WPP’s Revenues Drop 15%, As Creative Holds Up Better Than Media

WPP’s Revenues Drop 15%, As Creative Holds Up Better Than Media
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The world’s biggest media company, WPP, has announced its revenues fell by 15 per cent in the June quarter primarily due to the effects of CV-19.

In a statement, WPP CEO Mark Read believed the worst of the pandemic was behind the business but remained cautious about the speed of recovery.

When it came to the best-performing parts of WPP, creative agencies VMLY&R and Wunderman Thompson were singled out as the star revenue drivers.

Highlights of the interim results to June included:

◼ H1 reported revenue -12.3 per cent, LFL revenue -11.5 per cent (Q2 -18.4 per cent)

◼ H1 revenue less pass-through costs -10.2 per cent, LFL revenue less pass-through costs -9.5 per cent

◼ Q2 LFL revenue less pass-through costs -15.1 per cent: US -9.6 per cent, UK -23.3 per cent, Germany -11.6 per cent, Greater China -3.1 per cent, India -25.1 per cent

◼ H1 headline operating margin 8.2 per cent, down 3.7 points on prior year as cost savings offset the majority of revenue decline

◼ Cost savings of £296 million in H1, on track to deliver towards the upper end of the £700-800 million target. Around 25 per cent of these savings expected to be permanent when returning to 2019 levels of revenue less pass-through costs

◼ Reported loss before tax impacted by £2.7 billion of impairments (£2.5 billion goodwill, £0.2 billion investment and other write-downs); relating to acquisitions whose carrying values have been reassessed, triggered by the impact of COVID-19, and driven by a combination of higher discount rates, a lower profit base in 2020 and lower industry growth rates

◼ Net debt at 30 June 2020 £2.7 billion, down £1.5 billion year-on-year reflecting Kantar transaction and strong working capital management

Strategic progress, shareholder returns and outlook:

◼ Transformation delivering results: VMLY&R and Wunderman Thompson our two best-performing integrated agencies

◼ Strong new business performance, reflecting enhanced offer and improved collaboration

◼ Continued recognition of creativity and effectiveness: Effies winner for ninth successive year; Cannes Lions Agency Holding Company of the Decade

◼ 2019 final dividend cancelled to support lower leverage; share buyback still under review but intention to restart when environment stabilises; 10p 2020 interim dividend declared

◼ Current trading showing sequential improvement on Q2 but market remains volatile: July LFL revenue less pass-through costs -9.2 per cent. US -6.1 per cent, UK -10.5 per cent, Germany -7.2 per cent, Greater China -18.6 per cent, India -15.5 per cent

◼ Full year 2020 LFL revenue less pass-through costs growth and headline operating margin expected to be within the range of analysts’ expectations

◼ Capital markets event to update on strategic progress, long-term efficiency savings and capital allocation planned before 2020 year end

Commenting on the results, Read said: “After two months in which our strategic progress could be measured by growth outside Greater China, the second quarter saw an inevitable downturn, with like-for-like revenue less pass-through costs declining by 15 per cent, albeit better than our expectations. Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery.

“Our strategic transformation remains on track but as COVID-19 accelerates the change in our sector, we are accelerating our plans. We continue to attract new talent, invest in technology and ecommerce, and train our people in the skills they need for the future, with more than 20,000 receiving accreditations from Adobe, Amazon, Facebook, Google and Salesforce this year.

“We are working with our clients to help them get back to business, adapt their marketing strategies at speed and reshape their operations for a new world. Brands are seeing increases in online sales of 100 per cent and more, and we are supporting eight of our top 1o clients on ecommerce strategies. Our new business record is industry-leading, at $US4 billion in the first half, including wins from Intel, HSBC and Unilever, and our pipeline remains strong.

“With £4.7 billion of liquidity thanks to the Kantar transaction, and as we deliver against our cost savings targets, our financial position remains strong. As a result, we are able to return to paying our dividend, with an interim dividend of 10 pence for 2020.

“I would like to thank our people around the world, the vast majority of whom have been working from home and have shown great creativity, agility and collective spirit to support our clients in challenging times,” Read noted.

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Mark Read WPP

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