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CNBC Transcript: Interview with Sir Martin Sorrell, CEO of WPP

Following are excerpts from the transcript of a CNBC interview at Davos by Steve Sedgwick and Sir Martin Sorrell, CEO of WPP.

SS: Are you trying to show a red rag to that bull? Well, I'll tell Sir Martin Sorrell what you just called him. He (Sri Jegarajah) called you a well-known China bull, do you think it's growing at 7, 4 or what?

MS: I think about 4

SS: Good morning to you, by the way.

MS: Good morning, Steve, actually. I think about 4, probably. Maybe even a little bit less. Our business last year, I haven't seen the final, final numbers, but it was tough, and very volatile, actually. You know, Q1 was different to Q2 and 3 and 4, so we saw tremendous volatility.

I don't think it's going to be much different this year, but I remain long term, as far as the future of WPP is concerned, at fast growth markets, digital data, and of course making sure we all work harmoniously together for clients. But certainly in the context of the BRICS and the next leg in China is incredibly important. This year, actually, the Delta on China, whatever it grows at, whether it's 2, 4, 6, whatever, will probably be the biggest in the world economy, still.

SS: Why are people obsessing, then, when they get a 6.8 or a 6.9 figure, or a 7 handle figure when we know that there is a huge slowdown going on? We can see it from the commodities, we can see it from the credit demand stories. Are people obsessing over the minutiae? Are we focusing on the wrong thing?

MS: No, I think I quite understand why people focus on the short term. The problem is, you know, I was listening to your interviews before, I don't think it's a, sort of, big picture that, it's the new normal that will continue. Slow growth, worldwide GDP growth will be, what, 3, 3.5 nominal, 3, about 3% real, no inflation, very little pricing power, focus on cost, and if you're running a legacy business, at one end of the spectrum you have the disruptors like an Uber and an Airbnb, at the other end of the spectrum you have the zero-based cost budgeters like a 3G or a Coty or Reckitt Benckiser and in the middle you have Dan Loeb and Nelson Peltz and Bill Ackman putting pressure on the short term.

I think CEOs are not going to move away from that, certainly for legacy companies, are not going to move away from that, so the new normal, if you want to put it that way, is, I think, on slow growth, focus on cost, unfortunately, and in our business what we see is people who focus on brands. I saw, for example, people on CNBC talking about the prospects of Coca Cola now that they are putting more money into their marketing budget, growing their top line and there are some opportunities there.

SS: But they've got their own structural issues with the changing habits and changing legislations.

MS: Well everybody's faced with disruption in their industry.

SS: Exactly, and another disruption, which should be good for you, is the 2016 Presidential Election, as well. It's normally a great year for the WPP. Is it going to be?

MS: Well, the quadrennial, the maxi-quadrennial, they call it

SS: The UEFA, as well.

MS: It's UEFA, and of course, Rio Olympics, which will be a great, a great event, it will be spectacular on television, we saw the deal between Globo and the IOC, a long range deal in terms of media, so that's very strong.

SS: Sport's getting some terrible publicity at the moment.

MS: Well, that's a really interesting question. We're seeing big issues in most sports, and of course there's going to have to be very significant change at FIFA and elsewhere in order to get it all right, so you're right, this is under pressure, but that will end up, I think, to the good, because we'll see greater professionalism and more transparency, but having said that, you're right. This year when, possibly Hillary wins the US Presidential Election, that will be helpful for our business.

SS: Why not Donald Trump? It's looking like he's getting there, we just heard our last guest said it could be the final two of them

MS: Well, never be-, to discounted. We'll see what happens, it's a long way to-,

SS: What does that mean, a Trump presidency?

MS: Well, I think it's going to be an interesting-, I remember Jesse Ventura was, what, governor of a state and a former wrestler, I remember asking several voters who voted against him, how did he do? Not so bad. So who knows what can happen. I doubt whether Trump would win against Hillary Clinton, if Hillary Clinton is nominated, but it will be a very interesting contest. It's rather like a reality TV show, isn't it?

SS: So China, Europe worries as usual-,

MS: Oil.

SS: Worries about geopolitical, what's the-,

MS: Middle East.

SS: For you, what's the big grey swan, or big concern for 2016?

MS: Well, my biggest concern is what I just said to you before, is the failure of companies to invest in growing the top line.

SS: They haven't invested for a long time.

MS: Yes, but all our brand surveys show that those companies that are investing-, so our biggest driver of total shareholder return, as you know, is like for like growth, or same-store growth as retailers call it. That's what you look at, when you look at our numbers, and everybody else, you always-, you go to page 32 of 35-,

SS: Where you've hidden it for me-,

MS: And always dig it-, no, but that's the key issue, and if we look at the last 10 years, when we're doing brand valuations, sorry, with the Financial Times every year, what we see is those companies-, if we did a fund together, Steve, of the top 10 for the last 10 years, we would outperform the FTSE-, sorry, the MSCI index by 300% if we invested in those companies that come top of the brand, so it's those that invest in brand and drive top line growth. Unfortunately in this environment, particularly when we're all here in Davos, burying our head in the snow, in terms of the short term, I think-,

SS: Are they burying their head in the snow in Davos?

MS: I think we tend to get absorbed with the short term. I mean, Klaus's book on the Fourth Industrial Revolution is encouraging us to look at the longer term, and I think that's what we should be doing here rather than focusing-, so when you think about China, for example, where we started this interview, think about what's going to happen in 25 years, not so much what's going to happen in 25 minutes.

SS: Sir Martin, I've got to leave it there.

MS: Thank you, Steve.