WPP suffers 1.7% drop in 2013 PR revenues

WPP has topped its marcoms rivals by reporting an 18.7 per cent jump in group-wide pre-tax profit, but the group's PR business experienced another "difficult" year.

Sir Martin Sorrell: "2014 looks to be another demanding year"
Sir Martin Sorrell: "2014 looks to be another demanding year"

The owner of network giants Burson-Marsteller and Hill+Knowlton Strategies saw reported global PR and public affairs revenues rise by just 0.4 per cent to £921m, which translated to a drop in organic revenue of 1.7 per cent (against group-wide 3.5 per cent growth) and a further contraction of profit margins to under 15 per cent.

WPP admitted that parts of its PR and public affairs business had fallen short of their targets for the year.

It is not the only major group to have struggled to maintain its momentum in the PR sector: Ketchum owner Omnicom’s organic growth rate more than halved in 2013 to 1.5 per cent.

However, Weber Shandwick parent Interpublic turned in a strong performance with 7.8 per cent organic growth for the unit that houses its PR agencies, while the world’s largest independent PR agency group, Edelman, reported organic growth of 11.4 per cent.

WPP remains the leader by revenues, ahead of Omnicom and Interpublic which each recorded $1.3bn, thanks to a wide line-up of agencies that includes Burson-Marsteller, Cohn & Wolfe and RLM Finsbury.

Nevertheless, its PR headline profits before interest and taxes dropped for the second successive year, from £136m to £134m, and its operating margin (headline profits before interest and taxes as a percentage of revenues) has dropped from 16.1 per cent in 2011 to 14.5 per cent.

By comparison Edelman’s leadership has claimed its 2013 profit margin was "around 14 per cent", though it is unclear whether the figures are directly comparable.

WPP said 2013 had been a difficult year for many of its public relations and public affairs brands, particularly in North America, Continental Europe, Latin America and the Middle East.

It was able to point to a return to growth in the fourth quarter of the year with revenues up 1.2 per cent on an organic basis and up 2.4 per cent on a constant currency basis.

Like its rival Omnicom, its overall performance was brighter than that of its PR wing.

Its total revenues hit a new record of £11bn (US$18.3bn) with organic growth of 3.5 per cent. Headline profits before interest and taxes rose from £1.53bn to £1.66bn, with its operating margin reaching a historic high of 15.1 per cent.

WPP chief executive Sir Martin Sorrell said that 2013 had been a tough year despite the record results and that he expected clients to remain cautious this year.

"Clients remain focused on a strategy of adding capacity and brand building in both fast growth geographic markets and functional markets like digital, and containing or reducing capacity, perhaps with brand building to maintain or increase market share, in the mature, slow growth markets," he said.

"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 2014, with continued caution being the watchword. There is certainly no evidence to suggest any such change in behaviour so far in 2014.

"All in all, 2014 looks to be another demanding year, as a strong UK pound and weak fast growth market currencies continue to take their toll on our reported operating margins."

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