WPP’s Best-Case 2020 Scenario Is Flat Sales, And Its Worst Is A 40% Decline

Mark Read WPP

WPP is slogging along with the rest of the agency market.

Q1 like-for-like revenues were down 3.8% to $3.5 billion, the company said Wednesday.

In North America, WPP’s largest market, like-for-like revenue was down 1.9% to roughly $1.2 billion. Grey, GroupM and VMLY&R all grew in the region, but revenues began to sag across the board in late March as lockdowns were put into effect.

Meanwhile, China, which makes up 6% of WPP’s revenue, was down 21.3% in Q1, indicating what’s to come in other markets.

“We expect the second quarter to be tough,” CEO Mark Read said on the earnings call.

But WPP is also gauging China’s signs of recovery, where 90% of its employees are back in the office, and the retail and auto markets are starting to recover. But Read warned investors to take these signs with a grain of salt, as some countries that reopened too quickly have returned to lockdowns.

“We need to treat all of these stats with some degree of caution,” Read said. “But the lesson we’ve learned is recovery can be very rapid.”

After hiring freezes, delaying raises, ending discretionary spending and implementing a mandatory 20% pay cut for the executive leadership team in March, WPP has since encouraged 3,000 senior leaders across its agencies to take voluntary pay cuts of up to 20%. WPP has also laid off and reduced working hours for some employees, although the holding company didn’t say how many, resulting in about $870 million to $995 million in savings.

WPP continues to evaluate cost saving measures as the pandemic plays out. Salary cuts are the biggest lever, but CFO John Rogers sees “material long-term efficiency potential” in removing costs from back-office services as well as consolidating access to technology and data.

“We have developed a range of economic scenarios and have detailed plans against each to take costs out, as well as indicators in the business to inform us when we need to take costs out,” he said.

WPP has modeled multiple scenarios for its economic situation. The most optimistic and unlikely view has sales coming in flat for the year, Rogers said, while the worst-case scenario projects net sales down 35% to 40% in 2020.

But WPP is carrying its lowest net debt load since 2007, thanks to selling off its majority stake in Kantar and merging VMLY&R and Wunderman Thompson. Read does not see an opportunity for more major mergers, but WPP could do more “tidying up around the edges” in terms of disposals.

“People are our greatest asset, so we want to ensure we protect as many jobs as we can as we get through this,” Read said. “Our goal has been to protect jobs wherever possible.”

Client trends

More than half of WPP’s clients are in the CPG, pharma and healthcare sectors, which grew 4.9% in the quarter. Luxury, travel and retail, however, have hit WPP the hardest with 4% spending declines.

Some distressed clients have asked WPP agencies to extend their payment terms. The holding company is “holding the line and remaining firm … when we need to be, but also being flexible for clients,” Rogers said.

Meanwhile, WPP’s top 10 clients have responded to the pandemic with TV branding campaigns. Production times have sped up from two to three months to a week in some cases, with help from global production agency Hogarth.

“Companies with deep financial resources are able to take advantage of an increased audience,” Read said. “There’s no better time to advertise than when your competitors are not.”

On the media side, marketers are reallocating budgets to channels with higher ROI, such as ecommerce. Linear TV has been surprisingly resilient. Digital has suffered some impact, as seen in Google’s recent earnings, as it’s an easier channel to pause and restart spend.

“We are seeing in general pressure across all media,” Read said. “Newspaper, magazines, cinema and outdoor are clearly the most impacted.”

WPP agencies are also working with clients and government organizations on PSAs, such as a P&G campaign on TikTok about social distancing that has been viewed 10 billion times.

The holding company is still winning new accounts, bringing in more than $1 billion in new business in Q1, including Intel’s global integrated account and Hasbro’s media business. WPP has had conversations with a few clients about reversing their decision to bring marketing in house as they struggle to minimize fixed costs, Read said.

Some CMOs are beginning to ask WPP for advice on how to shape their communications as they come out of the crisis, Read said.

 

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