Arun Sudhaman 27 Feb 2014 // 8:01AM GMT
LONDON—WPP today reported that its PR revenues dropped 1.7% in 2013, after returning to topline growth in the final quarter of last year.
The group's public relations and public affairs firms — which include global networks such as Burson-Marsteller, Hill + Knowlton Strategies, Ogilvy PR and Cohn & Wolfe, along with specialist agencies like RLM Finsbury, Glover Park Group and Quinn Gillespie & Associates — were the only business unit to report a like-for-like revenue decline in 2013.
For the year, PR and PA revenue reached £921m. The 1.7% decline lagged advertising and media (+5.5%), branding, healthcare and specialist comms (+3.9%) and data (+1.6%).
That pattern, which has persisted for several quarters now, means the PR/PA unit's share of group revenues has slid to 8.4%, down from 8.8% in 2012 and 9.1% in 2010.
The full-year results still represent an improvement of sorts for WPP's PR unit, following a 3.6% decline in the first half of last year. They will continue to prompt questions, however, as to why WPP's PR firms are underperforming the market.
As forecast in WPP's third-quarter 2013 earnings, its PR and PA firms returned to growth in the final quarter of last year, up 1.2% on a like-for-like basis, with WPP CEO Sir Martin Sorrell pointing to a particularly strong performance in the UK.
However, Sorrell admitted that 2013 had been a "difficult" year for many of its PR firms, across "North America, Continental Europe, Latin America and the Middle East."
"Despite careful cost management," added Sorrell, operating margins at WPP's PR firms fell by 0.4 points to 14.5%, generating headline profit of £134m.
Overall, the group reported like-for-like revenue growth of 3.5% to just over £11bn, but missed its margin target because of foreign currency movements.
"Clients were certainly in better shape with profits at an all-time high as a proportion of GDP, margins generally stronger, share prices rising as institutional investors rotated out of government securities and with clients sitting on, in the case of US-based multi-nationals, over $4 trillion in cash with relatively unleveraged balance sheets," said Sorrell.
"But, whilst clients are now certainly in stronger shape than post-Lehman in September 2008, they still lack the necessary confidence given that global GDP growth remains sub-trend and the 'grey swans', or known unknowns remain — although most, if not all, of the latter are whiter."
Sorrell pointed to a number of these "grey swans", including Eurozone fragility, the BRICS slowdown, the US deficit and the Middle East political situation. He added that "strengthened corporate governance scrutiny" is also making companies "unwilling to take further risks."
"They remain focussed on a strategy of adding capacity and brand building in both fast growth geographic markets and functional markets, like digital and containing or reducing capacity, perhaps with brand building to maintain or increase market share, in the mature, slow growth markets."
Sorrell also noted that "black swans are the unknown unknowns, which by definition we do not know what they are."