WPP is gathering billions in cash by suspending dividends, dropping a share buyback and slashing costs including salaries to ensure the world’s largest advertising company gets through the coronavirus crisis.
The company, with its major markets going into isolation, has launched its own lockdown to hoard as much cash as it can to carrying the business through the expected lean times of the pandemic. Its majority-owned WPP AUNZ has already started to improve its cash position with a series of measures including cancelling dividends.
In March, WPP global saw increasing cancellations for media spend, and a fall in project and retained work.
Pitches already in play are continuing but the pipeline for future work is uncertain. However, demand for PR and specialist communications is up in some markets.
The company told the London Stock Exchange: "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.”
In response, WPP has suspended a £950 million ($AU1.9 billion) share buyback, funded by the sale of data business Kantar. Since December £330 million ($AU666 million) has been spent on the program.
The 2019 final dividend of 37.3 pence a share, due to be proposed at the AGM in June this, has also been suspended.
These two actions preserve about £1.1 billion ($AU2.22 billion) in cash. This is added to the £3 billion ($AU6 billion) cash reported at the end of December. The company also has £4.8 billion $&A9.7 billion) in unused credit. Net debt was £1.5 billion ($Au3 billion), down from £4 billion $AU8 billion) a year earlier.
WPP, which in February forecast a year with no sales growth, has also withdrawn its earnings guidance for 2020.
On costs, hiring has been frozen, freelance spending is being reviewed and discretionary costs, including travel and hotels and the award shows, stopped.
Planned salary increases for 2020 have been discarded. Members of the WPP executive committee, as well as the board of directors, will take a 20% cut in salary or fees for at least three months.
These measures will save between £700 million ($AU1.4 billion) to £800 million ($AU1.6 billion).
The company also has its eye on savings of £100 million ($AU202 million) in capital spending and is looking for further cuts, subject to the impact of the virus.
“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,” says the company.
In January and February, organic growth was down 0.6% in line with expectations but the business environment changed in March.
“We have begun to see a range of different responses from clients globally, depending on the client sector, country and agency services,” the company says.
“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.”
With 95% of its 107,000 workforce working from home, the company says its people are displaying “great ingenuity and resilience” as they adapt, maintain a positive working culture and ensure continuity of service for clients.
“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,” says WPP.
“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.”
CEO Mark Read says the actions of the last 18 months to streamline and simplify WPP, together with raising £3.2 billion ($AU6.47 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,” he says.
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