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Home » WPP Slashes Sales Forecasts As North American Tech Firms Cut Spending
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WPP Slashes Sales Forecasts As North American Tech Firms Cut Spending

News RoomBy News RoomAugust 5, 20230 Views0
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Advertising and marketing agency WPP sank in value on Friday, as reduced spending in North America forced the company to slash its full-year sales forecasts.

At 787.6p per share WPP’s share price was 7% lower in end-of-week trading.

Like-for-like revenues at the FTSE 100 business are now tipped to rise between 1.5% and 3% in 2023. That’s down from a prior growth forecast of 3% to 5%.

WPP’s first-half sales rose 6.9% year on year on a headline basis, it said, to £7.2 billion. On a like-for-like basis turnover crept 3.5% higher, with corresponding sales increasing 2.3% in quarter two.

However, like-for-like sales in North America declined 1.2% in the first half as client activity in the US receded during quarter two. Underlying revenues in the region 4.1% between April and June.

Clients in North America generate more than a third (37%) of the group’s revenues.

WPP said that trading was “impacted by lower revenues in the USA from technology clients and delays in spend on technology projects.”

Like-for-like revenues in the USA dropped 1.2% in the first half and 4.5% during quarter two.

The company said that underlying sales outside North America “accelerated to mid-single digits” between January and June. In the UK and Germany, turnover rose 8.2% and 5.4% respectively in the period, while in India sales ticked 0.8% higher.

But corresponding sales in China reversed 4% in the first half, as a 4.8% rebound in quarter two was weaker than expected.

First Half Trend Tipped To Continue

Rising first-half sales pushed WPP’s operating profit 4.3% higher year on year to £666 million. This was up 2.7% on a like-for-like basis.

Meanwhile, its operating profit margin remained broadly stable at 11.5%, down 0.1% year on year. The company kept the interim dividend unchanged from 2022 levels, at 15p per share.

Pre-tax profit more than halved in the six months to June, to £204 million from £419 million previously.

The company swallowed a £220 million impairment charge in the period which was related to a review of its property portfolio.

Chief executive Mark Read commented that “our performance in the first half has been resilient with quarter two growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects.”

He noted that weakness in North America was felt particularly hard across its integrated creative agencies.

Read added that “in the near term, we expect the pattern of activity in the first half to continue into the second half of the year.”

No Surprises

Sophie Lund-Yates, analyst at Hargreaves Lansdown, said WPP’s decision to cut its sales forecasts “is unwelcome but not wholly surprising, given that corporations are in wait-and-see mode when it comes to splashing the cash and handing margin over, at a time when demand is very tough to profile.”

She added that “while demand for WPP’s suite of services hasn’t been totally washed out, it has faded this half, and investors will be wanting to see a clear path to return to full colour.”

Read the full article here

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