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By Kate Holton
BARCELONA, Feb 27 (Reuters) - Fierce competition in theglobal advertising industry forced Britain's WPP tolower its profit guidance for 2014 on Thursday, wiping more thana billion pounds off its share price and overshadowing itsimproving trading throughout 2013.
The world's largest advertising group said it hadoutperformed the rest of the industry in winning new businessbut the combination of clients demanding more for less, andcurrency fluctuations had hit its operating margins on areported basis.
The company's operating margin for 2013 rose 0.3 marginpoints to 15.1 percent, below its annual growth target of 0.5points, while it lowered its outlook for 2014 target to 0.3margin points growth.
The forecast for this year also excludes the impact ofcurrency swings, which could still take a heavy toll on a groupthat, led by Martin Sorrell, expanded early in emerging marketswhich have proved highly volatile of late.
In the final quarter of 2013, when approximately 40 percentof WPP's profits were earned, sterling strengthened against manycurrencies by 10 to 20 percent in key faster growth markets suchas India, South Africa and Brazil.
"All in all, 2014 looks to be another demanding year, as astrong UK pound and weak fast-growth market currencies continueto take their toll on our reported operating margins," saidSorrell, who has built WPP into one of Britain's biggestcompanies during his 28 years at the top.
"We have the same (long-term margin) target, it will justtake us longer to get there. The reason is pressure from clientsin terms of they want more for less, and a lot of competitionand competitive discounting in media pricing."
DISAPPOINTING OUTLOOK
The disappointing profit outlook overshadowed the group'soverall trading in terms of the main industry metric - like forlike revenue growth - which rose 3.5 percent in 2013, in linewith forecasts. It was up 5.7 percent in January.
WPP had traded well in the second half of the year, winningnew work and taking advantage of the $35 billion merger of itstwo biggest rivals, Omnicom and Publicis,which will make them the largest ad group in the world once thedeal closes.
The British firm recorded a 57 percent jump in net newbusiness billings, reflecting how it has poached blue-chip firmsfrom the soon-to-be American-Franco supergroup, which facesconflicts of interest amongst its combined client base.
Liberum analyst Ian Whittaker said the lowering of themargin target would give WPP more scope to respond to theincreasing pressures in the industry.
"We think WPP has done the right thing in admitting this andreducing its guidance in one go, but it does introduce thequestion of structural risk into the agencies' story," he said.
WPP was the last major ad group to report its results.Publicis, led by Sorrell's sparring partner Maurice Levy,reported a slowdown in trading in the fourth quarter, whileOmnicom ended the year well.
WPP shares, which had risen over the last month, fell 6percent, wiping just over a billion pounds off its shares andcutting market capitalisation to 16.8 billion pounds, asanalysts said the revised guidance would hit expectations for2014 earnings per share.
Shares in Publicis were down 1.4 percent.
"Something of a mixed bag at first take," Jefferies analystssaid. "All in all, a creditworthy print, though perhaps notenough to keep the bulls happy. We see value here but the stockmay give something up in the short term."
