WPP reports further stagnant revenues, but Sorrell downplays threat of consultancies

WPP head Sir Martin Sorrell downplayed the threat posed by consultancies at the holding group’s quarterly investor briefing which reported flat revenues and sales.

Sorrell was dismissive of the idea that consultancies are ‘eating the industry’s lunch’, saying the wins to date from consultancies were not ‘significant amounts’.

Consultancies are not eating the ad industry’s lunch says WPP CEO Sorrell

“It has been suggested that the intrusion of management consultancies, particularly in the digital space, may have also started to have an impact on the advertising industry, particularly as companies such as Accenture and Deloitte Digital aggressively target acquisitions of small agencies and talent and absorb them. However, there are only currently two or three listed consultants or similar, whilst the bulk of the industry consists of private partnerships that drain their P&Ls and balance sheets each year of retained earnings and, consequently, have limited financial firepower,” WPP’s quarterly update which is generally understood to be written by Sorrell said.

“In fact, most agencies report, including ourselves, that even when they do compete directly with the consultancies on digital projects, the win/loss records are consistently strong, particularly given the continuing importance of the creative dimension for success. Can consultancies really buy a creative culture?

“Furthermore, even the advertising industry’s trade press has carried wildly inaccurate estimates of the consultancies’ digital marketing revenue in comparison with the industry’s agencies or holding companies. Where the consultancies may have made some inroads is their focus not so much on the digital area, but more importantly on client concerns about cost. Very few CEOs will resist the suggestion that they may be overspending and the promise of an audit or review that will only cost a proportion of any cost savings generated or a contingency fee. So, it may well be, that consultant activity is having some impact, not so much in the digital area, but more because of an emphasis on cost containment.”

Sorrell indicated to shareholders and analysts during the briefing that he was more worried about general industry disruption and activist investors – two factors he believes are being driven by the low cost of capital that is distorting markets.

For the company itself, third quarter reported revenues were up 1.1% to £3.649 billion but on constant currency revenue were down 0.4%. Like-for-like revenues were down 2.0%

Sales were up 2% on a UK basis and down 0.9% after currency moves. On a like-for-like comparison sales were down 1.1%.

The Asia-Pacific region was a weak point for the company’s divisions said CFO Paul Richardson.

Asia Pacific, included with Latin America, Africa & Middle East and Central & Eastern Europe operations, reported sales growth of 2.1% for the quarter. Richardson reported APAC as the most difficult of the three regions with Chinese and Indian markets under pressure, the latter being due to the implementation of the GST.

The company has increased debt from £4.7 billion to £5.697 billion, towards the top of the company’s target range – a rise of nearly a billion pounds which has largely been due to share buy backs and acquisitions.

Share buy-backs of £396 million in the first nine months, up from £342 million in the same period last year, represented 1.9% of the issued share capital, against a full-year target of 2.0-3.0%.

Looking ahead, Sorrell told investors the company was continuing its focus on increasing revenues from faster-developing markets and new media channels along with getting better efficiencies between teams and divisions within the holding company.



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