WPP sees profit grow, but downgrades forecast for 2017
The world’s largest advertising agency, WPP, saw strong growth in both revenue and profit during the first half of 2017 – but its share price is down on the news. The reason for this fall? A downgraded outlook for the rest of the year.
For the first six months of the year, WPP’s profit before tax came in at £779 million, against £425 million in the same period of the previous year. This is a rise of 83.3%. While that sounds incredible, it is largely due to strong cost cutting over the period, a very favourable comparable in the first half of 2016, and currency effects. As the British Pound has depreciated due to Brexit, WPP – which has a global business – benefits from the conversion into local currency.
Revenue was up 13.3% against the year-ago period, but again, the weaker pound has had an impact: on a constant currency basis, revenue was up 1.9%.
In a statement released on Wednesday, the group said:
"In the last year or so, growth has become even more difficult to find, perhaps due to increasing social, political and economic volatility, for example with the rise of populism typified by surprise election results in the United Kingdom and the United States and bumpy growth in three of the bigger BRIC countries of Brazil, Russia and China, although India continues to develop rapidly, despite introductions of demonetisation and a General Sales Tax.”
WPP also chastised its competitors for using discounts and inducements to try to win new business, saying: “These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. Our industry may be in danger of losing the plot."
Despite outperforming the wider industry, WPP’s sobering message did not sit well with investors. The company has downgraded its outlook for revenue and net sales to “between 0% and 1%”, but reiterated that, over the long term, it sees “revenue and net sales growth greater than the industry average.”
Dominion holds WPP in its Global Trends Managed Fund.
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