5th Aug 2022 10:26
(Alliance News) - WPP PLC's promising interim results on Friday were overshadowed by worries about lockdown-prone China.
Economic downturn, accelerating inflation, and rising interest rates also are expected to weigh on the advertising market in the remainder of 2022.
WPP shares slid 6.7% to 833.40 pence each in London on Friday morning.
The share price decline came despite the ad agency upping its yearly outlook.
WPP now expects organic revenue for 2022 to rise by between 6.0% and 7.0% for 2022. It had initially guided for a 5.5% to 6.5% rise. It is the second time this outlook has been bumped up. It had raised it from 5% in its first quarter numbers.
For the six months that ended on June 30, pretax profit rose 6.3% to GBP419 million from GBP394 million a year earlier. Revenue increased 10% to GBP6.76 billion from GBP6.13 billion.
Revenue figures for the second quarter alone highlighted how badly trading in China was hit by Covid.
Like-for-like revenue there fell 6.1%, compared to a 12% jump in Germany, a 10% surge in the US, a 6.2% rise in the UK and a 3.2% increase in Australia.
WPP's headline operating margin declined to 11.6% from 12.1% a year earlier. The firm will find it tricky to maintain its margins as the macro-environment gets more uncertain.
"Global inflation and a rising interest rate environment will limit the potential for further margin expansion, emphasising the importance of the transformation programme to curtail costs and focus investment in areas likely to produce the greatest return, without losing sight of the creativity that needs to stay at the group's core," Edison analyst Fiona Orford-Williams commented.
Not even chunkier shareholder returns were able to lift WPP shares on Friday. It upped its payout by 20% to 15.0p and said it has completed GBP637 million worth of buybacks in the first half.
Investors just cannot ignore a deteriorating economic picture, AJ Bell analyst Russ Mould said.
"Advertising agency WPP has long been considered a bellwether for its industry. Some see if as a decent barometer for the wider economic climate too - when companies are feeling confident they will spend more on advertising and marketing, and when they are more cautious this spending will be cut back. WPP is a particularly useful indicator because of the scale and breadth of its operations," he said.
"WPP's first-half numbers actually look fairly solid, but investors are so concerned about the economic backdrop, and what it says about WPP's prospects, they have reacted negatively."
WPP noted that media investment firm GroupM now expects global advertising to grow by 8.4% in 2022, down from a previous growth estimate of 9.7%. There is a "softer outlook" for advertising in China due to "ongoing lockdowns", WPP said.
By Eric Cunha; [email protected]
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