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RNS Number : 1810I
WPP PLC
31 March 2020
For Immediate Release 31 March 2020
This announcement contains inside information
WPP PLC ("WPP")
Update re COVID-19
First two months' trading in line with our expectations; prudent
actions taken to maintain our strong liquidity position; continuing
to serve clients effectively at a crucial time for strong
communications
Headlines
-- 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
Since the start of the coronavirus crisis, our first priority
has been the safety and welfare of our people, and doing what we
can to limit the impact of the pandemic on our communities. Our
leadership has communicated continuously to our people around the
world and we have followed or exceeded the guidance of governments
and international health organisations in the measures we have
taken to protect our employees' health and to help slow the spread
of the virus. We know this is a stressful and unsettling time for
our people, and are encouraging all managers to stay in close
contact with their teams to provide the support needed. We continue
to give regular guidance on mental and physical wellbeing.
Our second priority has been to maintain service to our clients
at a critical time and we have successfully moved to remote working
across the vast majority of our business, and close to 95% of our
107,000 colleagues are now working away from the office. We are
deeply engaged in helping our clients to manage and adjust their
communications at this critical time. Our services have never been
more important, with many clients already looking to address their
longer term brand positioning and communications when the COVID-19
crisis passes.
We have seen outstanding examples of creativity from our people
as they support clients, governments and NGOs in the fight against
COVID-19. We are working with international health authorities to
promote effective handwashing and we have offered our resources to
the UK Government to assist the effort in Britain. Our global media
network Wavemaker, for example, helped the Cabinet Office to launch
its coronavirus information service on WhatsApp to reduce the
pressure on the NHS. Our people are also displaying great ingenuity
and resilience as they adapt to new conditions, maintain a positive
working culture and ensure continuity of service for 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 our
expectations and the guidance set in our preliminary results
announcement on 27 February 2020. In the USA, we saw an improvement
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%. Our 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 our offices, our people have responded
extraordinarily well to the unprecedented challenges and we have
successfully continued to work on client projects. At the peak of
the crisis in China, almost all of our colleagues were working
remotely, but as health restrictions are now being lifted, 55% of
our local workforce are back in our offices.
In March, we have begun to see a range of different responses
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
we have seen an increasing volume of cancellations. 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 we have less certainty over our future
pipeline. In some markets, we are seeing additional demand in our
PR and specialist communications businesses.
As a result, we expect our performance 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.
As we enter the second quarter, it is clear that the impact of
COVID-19 on the business will increase but it is not possible at
this stage to quantify the depth or duration of the impact. As a
result, we have decided to withdraw our guidance for the 2020
financial year. We will provide an update when appropriate.
Balance sheet, liquidity and headroom
WPP has a strong balance sheet and good liquidity. Over the last
two years, we have raised approximately GBP3.2 billion from our
disposals programme, selling 50 businesses and investments.
As at 31 December 2019 we had cash of GBP3.0 billion and total
liquidity, including undrawn credit facilities, of GBP4.8 billion.
Net debt was GBP1.5 billion, down from GBP4.0 billion a year
earlier. Our year-end net debt/Headline EBITDA ratio was 0.8x.
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 the 2019 year-end had an average
maturity of 8.2 years, with only a May 2020 EUR250 million Eurobond
due in the next two years.
Given the significant uncertainty over the coming months, we are
taking prudent action now to maintain our liquidity and ensure that
we emerge from this global crisis strong, secure, and ready to meet
the continuing needs of our clients, shareholders and other
stakeholders.
The Board has therefore decided to suspend the GBP950 million
share buyback, funded by proceeds from the Kantar transaction, with
immediate effect. Since December 2019, we have completed GBP330
million of the programme.
In addition, the Board is suspending the 2019 final dividend of
37.3 pence per share, which was due to be proposed at the AGM in
June 2020. These two actions together will preserve approximately
GBP1.1 billion of cash. The Board will continue to review the
status of the 2019 dividend.
Cost reduction measures
Most of our costs are variable in nature. We have commenced a
review of our costs to protect profitability, where possible, from
a decline in revenue. At the same time, we want to protect our
people as much as possible, as well as our ability to serve clients
and grow when markets recover. The immediate actions we have 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.
We anticipate these measures will generate total in-year savings
for 2020 of GBP700 - 800 million. In addition, we are making a
detailed assessment of further actions to reduce cost subject to
the impact of the virus on our business over the coming weeks and
months.
Cash conservation measures
We have also reviewed our capital expenditure budgets for 2020
and looked at opportunities to improve working capital. We have
identified savings in excess of GBP100 million in property and IT
capital expenditure against an initial 2020 budget of around GBP400
million. On working capital, we have a standing weekly management
process to review cash outflows and receipts to monitor our
position. We are continuing to work closely with our clients to
ensure timely payment for the services we have provided in line
with contractual commitments. On media, we are working with clients
and vendors to maintain the settlement flow. Should we see any
deterioration in payment from our media clients we will take
appropriate action to manage our cash position.
Mark Read, Chief Executive Officer, WPP:
"The actions we have taken in the last 18 months to streamline
and simplify WPP, together with raising GBP3.2 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.
"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."
Next update
We will issue our trading update for the first quarter of 2020
on 29 April 2020.
1. LFL revenue growth performance for January and February 2020
as follows: Group +0.1%, Group ex Greater China +1.8%, Greater
China -23.2%, USA +2.7%
For further information:
Investors and analysts
Peregrine Riviere } +44 7909 907193
Fran Butera (US) } +1 914 484 1198
Media
Chris Wade } +44 20 7282 4600
Kevin McCormack (US) } +1 212 632 2239
Juliana Yeh (APAC) } +852 2280 3790
Richard Oldworth, +44 20 7466 5000
Buchanan Communications +44 7710 130 634
wpp.com/investors
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 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.
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END
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