The world’s biggest media company, WPP, has issued a first-quarter trading update that has revealed the massive impact of coronavirus on its bottom line as global marketers shed spends.
The advertising giant reported a 7.9 per cent fall in like-for-like revenue last month, while revenue slipped 3.3 per cent in the first quarter as a whole.
The pandemic has taken its toll across WPP’s main markets, dropping almost 10 per cent in the UK last month. March revenue fell by nearly 30 per cent in China, however, the company has said most of its offices in the country had now reopened.
WPP’s Australian operations are lumped in with APAC, Latin Ameria, Africa and the Middle East. It noted that revenues in that category were down 4.6 per cent with APAC being the “weakest sub-region”.
In response to the pandemic, WPP has already pulled its dividend, suspended a £950 million ($A1.8 billion) share buyback and scrapped its guidance for the year.
The company’s suits have taken a 20 per cent pay cut for at least three months as part of a plan to save £800 million ($A1.5 billion) over the next 12 months.
It also announced it had made further cost-cutting measures, including voluntary, salary cuts for over 3,000 workers and some job cuts.
However, London traders liked the news and shares in WPP were up almost four per cent in early trading.
The holding group has an average net debt of £2.1 billion ($A4 billion) but this was halved from last year, thanks largely to its $US4 billion ($A6.1 billion) sale of a majority stake in market research firm Kantar. The company has £4.4 billion ($8.3 billion) in cash and undrawn facilities.
Outlining its Q1 trading update, the company announced:
- Q1 revenue -4.9%; LFL revenue -3.8%
- Q1 LFL revenue less pass-through costs -3.3%, with impact of COVID-19 felt more strongly in March, at -7.9%, as expected
- Top five markets Q1 LFL revenue less pass-through costs: US -1.9% (March -3.7%); UK -4.2% (March -9.8%); Germany -4.3% (March -14.9%); Greater China -21.3% (March -29.9%); India 6.1% (March -1.1%)
- China: offices back to around 90 per cent occupancy, rapid recovery in economic activity
- Encouraging net new business performance: $1 billion won in first quarter
- Strong liquidity and balance sheet: average net debt £2.1 billion, down £2.1 billion year-on-year, with £4.4 billion of cash and undrawn facilities
- Substantial actions already taken to manage cash flow and profitability include suspension of the 2019 final dividend and share buyback programme, reductions in costs and capital expenditure, and tight controls on working capital
- Further measures on costs now being implemented: voluntary salary sacrifice from over 3,000 senior roles, part-time working and some permanent headcount reductions
- Plans in place to flex costs against a range of economic scenarios to ensure cash flow and profit are managed and the business can respond quickly when markets recover
WPP CEO Mark Read commented: “After a good start to the year, with growth outside of China in January and February, our business started to be materially impacted by COVID-19 in March. Our response has focused on four areas: the health of our people, serving our clients, helping to mitigate the impact of the virus on our communities and ensuring WPP is financially strong.
“Close to 95 per cent of our 107,000 people are working from home, providing uninterrupted service to clients, helping them to communicate their own actions, sustain their brands and develop new ways to market their products. We have also won $1 billion of new business in the first quarter, including the global integrated Intel account, creative duties for Discover and the media accounts for Hasbro and Novo Nordisk.
“We have witnessed a decade’s innovation in a few short weeks, with the way people meet, shop, work and learn increasingly reliant on technology. We are seeing clients rapidly shift emphasis and budget into digital media and direct-to-consumer channels and continue marketing technology investments. And, while many clients are significantly impacted by a reduction in consumer demand, other sectors such as packaged goods, technology and food retail brands have been more resilient. As in previous downturns, those who are most prepared and most far-sighted will be at an advantage when we come through the current situation.
“At a time of great uncertainty, I am very proud of how our people and clients have responded. Despite the economic challenges that will, no doubt, be with us for some time, the way we have come together gives us real confidence in our future,” Read said.
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