Ad men are suffering ‘crisis of confidence’, WPP's Sir Martin Sorrell warns

Sir Martin said lower levels of global growth combined with heightened deflation risk is forcing executives to slash costs

Michael Bow
Tuesday 27 October 2015 01:16 GMT
Sir Martin Sorrell heads up WPP, the world’s biggest ad company
Sir Martin Sorrell heads up WPP, the world’s biggest ad company (Getty)

WPP’s boss Sir Martin Sorrell has warned that chief executives are suffering a crisis of confidence over everything from deflation to fears of war, threatening to put the brakes on corporate spending.

WPP, which started life making wire shopping baskets, is now the world’s biggest ad company; Sir Martin is gaining a reputation in the City for making predictions about the corporate world.

Sir Martin said lower levels of global growth – which are forecast to grow at around 3 per cent over the long term – combined with heightened deflation risk is forcing executives to slash costs. He added that the situation unlikely to improve before the end of next year. “Worldwide, GDP is under pressure and forecasts have been slowing,” he said. “The US continues to be strong but its recovery is patchy.”

WPP reported solid third-quarter like-for-like net sales growth of 3.3 per cent on a constant currency basis. Its operating profit margin – income divided by revenues – rose to 0.5 per cent on a constant currency basis, above the long-term target of 0.3 per cent for the full year. Overall reported third-quarter revenue rose 5.9 per cent to £2.9bn compared with the previous year. Share buybacks rose to £588m from £499m in the previous period last year.

One weak spot was the UK, where like-for-like sales growth was 1.1 per cent for the three months ending in September. Strong performance from continental Europe, led by Germany, cushioned the sluggishness.

Sir Martin is still upbeat on China’s prospects, despite predictions of a growth slump in the Asian powerhouse. WPP’s results coincided with a strong trading session in Asia after markets gave the thumbs-up to a rate cut by the Chinese central bank on Friday. It reduced the benchmark rate by 0.25 percentage points to 4.35 per cent, its sixth cut in a year.

“If you look at China, it’s won through stressful times before but I would say be careful what you wish for. The world’s economy depends on the US and even this year the biggest growth will come from the US,” Sir Martin said.

Online advertising, a substantial revenue generator for WPP, has been under the spotlight due to fears many adverts are actually viewed by computer robots rather than users. Moves to shut down advert blocking software have also unsettled online advertisers. But Sir Martin said: “If you look at iOS and Android about 90 per cent of the activity is through apps where adblockers don’t work.”

He suggested the Government could legislate against adblockers but added that would be unlikely. He also said Google could block users using adblocking software from websites like YouTube.

Google is WPP’s biggest customer, behind News Corporation. It was also in the running to acquire Dunnhumby from Tesco, but talks failed.

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