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Sorrell: Adland’s economic outlook is tepid

Sir Martin Sorrell

Sir Martin Sorrell

Six months after warning that industry optimism was misplaced, the boss of the world’s biggest communications group has again predicted tough times ahead.

The comments came from Sir Martin Sorrell, boss of WPP, despite the company unveiling a record EBITDA profits number which went above £2bn ($3.8bn) for the first time.

WPP’s agency brands in Australia include GroupM, Mediacom, Mindshare, MEC, Maxus, Burson-Marsteller, Y&R Brands, Hill + Knowlton, Millward Brown, Grey, J Walter Thompson, Landor, Ogilvy, Play, Plista, TNS, Wunderman, Xaxis and PPR.

WPP is currently in the midst of taking control of the STW Group in Australia.

In Friday’s market update unveiling the global group’s strong numbers, Sorrell warned that Mad Men era positivity was not appropriate from adland in the near future, with client behaviour still suggesting a slowdown.

He wrote: “Despite this strong performance, the always on, Don Draperish general industry optimism seems misplaced. 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, general client behaviour does not reflect that state of mind, as tepid GDP growth, low or no inflation and consequent lack of pricing power encourage a focus on cutting costs to reach profit targets, rather than revenue growth.”

Sorrell warned that activist investors demanding instant returns are also increasing pressures on clients to act only for the short term.

He wrote: “Not surprising then, that corporate leaders tend to be risk averse. The average “life expectancy” of CEOs is around 6 to 7 years, CFOs around 4 to 5 years and CMOs 2 years. No wonder conservatism rules.

“In these conditions, procurement and finance take the lead over marketing and investment and suppliers are  encouraged to play the additional roles of banks and/or insurance companies.”

He added: “We see little reason, if any, for this pattern of behaviour to change in 2016, with continued caution being the watchword. There is certainly no evidence, based on 2015, to suggest any such change in behaviour.”

As is usually the case with Sorrell, he pointed to the coming Olympics and US Presidential election as a coming driver of a bump in growth.

He wrote: “The pattern for 2016 looks very similar to 2015, but with the bonus of the maxi-quadrennial events of the visually-stunning Rio Olympics, the UEFA Euro Football Championships and, of course, the United States Presidential Election to boost marketing investments, as usual by up to 1% or so, above advertising as a proportion of GDP.”

Sorrell also pointed to the group’s continuing strategy to keep as many workers as possible on short terms contracts so they can easily be laid off in a downturn. He wrote: “Flexible staff costs (including incentives, freelance  and consultants) remain close to historical highs of above 8% of net sales and continue to position the Group extremely well should current market conditions deteriorate.”

He concluded the update with a reminder of the importance to the success of the communications industry in having a diverse workforce. He said: “On behalf of their clients, our companies’ people are responsible for understanding, and appealing to, just about every one of the world’s 7 billion citizens.

“And while we have never believed that only a teenager can understand a teenager or only a pensioner can understand a pensioner, there can be no doubt that diversity among our people is a professional necessity.

“For us, diversity is not simply a question of race, colour or gender; at least as important is a diversity of attitude, of mind-set, of ways of approaching problems. Uniform, conventional thinking will never of itself meet the demands of our clients.”

Tim Burrowes

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