts' an average forecast reduced by a string of sales warnings. Excluding currency swings, profit rose 1.9%.
Reported revenue rose 6.1% to £15.3bn. Constant currency revenue rose 1.6% and like-for-like revenue fell 0.3%. Client billings fell 3.9% at constant currency to £55.6bn and like-for-like billings were down 5.6%.
WPP said it had a "slow start to 2018" with like-for-like revenue ahead of budget but flat despite the improving performance of the global economy. The company's shares were the biggest losers in the FTSE 100 and were down 12% to £12.21 at 08:44 GMT.
WPP's chief executive, Martin Sorrell, said 2018 would normally be a good year for WPP with the Fifa World Cup in Russia, the recent successful Winter Olympics and US mid-term elections providing a boost to ad spending. But he said budgets had become decoupled from GDP growth because companies have little scope to increase prices and they are under pressure from investors calling for cost cuts.
Consumer goods companies such as Unilever and Procter & Gamble are cutting advertising spending in response to aggressive investors. Other clients were adopting so-called zero-based budgeting, where spending has to be justified every reporting period, Sorrell said.
Sorrell said: "2017 for us was not a pretty year. The major factors influencing this performance were probably the long-term impact of technological disruption and more the short-term focus of zero-based budgeters, activist investors and private equity than, we believe, the suggested disintermediation of agencies by Google and Facebook or digital competition from consultants."
Sorrell said WPP would respond by speeding up efforts to integrate its businesses to offer clients services and share expertise. WPP has faced criticism for its sprawling structure, pieced together from hundreds of acquisitions.
Sorrell said: "As our industry continues to undergo fundamental change, we are upping the pace of WPP's development from a group of individual companies to a cohesive global team dedicated to the core purpose of driving growth for clients."