WPP reports accelerated growth in PR and public affairs arm, issues UK Brexit recession warning

WPP has reported an improved performance in its PR and public affairs division in Q2 2016, as the group warns of continued client "caution" and says the UK "might" fall into recession post-Brexit.

Sir Martin Sorrell has unveiled a rise in profits in WPP's PR and public affairs division
Sir Martin Sorrell has unveiled a rise in profits in WPP's PR and public affairs division

Like-for-like revenue growth (excluding acquisitions) in the PR and public affairs arm was 3 per cent in Q2, compared with 2.3 per cent in the first quarter, WPP announced in its interim results this morning. Across the half year, like-for-like growth in the division was 2.7 per cent, with overall revenue in the division up 8.8 per cent to £499m ($656.9m).

There was a similar pattern in net sales, which rose 3.2 per cent in Q2 against growth of 2.3 per cent in Q1.

WPP, led by Sir Martin Sorrell (pictured), said all regions showed growth in the division, particularly in Asia Pacific, Latin America and Africa.

The company picked out Cohn & Wolfe and parts of the specialist public relations and public affairs businesses in the US and Germany for performing "particularly well".

Cohn & Wolfe CEO and president Donna Imperato said the agency had a "record start to the year", with year-on-year growth of more than 13 percent. Imperato said she expects double-digit growth for the third year in a row. "Our success continues to be driven by high demand for integrated marketing work, especially for insight-driven, digital content solutions," she added.

Operating profit WPP's PR and public affairs division rose year-on-year from £66m ($86.9m) to £71m ($93,5m). Net sales margins fell 0.3 margin points to 14.4 per cent. However, H+K Strategies, Ogilvy PR, Cohn & Wolfe and its specialist PRs companies showed improved margins in the first half, the group said.

Overall, the advertising and marcomms giant saw revenue rise 11.9 percent to £6.536bn ($8.6bn) in H1 as underlying earnings (EBITDA) grew 13.7 per cent to £889m ($1.17bn).

WPP reported a strong start to the current quarter, with like-for-like revenue growth in July ahead of budget at 4.6 percent. The company listed its PR and public affairs division and its specialist communications unit among those "up strongly" in July. All regions and sectors, except data investment management, were positive that month, it added.

WPP said the pattern for 2016 "looks very similar to 2015", but with the "bonus" of the Rio Olympics, the European Football Championships and the US Presidential Election, which it said boost marketing investments "by up to one percent or so".

The company described its performance in the first seven months of 2016 as "reasonably strong" amid slowing global GDP growth.

But it said clients "generally remain cautious".

"Worldwide real and nominal GDP growth seem stuck in a range of three to 3.5 per cent, with little inflation, consequently little or no pricing power for clients and a resultant focus on costs to achieve profit targets. Procurement and finance remain the dominant functions for understandable reasons, with marketing taking a back seat.

"While there seems limited likelihood of a worldwide recession... there have been and will be individual countries that go into recession, as Russia and Brazil already have and a post-Brexit United Kingdom might. This pressure on the top-line growth rates has intensified, as the previously faster growth BRICs markets, with the exception of India, have lost their shine, even though the Western markets of the United States and United Kingdom and some Western Continental European markets, like Germany, Spain and Italy have perked up."

WPP warned of "GDP weakness" in the UK, the EU "and possibly" globally – "at least in the short-term or mid-term" – following the Brexit vote.

It also warned of "the potential impact of the rise of populism at both ends of the political spectrum in the United States Presidential election in November", although it said "the risk of an unorthodox result seems to be diminishing".

WPP added caution around the possibility of Greece’s exit from the EU, and political concerns around Ukraine, the Middle East and Africa, plus the migrant crisis and continued risk of terrorism, as well as "significant political and economic uncertainties" surrounding Brazil, Russia and China.

But the company pointed to opportunities in countries including Indonesia, the Philippines, Vietnam, Egypt, Nigeria, Mexico, Colombia and Peru and Argentina, and even Cuba and Iran, along with "continuing mild recovery in Western Continental Europe".

This article was updated on Wednesday afternoon with comments from Cohn & Wolfe.

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