Advertising giant WPP expects cautious spend from clients in 2015

Despite acknowledging improvements to the global economy, WPP, which owns leading ad agencies including JWT and Ogilvy & Mather, and today reported a 12% rise in 2014 pre-tax profits to £1.4bn, says it is unlikely its clients will break the bank on ad spend in 2015.

The ad giant, which also saw total sales rise 4.6% to £11.5bn for the full year of 2014, reported strong growth in all its regions including Britain and North America and said it had made a good start to 2015.

But WPP chief executive Martin Sorrell expressed caution. “Although clients may be more confident than they were in September 2008 post-Lehman, with stronger balance sheets, sub-trend global GDP growth at around 3.0-3.5% real and 5.0-5.5% nominal, combined with these levels of uncertainty and strengthened corporate governance scrutiny, make them unwilling to take further risks,” he explained.

“This approach also has the apparent virtue of limiting fixed cost increases and increasing variable costs, although we naturally believe that marketing is an investment, not a cost. We see little reason, if any, for this pattern of behaviour to change in 2015, with continued caution being the watchword.”

Sorrell said that he expects WPP’s clients to remain focused on brand building and adding capacity primarily within the lower-cost digital space.

“The pattern for 2015 looks very similar to 2014, but with no maxi- or mini-quadrennial events like the Olympics, or FIFA World Cup or United States Presidential Election (as there will be in 2016), to boost marketing investments,” he added, also revealing that WPP’s like-for-like revenues were up 6.7% in January 2015 and like-for-like net sales up 3.9%.

However, WPP said the uncertain result of the UK general election ‘may crimp the strong UK economic recovery.’

“If the Conservatives win outright or lead a coalition or even form a minority government, there will be a referendum on the EU in 2016 or 2017, which will cause significant uncertainty,” added Sorrell.

“If Labour wins outright or leads a coalition, or forms a minority government, it will win partly on a ‘bashing business’ manifesto, which may resonate at the ballot box. Either way, the UK economy may slip negatively into the political cycle again.”

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