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Advertising giant WPP warns on ‘Don Draperish’ optimism

Advertising giant WPP says geopolitical issues are making clients less willing to take risks, with firms targeting costs rather than revenue growth.

The cautious outlook from world’s largest advertising and marketing group came despite another record year with pre-tax profits of just under £1.5bn.

Sir Martin Sorrell, chief executive, said: “Despite this strong performance, the always on, Don Draperish general industry optimism seems misplaced.”

Revenue rose 6.1% to £12.2bn.

WPP – which is marking the 30th anniversary of its founding – said it had now posted five consecutive record years.

Analysts at Liberium said the results were better than expected, helped by a strong performance in the fourth quarter. They regarded WPP as the best-positioned group in its sector, but were cautious on the sector in general.

Shares in WPP, which were flat over the past 12 months, were down 0.25% at £15.35 in afternoon trading in London.

‘Continued caution’

Sir Martin identified three “grey swans” that could pose threats in 2016: the impact on share and bond markets following any action by the Federal Reserve on US interest rates; the outcome of the UK referendum on EU membership; and the effect of sharply lower oil prices.

Although clients were more confident than they were in September 2008 after the collapse of Lehman Bros, he said lower than average global economic growth, combined with heightened levels of geopolitical uncertainty, low inflation and “short-term focused activist investors and strengthened corporate governance scrutiny” were making them unwilling to take further risks.

“We see little reason, if any, for this pattern of behaviour to change in 2016, with continued caution being the watchword,” Sir Martin added.

China was now WPP’s third-largest market after the US and UK.

Sir Martin told the BBC that the true growth rate in China was probably more like 3% to 4%, rather than the official rate of close to 7%.

“The continued strength of China is vital not just to the world, but to WPP too,” he said.

“It’s the shift to consumption from a savings economy, it’s the shift to a healthcare safety net – because that’s the reason that people save – and it’s a shift to services too. We’re seeing that in the 12th and 13th five-year plan that the People’s Congress will put forward and that’s the growth pattern we will see – but it will be more muted in terms of overall growth.”

The company expected modest boosts from this year’s “visually stunning” Rio Olympics, the Euro 2016 football and US presidential election.

Looking over 2015, WPP said it continued to benefit from industry consolidation, winning assignments from both new and existing clients – including several very large groups. Rises in revenue from those wins would be fully reflected in 2016, it added.

Like-for-like revenue at its advertising and media investment management division, which included Ogilvy & Mather, Grey and J. Walter Thompson Company, jumped 8.4% for the year.

The public relations and public affairs division, which included Cohn & Wolfe and Burson-Marsteller, recorded a 5.8% rise in like-for-like net sales.

North America posted the highest net sales growth, up 4.1% on a like-for-like basis across the year. In the UK net sales rose 2.9%.

WPP made 52 transactions in the year, with 18 acquisitions and investments in new markets.

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