Sorrell bearish on election, bullish on BRICs

WPP grew in 2014, but boss Sir Martin Sorrell sees 'grey swans' on the horizon, including a business-bashing Labour manifesto.

by Adam Gale
Last Updated: 01 May 2015

If you want to understand the difference between an ad firm and a bank, read their full-year results. While a bank will deposit an opaque slab of numbers and corporate-speak (like this), advertisers like to use their words. WPP boss Sir Martin Sorrell accompanied his firm’s 2014 results with a colourful commentary on the world’s economic outlook, replete with ominous ‘grey swans’ and marketers with ‘ambidextrous brains’.

He's got an interesting vantage point. WPP is a major global business, with revenues of £11.5bn (up 4.6% on last year, or 11.3% by constant currency –of which more later). More to the point, advertising spend is a reasonable barometer of at least consumer-facing business confidence.  

Sorrell sees steady economic growth for 2015, but says the ‘client climate’ remains uncertain, due to five ‘grey swans’ that could spoil the party (the sixth – the Scottish referendum, having flown away). Europe, where WPP’s reported revenues fell 0.9% to £2.57bn, ‘remains fragile’ despite QE, with a potentially contagious Grexit still a possibility.

Britain’s looming general election, meanwhile, has the potential to ‘crimp the UK economy’, where last year WPP did far better, growing revenues 16% to £1.64bn. If the Tories win, Sorrell fears the uncertainty that would come from an EU referendum. ‘If Labour wins outright’, on the other hand, ‘it will win partly on a "bashing business" manifesto’.

Although Sorrell and the chaps at WPP are ‘undiminished bulls on China’ and even see Russia bouncing back in the medium to long term, the effects of the commodity slump on the BRIC nations are a concern. Across the pond, the impact of the Federal Reserve’s tapering is the ‘elephant in the room’, while ‘a litany of woes remain’ in the Middle-east. Who knew?

This might all be fascinating stuff, but there were also some hard numbers in WPP’s results. Profits were up 12% to £1.45bn, though ‘currency headwinds’ blew them down from 21.3% at constant rates.

The good news for WPP is that the winds are turning in its favour. Weaker sterling allowed it to make two thirds of its profits in the second half of 2014, and it doesn’t look like strengthening any time soon.

Besides, ‘flexible staff costs’ of close to 8% of net sales, including a whopping £313m in bonuses, ‘position the Group extremely well should current market conditions deteriorate’. Underneath the polish, perhaps ad agencies aren’t too dissimilar to banks after all.


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