WPP warns of “risk-averse” clients and pledges closer links between consultancies

WPP chief executive Sir Martin Sorrell warns of “misplaced optimism” in the marketing sector as the group announces a 4.9% like-for-like revenue boost for the first half of 2015.

By Angus Montgomery August 26, 2015 10:33 am August 26, 2015 10:36 am

WPP chief executive Sir Martin Sorrell

Marketing services giant WPP has issued a stark warning about “risk-averse” clients who are unwilling to invest in marketing services and also promised closer working links between its consultancies.

The message comes as WPP unveils its 2015 interim results, which show a 4.9% rise in like-for-like revenue over the first half of the year.

Last year the network, which operates consultancies including AKQA, The Partners, Landor and Fitch, posted a record £1.45 billion profit.

“Industry optimism seems misplaced”

Chief executive Sir Martin Sorrell says: “After another record year in 2014, the group’s performance in the first seven months of the new financial year has been particularly credible, as worldwide GDP growth, both nominal and real, seems to have slowed in the second half of last year and into the new year.”

However, Sorrell says that despite his group’s performance, “the apparent general industry optimism seems misplaced”.

He says: “To survive in the advertising and marketing services sector, you have to remain positive, indeed optimistic, seeing the glass half-full and industry and company reports generally continue, understandably, to reflect that attitude.

Clients “are risk-averse”

“However, general client behaviour does not reflect that state of mind as tepid GDP growth, low or no inflation and consequent lack of pricing power encourage a focus on cutting costs to reach profit targets, rather than revenue growth.”

He adds that while clients are “certainly more confident than they were in September 2008 post-Lehman”, they remain unwilling to take risks and are focused on cutting costs rather than growing revenues.

Sorrell says: “Corporate leaders tend to be risk averse. Procurement and finance take the lead over marketing and investment and suppliers are encouraged to play the additional roles of banks and/or insurance companies,” adding: “Although we naturally believe that marketing is an investment, not a cost.”

Bringing WPP consultancies closer together

WPP also promised closer collaboration and co-ordination between the consultancies that it operates. Sorrell says that at the moment one-third of its company incentive pools are currently based on group-wide performance and that this may rise to one-half in 2016.

He says the group is also focusing on appointing cross-consultancy client leaders, of which there are currently 45, and country managers, of which there are currently 17.

WPP will also focus on knowledge-sharing across the areas it works in, Sorrell says.

Within its design and branding groups, WPP has already moved to integrate leadership positions, with Jim Prior appointed last year as combined chief executive of both The Partners and Lambie-Nairn, and Simon Bolton appointed in 2013 as chief executive of both FITCH and Brand Union.

WPP says its branding groups “grew strongly” in the first half of this year, with net sales up 4.8%, but that “pressure” in the branding sector saw the consultancies grow more slowly in the second quarter than WPP’s business in digital and specialist communications.