WPP, the world's largest advertising group, is prepared to cut costs deeper if the coronvirus crisis goes longer and bites harder into ad spend than expected.
The company has been gathering cash reserves by cutting jobs, suspending payment of shareholder dividends, reducing executive pay by 20% and dropping a share buyback.
It is now shrinking further its wages bill by cutting the salaries of more than 3,000 senior managers under a voluntary program.
The company reported a fall of 7.9% in like-for-like revenue in March as the impact of COVID-19 began to be felt more widely. Revenue slipped 3.3% to GBP 2.36 billion (AUD4.5 billion) over the three months to the end of March.
WPP, like the rest of the advertising industry, is uncertain on the ultimate impact of the pandemic on ad spend.
However, the company has been modelling scenarios and has developed detailed cost cutting plans against each of these.
It says: "Owing to the flexibility of the cost base, we are able to respond quickly and will reduce cost further if the depth and length of the downturn requires it, as well as ensure the business is ready to take advantage of any market recovery."
CEO Mark Read says the immediate future is highly uncertain but there are 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," he said when releasing first quarter results.
"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."
WPP has 95% of its 107,000 employees working from home across the world. Its teams in China have mostly returned to the office.
Clients
On the client side, the most significant cuts to spend have come from automotive, travel and leisure, luxury and premium sectors. Together these account for 24% of WPP’s top 200 clients’ spend.
However, spend is holding up relatively well in consumer packaged goods, technology and healthcare and pharma. These represent 54% of client spend.
Public relations, ecommerce, marketing technology and production capabilities are also seeing continuing demand.
The company says the pipeline is “encouraging” but some 20% of pitches have been put on hold. There have been no major account losses so far this year.
Read says the year started well before the coronvirus started to drag on earnings in March.
"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," he says.
“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."
Read says he is proud of how WPP's people and clients have responded at a time of great uncertainty.
"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," he says.
First quarter results by sector:
And by geography:
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