WPP WPP PLC

By Nick Kostov 

WPP PLC, the world's largest marketing company by revenue, said it is set to benefit from a Brexit-weakened British currency for at least the next year-and-a-half.

While the U.K.'s economic trajectory following the country's decision to exit from the European Union remains uncertain, the fall in the pound has provided a boost for companies that make a high proportion of their revenues in foreign currencies. WPP told analysts it expects a 13% to 15% rise in revenues from foreign exchange effects in the second half of the year, adding the firm would continue to benefit in 2017.

Because WPP makes 85% of its sales in foreign currencies, it benefits when sales in foreign currencies are converted into a weaker pound. The pound is down 12% against the dollar since June 23, the day before the vote's results were announced. Conversely, the weakening pound hurts U.S. and eurozone corporate competitors who do business in the U.K. WPP shares rose Wednesday more than 5% in London.

WPP shares have risen 18% this year, compared with a 12% rise at competitor Omnicom Group Inc. and a 10% rise at Publicis Groupe SA. "Currencies are definitely a big factor in that," said Kepler analyst Conor O'Shea. "It gets you a higher revenue number and makes it easier to hit analyst forecasts."

In its first-half results, which were reported Wednesday, WPP pointed to "a post-Brexit-vote recovery." Trading strengthened in the U.K. in July compared with the April, May and June, a period when business slowed ahead of the referendum vote.

"One swallow doesn't make summer but we are pleased with it," WPP Chief Executive Martin Sorrell said in an interview.

A powerful force behind the pound's decline is the Bank of England program, unveiled earlier this month, of cutting its benchmark interest rate to the lowest in its 322-year history and reviving a financial crisis-era bond-buying program. The BoE's move has been driving down the pound by persuading investors the country will have ultralow interest rates for some time to come.

Despite the strong results, "caution" remains the watchword for Mr. Sorrell as advertisers remain focused on cutting costs in a difficult economic and geopolitical environment.

Mr. Sorrell nevertheless said Brexit remained among the half-dozen worrisome trends facing the firm, including the eurozone's low growth and difficulties in emerging economies such as China, Brazil and Russia.

The U.K.'s exit from the EU could lead to a drop in gross domestic product in Europe and possibly globally, Mr. Sorrell said. He also warned that Brexit could create further economic and political uncertainty in the U.K. around Scottish independence and lead to other countries leaving the EU.

Mr. Sorrell, who had previously warned about the impact of Britain leaving the EU, said he wanted negotiations to determine the terms of Brexit to start as soon as possible. "Uncertainty is the death knell to growth and people willing to take an educated risk," he said.

Given the uncertainties, WPP said it expects sales and profitability to grow at a similar rate to last year due to tight cost controls.

The company said its comparable net sales, a closely watched measure in the advertising industry that strips out acquisitions, disposals and currency effects, rose 4.3%, beating analyst expectations and its peers.

First-half net profit fell 57% to GBP245.8 million as the company booked GBP122 million of write-downs, mainly on the U.S.-based measurement firm comScore it invested in last year which hasn't released its financial results due to an internal investigation by their audit committee. "We're very disappointed and somewhat amazed that the audit committee has gone on for so long," Mr. Sorrell said.

For 2016, WPP expects comparable net sales to grow more than 3% and its operating margin to again increase 0.3 percentage point on a constant currency basis. The company said that comparable net sales rose 1.9% in July.

The owner of agencies such as Ogilvy & Mather said it continues to look for acquisitions to bolster its expertise in areas such as digital and new media. The company has set aside an annual acquisition budget of around GBP300 million to GBP400 million, a sum in line with previous years.

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

August 25, 2016 02:48 ET (06:48 GMT)

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