A robust set of half year results from global advertising firm WPP (WPP) sees its shares climb 5.4% to £18.41. Net sales are up 3.8% against expectations for an advance of around 3.2% to 3.3%.

Current trading is buoyant with like-for-like revenue and net sales up 4.6% and 1.9% respectively in July and full-year revenue growth is expected to be ‘well over’ 3%, compared with a previous forecast of ‘over’ 3%.

Investors giving these numbers a casual glance could be forgiven for puzzling at the positive market reaction when pre-tax profit is down 40.1%. However, this figure largely results from exceptional write downs of £122 million on its investment in US-based internet audience measurement company ComScore.

As we recently discussed when previewing these results WPP is a decent bellwether for the wider economy thanks to its scale as brands tend to increase their advertising spending when they are confident on the outlook.

In his usual colourful commentary which accompanies updates from the company, chief executive Martin Sorrell makes the case for investing cash at a time when multi-nationals are sitting on $7 trillion of net cash

‘There is a clear correlation between investment in brands, top line like-for-like growth and total share owner return, through stock price appreciation,’ he says.

‘You cannot cost cut your way to long-term success. There is a finite limit to cutting costs, whilst there is no limit to top line growth, at least in theory, until you reach 100 per cent market share.’


Issue Date: 24 Aug 2016