Good performance to February; March impact
of COVID-19 as expected; strong liquidity position supported by
substantial actions on cost and cash flow
WPP (NYSE: WPP) today reported its 2020 First Quarter Trading
Update.
Note: all numbers relate to continuing operations unless
otherwise stated
- Q1 revenue -4.9%; LFL1 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% 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
Mark Read, Chief Executive Officer of WPP, said:
“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% 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.”
COVID-19 business update
People
The health of our people remains our first priority. In the
middle of March we asked our people to work remotely and we now
have almost 95% of our 107,000 employees working from home, with
the exception of our teams in China who have largely returned to
the office. Leadership across WPP and our agencies is communicating
frequently with our teams, mainly by videoconference. We are
supporting the physical and mental wellbeing of our people through
regular sessions to help them manage the challenges of remote
working.
Clients
Our clients have been able to depend on us for uninterrupted
service from the outset. We believe that our broad geographic
reach, our industry sector mix and the breadth of our offer provide
defensive qualities in an economic downturn. While sectors such as
Automotive, Travel & Leisure and Luxury & Premium, which
together account for 24% of our top 200 clients’ spend, have seen
the most significant cuts, spend is holding up relatively well in
sectors such as Consumer Packaged Goods, Technology and Healthcare
& Pharma, which together represent 54%. We are seeing continued
and, in some cases, greater demand for our public relations,
ecommerce, marketing technology and production capabilities.
Clients continue with new business reviews and we have registered a
number of important wins including Discover, Hasbro, Intel, and
Novo Nordisk, as well as retentions including BBVA. The pipeline
remains encouraging and while we estimate some 20% of pitches have
been put on hold, those that had started are continuing (though
clients are understandably reluctant to begin new reviews). So far
this year we have not lost a significant account from any
client.
Communities
We are working with clients, governments, national health
organisations and NGOs to help limit the impact of COVID-19 on
society. A team of WPP agencies, for example, is supporting the
World Health Organization on a pro bono basis by delivering global
and regional public awareness campaigns to encourage people to stay
at home and adopt safe behaviours. The partnership involves WPP
agencies including Grey, GroupM, Hill+Knowlton, Hogarth, Inca,
Motion Content Group, Ogilvy, Wavemaker and WPP Scangroup, as well
as Kantar. Global media partners (sourced by Wavemaker and GroupM)
are making significant donations in media to support this
effort.
Financial resilience
On 31 March we outlined a number of measures designed to
strengthen the Company’s financial position, including steps to
reduce costs and conserve cash, ensuring adequate liquidity and a
significant cushion to our covenants, and we provide an update on
page 4 of this release.
The current situation is unprecedented and the immediate future
highly uncertain. There are some positive signs. In the past week,
we have started to prepare for the reopening of our offices as and
when governments begin to lift lockdowns – at substantially lower
capacity and with enhanced safety measures in line with official
guidance. Clients are also looking ahead. Visibility of a return to
normal remains low, but a number of clients are seeking our advice
and support on how they should market their brands in the recovery
phase.
First Quarter Group performance
Revenue from continuing operations in the first quarter of 2020
was £2.8 billion, -4.9% compared with the same period last year on
a reported basis and -4.6% on a constant currency basis. LFL
revenue was -3.8% compared with last year. Revenue less
pass-through costs was £2.4 billion, -4.3% on a reported basis,
-4.0% in constant currency and -3.3% LFL.
In March, LFL revenue less pass-through costs was -7.9% as the
impact of COVID-19 began to be felt more widely across our
business.
Regional review
Revenue analysis – First Quarter
£ million
2020
∆ reported
∆ constant2
∆ LFL3
∆ LFL March
2019
N. America
1,102
-1.6
%
-3.5
%
-2.3
%
-9.9
%
1,120
United Kingdom
411
-4.7
%
-4.7
%
-2.1
%
-4.6
%
431
W. Cont Europe
561
-5.3
%
-4.2
%
-4.4
%
-10.6
%
593
AP, LA, AME, CEE4
773
-9.0
%
-6.5
%
-6.2
%
-12.6
%
849
Continuing operations5
2,847
-4.9
%
-4.6
%
-3.8
%
-10.1
%
2,993
Kantar
77
-87.1
%
-87.1
%
2.9
%
595
Total Group
2,924
-18.5
%
-18.3
%
-3.6
%
3,588
Revenue less pass-through costs analysis – First
Quarter
£ million
2020
∆ reported
∆ constant
∆ LFL
∆ LFL March
2019
N. America
938
-0.8
%
-2.7
%
-1.9
%
-3.6
%
945
United Kingdom
313
-5.5
%
-5.5
%
-4.2
%
-9.8
%
332
W. Cont Europe
467
-4.7
%
-3.6
%
-3.7
%
-9.6
%
490
AP, LA, AME, CEE
648
-8.0
%
-5.4
%
-4.6
%
-11.5
%
704
Continuing operations
2,366
-4.3
%
-4.0
%
-3.3
%
-7.9
%
2,471
Kantar
48
-89.4
%
-89.4
%
-3.9
%
455
Total Group
2,414
-17.5
%
-17.2
%
-3.3
%
2,926
North America, with LFL revenue less pass-through costs
-1.9%, was the best performing region in the first quarter, showing
a further improvement in trend over the second half of 2019. This
reflects the lapping of some significant assignment losses from
2018, and an improved new business performance in 2019. VMLY&R,
Grey and GroupM all grew in the region during the period. March
showed a slight deterioration in trend, as expected.
In the United Kingdom, LFL revenue less pass-through
costs was -4.2%, with March -9.8% as the impact of the lockdown
began to have an effect on client spend.
Western Continental Europe saw LFL revenue less
pass-through costs of -3.7%. Performance varied significantly from
market to market, with countries such as Spain and Denmark
continuing to trade relatively well despite widespread lockdowns,
and other markets such as Italy showing a marked deterioration in
performance during March.
In Asia Pacific, Latin America, Africa & the Middle East
and Central & Eastern Europe LFL revenue less pass-through
costs was -4.6%. Asia Pacific was the weakest sub-region,
reflecting the COVID-19 impact on Greater China, but Africa &
the Middle East grew strongly and Central & Eastern Europe was
also up year-on-year.
Business sector review
Revenue analysis – First Quarter
£ million
2020
∆ reported
∆ constant
∆ LFL
∆ LFL March
2019
Global Integrated Agencies
2,154
-4.1
%
-3.8
%
-2.5
%
-9.3
%
2,246
Public Relations
223
-2.2
%
-2.5
%
-2.9
%
-7.0
%
228
Specialist Agencies
470
-9.5
%
-9.0
%
-9.4
%
-14.9
%
519
Continuing operations
2,847
-4.9
%
-4.6
%
-3.8
%
-10.1
%
2,993
Kantar
77
-87.1
%
-87.1
%
2.9
%
595
Total Group
2,924
-18.5
%
-18.3
%
-3.6
%
3,588
Revenue less pass-through costs analysis – First
Quarter
£ million
2020
∆ reported
∆ constant
∆ LFL
∆ LFL March
2019
Global Integrated Agencies
1,745
-3.5
%
-3.2
%
-2.6
%
-6.6
%
1,807
Public Relations
212
-1.0
%
-1.3
%
-1.4
%
-4.4
%
214
Specialist Agencies
409
-9.0
%
-8.6
%
-7.4
%
-15.2
%
450
Continuing operations
2,366
-4.3
%
-4.0
%
-3.3
%
-7.9
%
2,471
Kantar
48
-89.4
%
-89.4
%
-3.9
%
455
Total Group
2,414
-17.5
%
-17.2
%
-3.3
%
2,926
In Global Integrated Agencies, LFL revenue less
pass-through costs was -2.6%. VMLY&R performed strongly,
achieving good growth in the first quarter. All of the other
agencies recorded declines, although Wunderman Thompson and Grey
had been showing encouraging sequential improvement until
March.
Public Relations LFL revenue less pass-through costs was
-1.4%, with the decline mitigated by strong demand for some of our
Specialist PR services in the current environment.
Specialist Agencies LFL revenue less pass-through costs
was -7.4%, with the overall performance continuing to be impacted
by a significant client assignment loss in late 2018. Geometry and
our Brand Consulting businesses also declined year-on-year, with
the latter impacted by the project-based nature of much of their
work.
The business sector mix of our client base has defensive
qualities. Within our top 200 clients, 54% of revenue less
pass-through costs came from the Consumer Packaged Goods,
Technology and Healthcare & Pharma sectors, which are yet to
see a significant impact and were up 4.9% LFL in the first quarter.
22% of revenue less pass-through costs came from sectors including
Telecoms, Media & Entertainment, Retail and Financial Services,
which were up 4.0% and have seen a mixed impact. The remaining 24%
of revenue less pass-through costs came from clients in the more
affected sectors of Automotive, Luxury & Premium and Travel
& Leisure, with -4.0% LFL in the first quarter and -9.5% in
March.
Update on cost reduction measures
As announced on 31 March 2020, we have already taken a number of
actions to reduce cost to protect profitability, where possible,
from a decline in revenue less pass-through costs. These 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. We anticipate these
actions will generate total in-year savings for 2020 of £700-800
million.
More recently, we have implemented a range of additional
measures, including voluntary salary sacrifice and part-time
working. Over 3,000 people with salaries above certain levels have
already committed to give up 10-20% of their salary for an initial
three-month period. While we continue to protect our people as much
as possible from redundancy, as well as ensure our ability to serve
clients and grow when markets recover, we have had to reduce
headcount in certain areas.
Given the significant uncertainty over the immediate outlook, we
have modelled a number of economic scenarios and developed detailed
cost actions against each of these, using a combination of the cost
savings outlined above. Owing to the flexibility of the cost base,
we are able to respond quickly and will reduce cost further if the
depth and length of the downturn requires it, as well as ensure the
business is ready to take advantage of any market recovery.
Balance sheet and liquidity
WPP has a strong balance sheet and good liquidity. Over the last
two years, we have raised approximately £3.2 billion from our
disposals programme, selling 50 businesses and investments.
As at 31 March 2020 we had cash of £1.7 billion and total
liquidity, including undrawn credit facilities, of £4.4 billion.
Net debt was £2.8 billion, down from £4.6 billion a year earlier,
and average net debt over the three-month period was £2.1 billion.
The significant reduction in net debt year-on-year reflects the
proceeds of the disposal programme, good underlying cash generation
and improved working capital management. The increase in net debt
since the year-end reflects normal seasonal working capital
movements and share buybacks.
Our covenants, which relate to our $2.5 billion revolving credit
facility, are <3.5x net debt/EBITDA and >5x EBITDA/net
interest. Our bond portfolio at 31 March 2020 had an average
maturity of 7.9 years, with only one bond due in the next two years
(May 2020 €250 million Eurobond).
During the period we received a further £137 million in
consideration for the Kantar transaction and spent £285 million on
share buybacks.
As previously communicated, to preserve liquidity the Board has
decided to suspend the share buyback programme and the 2019 final
dividend. These two actions together will preserve approximately
£1.1 billion of cash. The Board will continue to review the status
of both the share buyback and the 2019 dividend.
We have identified capital expenditure savings in excess of £100
million in property and IT against an initial 2020 budget of around
£400 million. We continue to monitor our working capital position,
working closely with our clients to ensure timely payment for the
services we have provided in line with contractual commitments.
Financial guidance
As announced in our update of 31 March 2020, we have withdrawn
guidance for the 2020 financial year. We expect the impact of
COVID-19 on our business to increase in the short term, but it is
not possible to quantify the depth or duration of the impact. We
are nonetheless confident that, through our scenario planning, we
are well positioned to take further action if the downturn is
prolonged and to respond positively when the market picks up.
This announcement is being distributed to all owners of Ordinary
shares. Copies are available to the public at the Company’s
registered office.
The following cautionary statement is included for safe harbour
purposes in connection with the Private Securities Litigation
Reform Act of 1995 introduced in the United States of America. This
announcement may contain forward-looking statements, including
statements relating to the potential impact of the COVID-19
outbreak, within the meaning of the US federal securities laws.
These statements are subject to risks and uncertainties that could
cause actual results to differ materially including adjustments
arising from the annual audit by management and the Company’s
independent auditors. For further information on factors which
could impact the Company and the statements contained herein,
please refer to public filings by the Company with the Securities
and Exchange Commission. The statements in this announcement should
be considered in light of these risks and uncertainties.
1 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
2 Percentage change at constant currency exchange rates
3 Like-for-like growth at constant currency exchange rates and
excluding the effects of acquisitions and disposals
4 Asia Pacific, Latin America, Africa & Middle East and
Central & Eastern Europe
5 Continuing operations excludes certain Kantar assets which
remain wholly owned by WPP pending completion
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