Global advertising group Omnicom has been shedding staff, cutting pay, reducing work hours, freezing new hires, dropping freelancers and stopping salary increases as clients pull back from spending during the coronavirus pandemic.
But more pain is on the way.
The three months to the end of June is expected to bear the brunt of the decline in marketing spend as clients pull back on budgets because of the shutdowns.
Omnicom, describing the second quarter as the “worst” and the “most traumatic”, wouldn’t estimate the depth of the fall but said it would “certainly” be double digits.
The current thinking at Omnicom is that many sectors will gradually reopen at some point during the third quarter, the three months to September.
The company will give priority to those staff put on furlough, or temporarily put on leave, to bring them back into the business as soon as client revenues are restored.
CEO John Wren briefed analysts: “We have the resources and financial strength to weather this crisis.”
He says he is blown away by the number of people across the world who have taken a voluntary salary reduction.
But there are more cuts ahead. The company plans to continue to “quickly reduce our costs” and that includes getting rid of non-performing businesses.
“These cost savings will, in part, offset the decline in revenue we expect in the second quarter and for the remainder of the year,” says Wren.
“We also expect that in the second quarter, we will continue to evaluate our portfolio of agencies to identify businesses that are non-core, are underperforming for potential realignment and disposition.”
Omnicom started feeling drag on its business from the effects of the coronavirus pandemic in late March.
Clients started to cut Omnicom’s services.
“As a result, we experienced a reduction in our revenue beginning late in the first quarter of 2020, as compared to the same period in 2019, and this is expected to continue for the remainder of the year,” the company says.
Organic growth, a widely used measure in the advertising industry, was flat at 0.3% for the three months to the end of March.
Global revenue fell 1.8% to $US3.4 billion in the first quarter of 2020, mainly due to the negative effects of foreign exchange rates.
Australia’s performance was described as “solid" in the first quarter. Organic growth in Asia Pacific, where Australia sits, was 2% for the three months to March.
“While we expect the pandemic to affect substantially all of our clients, certain industry sectors have been affected more immediately and more significantly than others,” says Omnicom.
These include travel, lodging and entertainment, energy and oil and gas, non-essential retail and automotive.
“Clients in these industries have already acted to cut costs, including postponing or reducing marketing communication expenditures,” Omnicom says.
“While certain industries such as healthcare and pharmaceuticals, technology and telecommunications, financial services and consumer products have fared relatively well to date, conditions are volatile and economic uncertainty cuts across all clients, industries and geographies.
“Overall, while we have a diversified portfolio of service offerings, clients and geographies, demand for our services can be expected to decline as marketers reduce expenditures in the short-term due to the uncertain impact of the pandemic on the global economy.”
The company, like its competitors, is preserving cash to help it continue to operate until the economy lifts after the pandemic.
Omnicom is holding $US2.6 billion cash and has another $US2.9 billion via a credit facility.
The first quarter numbers:
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