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Sir Martin Sorrell: upbeat about WPP's prospects despite slowing growth in China
Sir Martin Sorrell: upbeat about WPP’s prospects despite slowing growth in China. Photograph: Ray Tang/Rex Features
Sir Martin Sorrell: upbeat about WPP’s prospects despite slowing growth in China. Photograph: Ray Tang/Rex Features

WPP's Sir Martin Sorrell bullish about China prospects despite sales slowdown

This article is more than 8 years old

Marketing services group reports net sales growth of 2.1% in the second quarter

Sir Martin Sorrell says that he remains an “unabashed bull” about China prospects despite its stock market crisis contributing to WPP reporting a slowdown in sales growth in the second quarter.

WPP, the world’s largest marketing services group, reported like-for-like net sales growth of 2.1% in the second quarter to £2.6bn, down on the 2.5% reported in the first quarter.

The WPP chief executive admitted that China’s stock market crisis and currency devaluation have impacted performance.

“I remain an unabashed bull on China,” said Sorrell. “There are worries about the slowing of growth but that was inevitable. It was natural it was going to slow. We are concerned about the stock market bubble and the fall in the stock markets has implications. Having said that, we still believe in the longer term in the economy. We think it is a short term phenomenon.”

China is WPP’s third biggest market, where it employs 16,000 people, and the company is thought to have made about £1bn in revenues from Greater China last year.

Sorrell said that there was a wider phenomenon of a general slowdown in the advertising growth of countries such as China, which is now the world’s second largest advertising market, after the US, worth $82bn.

“The simple fact also is that in the last few months, the last year or so, the faster growth markets [like China] have slowed,” said Sorrell. “Mature markets like the US, the UK, Germany have got stronger and the [growth] gap between the fast growth markets and the slow growth markets has slowed.”.

WPP said that the group of fast-growing ad markets known as the BRICs – Brazil, Russia, India and China – accounted for almost $1.3bn (£830m) of total revenue in the first half.

“Net sales growth in the Brics slowed in the second quarter, as China and Russia, in particular, came under pressure,” he said. “Concerns about China, aggravated by the recent RMB devaluation and stock market decline, and Brazil remain, although we remain unabashed bulls of both.”

In recent years the fast-growing markets have been dotted in regional clusters across Asia Pacific, Latin America, Africa, the Middle East, and central and eastern Europe.

WPP saw the net sales growth from these combined regions fall from 4% in the first quarter to just 0.7% in the second quarter.

These regions accounted for almost £1.5bn in net sales in the first half, almost 30% of WPP’s total net sales.

Overall, WPP reported like-for-like net sales growth in the first half of 2.3% to £5.04bn.

WPP’s reporting of its net sales is more accurate than its rivals, which only report revenue figures.

Using the same measure as its rivals WPP underperformed the growth seen by two of its rivals, US-based marketing services groups Omnicom and Interpublic.

WPP reported 4.9% like-for-like growth in total revenues in the first half, versus Omnicom’s 5.2% and IPG’s 6.2%.

Sorrell would not be drawn on a performance comparison, other than to say: “You can’t pull out one quarter or two quarters and change strategy.”

WPP has reiterated its full year growth guidance at “over 3%” net sales growth this year, but not all City analysts are convinced.

“WPP’s first-half results contain no diasters but no triumphs either,” said Citi analyst Thomas Singlehurst in a note to clients. “The fact remains that organic growth remains slow and the group needs acceleration in growth across the second half in a more challenging macro-economic environment, particularly in the so-called faster-growing markets.”

Sorrell says that WPP has better margins than its rivals, reporting net sales margin growth from 13% to 13.3% in the the first half “well ahead” of its full year target.

And he pointed out that WPP is seeing a strengthening of performance with like-for-like revenue and net sales growth in July, of 5% and 3.7% respectively, which “indicates a stronger third quarter as budgeted and forecast”.

Sorrell proved to be more bear than bull when commenting on the outlook for the global ad industry this year.

“The apparent general industry optimism seems misplaced,” he said. “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.”

However, he said that in general clients do not reflect that state of mind with a heavy focus on cost cutting to reach profit targets over revenue growth.

“All in all, 2015 looks to be another demanding year,” he said. “2016, however, may provide a little further lift to the industry... enlivened by the visually stunning Rio Olympics and Paralympics, by the less visually stunning US presidential election and, last but not least, the Uefa Euro 2016 football championships.”

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