LONDON (Reuters) – WPP, the world’s largest advertising agency, slightly raised its 2013 forecast on Thursday due to rising revenues and said the merger of two major rivals would spur it to step up its pace of small and medium acquisitions.
WPP posted a 12 percent rise in headline pre-tax profits for the first half to 524 million pounds ($810 million) with a 7.1 percent rise in first-half reported revenue to 5.3 billion pounds, broadly in line with market forecasts.
But it said like-for-like revenue rose 5 percent in July, year-on-year – its strongest monthly rate this year, prompting a slight increase in its forecast of just over 3 percent growth, though the company would not specify what the new figure was.
Chief Executive Martin Sorrell said he had been taken by surprise by last month’s merger announcement from rivals Publicis and Omnicom, with the new $35 billion company to overtake WPP as the No. 1 advertising group.
Describing the merger as “big, bold, surprising”, Sorrell said it remained to be seen if it would be successful.
“If we are a challenger brand, this gives us an opportunity to be even more aggressive in upping our strategy,” Sorrell told Reuters.
He said WPP, which owns ad agencies Grey, Burson-Marsteller, JWT and Ogilvy Group, had no plans for any large deals but would pick up the pace of its strategy, and spend 300-400 million pounds a year on small and medium acquisitions with a focus on new markets, new media and data investment management.
The London-listed company raised its target for revenue from new markets and new media to account for 40-45 percent of total revenues by 2018, up from 35-40 percent.
“We have done a large number of small acquisitions in the past month of so … and we are certainly upping the pace,” he told Reuters.
WPP shares were up 4.3 percent at 1,229 pence by 1142 GMT, outperforming a 0.7 rise in Britain’s FTSE 100 blue-chip index.
“CLUNKY”
Sorrell criticized the Publicis and Omnicom merger.
“Its structure and organization is clunky,” he said in a statement. “Potential client and, even more importantly, people conflicts are considerable, exacerbated by a lack of pre-announcement consultation.”
But he said the merger was at worst neutral and at best highly positive for WPP and competitors, and would result in further consolidation and concentration in the industry.
Senior European advertising executives have said areas of client conflict in the new, combined company could include advertisers in the consumer goods, tech and automobile sectors.
Looking at 2013, WPP saw strongest revenue growth in Britain in the second quarter, up 5.4 percent on a like-for-like basis, while western continental Europe continued to be weakest.
WPP confirmed its headline operating profit target of 15.3 percent for the year, up 0.5 percentage points.
Sorrell said 2014 was “a better prospect” as the Sochi Winter Olympics, Brazilian World Cup, mid-term Congressional elections in the United States and early forecast of worldwide GDP growth of about 4 percent were all good for the ad world.
“If advertising remains at the same percentage of GDP, which looks at least likely, the prospects for the communications services industry are set fair,” Sorrell said.
Analyst David Reynolds at Jefferies said WPP was “navigating a difficult year well”.
“Much remains to be done to execute a second-half weighted full year, but (WPP’s) commentary around July revenues … bodes well,” he said. ($1 = 0.6437 British pounds)
(Reporting by Paul Sandle- Editing by Belinda Goldsmith and Pravin Char)
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