Good performance to February; March impact of COVID-19 as expected; strong liquidity position supported by substantial actions on cost and cash flow
Note: all numbers relate to continuing operations unless otherwise stated
Q1 revenue -4.9%; LFL[1] 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.
