Like it or not, WPP’s size and sway in the industry paints a deeper picture of the response of holding groups caught in the COIVD-19 storm as the company reveals savings plans – these changes follow a period of deep change in the agency business which is now facing a sharp shock.

The world’s largest agency holding group by revenue, WPP, announced a series of measures intended to bring costs under control and allay investor fears in the long term, even if it’s cutting dividends.

Cutting costs and preserving the business

In the short term, according to a statement by CEO Mark Read, the group now has close to 95% of its 107,000 staff working remotely as part of efforts by governments, businesses, and individuals across the world to stem the spread of the virus and to preserve the business.

Read also points to the “actions we have taken in the last 18 months to streamline and simplify WPP, together with raising £3.2 billion in asset disposals,” all of which have left the holding group in a cash-rich position. Now the job will be to maintain that.

Probably the biggest cash-saving measure is suspending WPP’s ongoing series of share buybacks – of which £330 million of the proposed £950 million total have been completed – which will deliver £620 million of savings this year. Effectively, share buybacks are a way of pleasing remaining investors by decreasing the number of shares in market, thereby increasing earnings per share (dividends) even when the company is struggling to grow revenues.

However, dividends are also out of the window. “The Board is suspending the 2019 final dividend of 37.3 pence per share, which was due to be proposed at the AGM in June 2020.” Together, these measures will preserve around £1.1 billion, in addition to the roughly £3.2 billion raised from the sale of WPP businesses, including Kantar.

“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.”

Due to the uncertainty about the eventual impact or duration of the situation, the company, like fellow holding companies, Interpublic and Publicis is withdrawing its full year guidance.

Measures that will be felt most immediately by staff include a relatively standard suite for businesses looking to rein in variable costs, and which are taking place across the corporate world, namely:

  • Hiring freeze
  • Freelance expenditure review
  • A travel, hotel, and award show ban
  • Postponement of salary reviews for 2020

“In addition, members of the WPP executive committee, as well as the Board, have committed to taking a 20% reduction in their salaries or fees for an initial period of three months.” Taken together, these measures are expected to deliver savings between £700 and 800 million over the year.

The outlook according to WPP

WPP is bracing for what is expected to be a grim period for the advertising industry, with figures from WARC as well as other sources painting a nasty picture. While conditions will likely be much tougher for small, independent players, WPP’s global reach does expose it further.

To its advantage is the company’s China businesses, which had been a key area of growth for the company. Greater China saw a drop in like-for-like revenue of 16.1% over the two-months at the beginning of this year. Experience in this market, in which “55% of our local workforce” are back in offices following strict lockdown measures in some regions will help guide the response around the rest of the world.

Elsewhere, the outlook is something of a patchwork, in which the expectation is that markets experiencing significant outbreaks (and counter measures) will see much weaker performance in March than in the prior two months of the year.

Responses from clients have varied significantly, “depending on the client sector, country and agency services,” the statement reads.

“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.”

The impact on all sectors of the economy, however, as seen in the record month of grocery shopping with sales in the UK up by a fifth, is not evenly distributed. Though this is only the beginning, certain markets are showing increased demands for some of WPP’s specialist communications businesses and PR capabilities.

WPP will issue a trading update for the first quarter of 2020 on 29 April 2020.

Sourced from WPP, WARC, Campaign, FT