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WPP sees signs of Brexit uncertainty as sales growth slows

LONDON (Reuters) - WPP WPP.L, the world's largest advertising group, reported a slowdown in underlying sales growth in the third quarter, saying a weaker performance in Britain perhaps showed the first impact of the country's vote to leave the European Union.

Sir Martin Sorrell, Chairman and Chief Executive Officer of WPP, the world's largest advertising company, speaks during an interview with Reuters at the Argentina Business and Investment Forum 2016 in Buenos Aires, Argentina, September 13, 2016. REUTERS/Marcos Brindicci - RTSNLWE

However, the net sales growth - at 2.8 percent - still came in slightly ahead of analysts' expectations, pushing the company's shares up 3.9 percent to top the FTSE-100 .FTSE leaderboard of UK blue-chip stocks.

Chief Executive Martin Sorrell said on Monday the British market was a “little bit softer, maybe reflecting some of the uncertainty around Brexit” in the quarter, which started days after the UK referendum at the end of June.

WPP toned down its forecast for the year, saying both like-for-like revenue and net sales for the year would grow by “over 3 percent”. It predicted “well over 3 percent” in August.

The company’s reported revenue grew 23.4 percent to 3.6 billion pounds, with much of the rise coming from the sharp fall in the value of the pound since the Brexit vote. Sorrell said they were “false gains”.

“My view on sterling is it’s almost like the country’s stock price, and it has taken a 15-20 percent hit and I don’t think that’s good news,” he said.

WPP made around 26 percent of its revenues in Britain last year, second only to the United States.

With Britain’s future role in Europe still uncertain, the company is increasingly focusing on its four biggest markets that would remain in the bloc: Germany, France, Italy and Spain.

“We have upped our game in those four markets in the last three-to-four months post Brexit, and we will continue to,” Sorrell said.

Brexit was one of many uncertainties in the global economy, he added, resulting in a conservative environment for companies and making it difficult for ad firms to eke out growth.

“Given what’s happening in the environment, the slow growth, lack of inflation - with the exception of the UK with the devaluation of sterling - the focus on costs and the general level of uncertainty around the world, I think it’s a good performance,” he said of WPP’s third quarter.

Net sales growth was 3.8 percent in the first half of the year.

U.S. ELECTION

Analysts said WPP had assuaged some concerns about the U.S. market raised by its rivals in the last month.

Sorrell said the United States was still “pretty strong”, with the presidential election having only a small impact.

“The bump from it is small in the context of the overall operations,” he said. “The bigger issue is what happens long term.”

WPP’s shares had fallen 7.7 percent over the last month, as investors fretted about commentary on the United States from its rivals.

Third-quarter underlying sales for Publicis PUBP.PA grew by just 0.2 percent after it lost a number of large U.S. media accounts in 2015.

U.S. rival Omnicom OMC.N, meanwhile, said its outlook was clouded by the election, the likelihood of a U.S. interest rate rise before the year-end and the potential effects of Brexit.

Analyst at Citi, who have a “buy” rating on WPP, said the reports from its peers had led investors to question whether there was something structurally awry for agency groups.

“WPP’s 3Q results should go some way to assuaging these concerns,” they said, noting that 3.1 percent growth for WPP in North America showed a broadly stable trend.

WPP’s reported revenue rose 23.4 percent to 3.61 billion pounds ($4.4 billion), reflecting a boost from the fall in the pound.

Like-for-like revenue rose 3.2 percent, down from 4.3 percent growth in the first half.

($1 = 0.8208 pounds)

Editing by Sarah Young and Mark Potter

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