×

Once registered, you can:

  • - Read additional free articles each month
  • - Comment on articles and featured creative work
  • - Get our curated newsletters delivered to your inbox

By registering you agree to our privacy policy, terms & conditions and to receive occasional emails from Ad Age. You may unsubscribe at any time.

Are you a print subscriber? Activate your account.

Slowdown in North America Impacts WPP in Q1

By Published on .

Martin Sorrell
Martin Sorrell Credit: Dario Pignatelli/Bloomberg
Most Popular

WPP CEO Martin Sorrell blamed an ultra-competitive market and weaker performances by its clients for a 3% drop in North American like-for-like revenue in the first quarter of 2017.

Like-for-like revenue across the group, excluding acquisitions, was up just 0.2% in the first quarter of the year, although the overall picture was stronger, with total revenue up 1.2% to $4.457 billion.

Speaking to analysts at a results presentation, Sorrell said, "In our analysis of the top 20 clients, it's clear that the U.S. performance of our clients is not as good as the international performance."

Sorrell indicated surprise at that outcome, given that the Trump administration has a "more positive attitude to business compared to the previous one." But, he added, "performance by U.S. clients is under more pressure for whatever reason."

The second factor he identified as affecting U.S. results was extreme competition in media buying, although Sorrell suggested this may have peaked. He said, "We've seen promises made and unfulfilled, and business coming back. Procurement is starting to get wise to over-promising and guarantees that don't hold water."

Pressure on clients to grow has led to cuts in the supply chain, discounting, and pressure on payment terms, which have constricted opportunities for small and medium-sized agencies, he said.

The big marcoms groups, however, can benefit from this environment, as more marketers look to trim costs by consolidating their agency arrangements. Sorrell cited one unnamed WPP client who he said still works with 2,400 agencies around the world, while another uses 700 agencies in China alone.

"The benefits of scale go beyond media buying, because when consolidation appears to be more effective, the six holding companies do have opportunities. It's not all bad news. You do pick up stuff," Sorrell said.

The merging of back-office functions like IT and finance, and efficiencies from putting agencies into one building, as WPP has done in Spain, Holland and Italy, are better ways to protect margins than discounting and extending payment terms, said Paul Richardson, WPP's group finance director.

WPP continues on its acquisition trail, completing 14 deals in the first quarter, and today announced that WPP Digital is buying Pittsburgh-based Deeplocal, whose clients include Google, Netflix, and Airbnb.

WPP said in a statement that revenue, net sales and operating profit were all "well above budget and ahead of last year," predicting around 2% growth for the full year.

Europe was the best performing region, with like-for-like growth of 3.2% in the U.K. and 5.3% in Western continental Europe. WPP groups together Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, reporting a slight drop of 0.1% for the region.

In this article: