WPP says ultra competitive ad market to hit 2017 growth

By Kate Holton

LONDON (Reuters) - WPP, the world's largest advertising group, cut its 2017 sales forecasts on Friday and its shares tumbled as a tough economic environment forced rivals and clients to fight over every dollar of marketing budgets.

Martin Sorrell, the founder and head of the British firm, said clients seeking to drive down costs had made the advertising industry ultra competitive when bidding for new work, leading to contract losses from the likes of VW and AT&T.

The news meant shares in the group fell from recent record highs to be down 6 percent, valuing WPP at 23 billion pounds ($28 billion).

"It is very competitive out there, there is low growth, low inflation and clients are focusing on cost," he told Reuters.

"It is a very difficult environment."

WPP, which employs more than 200,000 staff in 113 countries to support clients such as Ford and Unilever, reported 2016 net sales growth of 3.1 percent, in line with forecasts, after winning 4.4 billion pounds of net new business.

But the company said this year had started more slowly, with the key measurement of net sales up 1.2 percent in January, prompting WPP to lower its target to around 2 percent growth for the year ahead.

Sorrell said the low growth, low inflation environment meant the big consumer and food groups that traditionally spend big on advertising had turned to tactics such as zero-based budgeting, where managers have to justify every expense, from pencils to private jets.

The advance of technology continued to disrupt major industries while activist investors shook up the boardroom, he said.

"Given this macro-economic background, it is not surprising that clients are generally grinding it out in a highly competitive ground game," WPP said.

British commercial broadcaster ITV also highlighted a weak advertising market when it reported results this week.

The world's four biggest advertising groups - WPP, Omnicom, Publicis and IPG - tend to track wider economic trends, and WPP's 2017 forecast of 2 percent growth was below analysts' expectations for the company.

WPP's rivals had already reported full-year results showing a mixed performance, with some citing pressures in North America. Sorrell said he hoped the "pro-business administration" of U.S. President Donald Trump could help to kick-start better growth but for the moment they were expecting a tougher year.

Analysts welcomed the strong end to 2016 but said the weak outlook would come as a shock. "There is no hiding from the fact that a reversal of momentum is deeply unhelpful," Citi said.

($1 = 0.8159 pounds)

(Editing by Paul Sandle/Keith Weir)