March outlook weaker than Jan & Feb due to COVID-19 crisis, says WPP
WPP is revising its growth projections across markets in light of the COVID-19 pandemic and its serious impact on businesses. The group said that while the two months’ trading was in line with its expectations, WPP expects its performance as the second quarter begins in March in markets experiencing significant COVID-19 outbreaks to be weaker than in January and February, impacted by government restrictions on movement and the consequent reduction in economic activity.
Some key performance highlights:
- 2020 started well with strong business momentum: key account wins and good retention
- Encouraging financial performance, pre COVID-19 impact: first two months Group LFL revenue less pass-through costs ex Greater China +0.4%1; Group -0.6%1; USA -0.9%1
- All of our businesses operating well under remote working conditions; producing effective campaigns for clients, governments and NGOs around the world
- March performance is weaker, reflecting spread of virus and government containment actions
- Significant uncertainty over immediate outlook: withdrawing guidance for 2020
- Strong balance sheet supported by further immediate action to maintain liquidity: buyback and 2019 final dividend suspended given current uncertainty; final dividend will remain under review
- Additional measures taken to manage cash flow and profitability include reduction in costs and capital expenditure, and tight controls on working capital
- First quarter trading update on 29 April 2020
- Supporting our people and communities and maintaining service for our clients
Year-to-date business performance and outlook for 2020:
For the first two months of 2020, excluding Greater China, Group LFL revenue less pass-through costs was up 0.4%. In Greater China (approximately 7% of WPP by revenue less pass-through costs) the impact from COVID-19 led to a 16.1%1 fall in LFL revenue less pass-through costs over the two-month period. For WPP as a whole, LFL revenue less pass-through costs was down 0.6%, in line with WPP’s expectations and the guidance set in our preliminary results announcement on February 27, 2020. In the USA, an improvement was seen in the rate of decline from 2019 with revenue less pass-through costs down 0.9% in the first two months, compared to a decline in the second half of 2019 of 4.4%. WPP’s overall new business performance was very strong, with a number of key wins, including Intel, Hasbro and Discover, and retentions, including BBVA.
In China, despite the significant slowdown in economic activity and the closure of WPP’s offices, the employees have responded extraordinarily well to the unprecedented challenges and the group has successfully continued to work on client projects. At the peak of the crisis in China, almost all of the staff were working remotely, but as health restrictions are now being lifted, 55% of the local workforce are back in its offices.
In March, a range of different responses are seen from clients globally, depending on the client sector, country and agency services. In the short term, media spend has largely remained committed, or diverted to alternative channels, although an increasing volume of cancellations is seen. Project and retained work has continued in most sectors, but activity has begun to decline. New business pitches continue where the process was already underway, albeit there is less certainty over WPP’s future pipeline. In some markets, additional demand is seen in the group’s PR and specialist communications businesses.
Mark Read, Chief Executive Officer, WPP, commented, “The actions we have taken in the last 18 months to streamline and simplify WPP, together with raising £3.2 billion in asset disposals, have put WPP in a strong financial position. It is clear that the companies in the strongest financial position will be best placed to protect their people, serve their clients and benefit their shareholders during a period of great uncertainty, which is why we are taking the steps we are outlining today.”
He further said, “Across WPP we now have close to 95% of our people working effectively and productively away from their offices. I am very proud of the response from our people, who are looking out for each other and going the extra mile for clients while demonstrating the creativity, collaboration and resilience that will be key to the enduring success of WPP. At the same time, we are supporting many governments and international health organisations on communications programmes to limit the impact of COVID-19 on our communities. The important role we are playing in helping our clients navigate a difficult time gives us great confidence in the long-term future of the company.”
Cost reduction measures
WPP has commenced a review of its costs to protect profitability, where possible, from a decline in revenue. The immediate actions that the group has taken include: freezing new hires; reviewing freelance expenditure; stopping discretionary costs, including travel and hotels and the costs of award shows; and postponing planned salary increases for 2020.
In addition, members of the WPP executive committee, as well as the Board, have committed to taking a 20% reduction in their salaries or fees for an initial period of three months.
These measures are expected to generate total in-year savings for 2020 of £700-800 million. In addition, WPP is making a detailed assessment of further actions to reduce cost subject to the impact of the virus on its business over the coming weeks and months.
WPP will issue its trading update for the first quarter of 2020 on April 29, 2020.