WPP Confirms More Cost-Cutting Measures as a Result of Covid-19 Impact

WPP announced its Q1 earnings today and, as expected, Covid-19 contributed to a revenue decline for the first three months of the year. In a statement accompanying its financial results, WPP acknowledged further cost-cutting measures, including "voluntary salary sacrifice from over 3,000 senior roles," moving some employees to part-time roles and "some permanent headcount reductions." Speaking to Adweek earlier this month, WPP CEO Mark Read expressed optimism despite the obvious difficulties the holding company faces in the midst of the coronavirus pandemic. He acknowledged, however, that despite initial cost-cutting measures such as executive salary reductions, suspension of share buyback and the final 2019 dividend, hiring freezes and delaying salary increases, it couldn't rule out job losses. He said WPP would reexamine the situation and "see what's appropriate" at the end of the second quarter. "After a good start to the year, with growth outside of China in January and February, our business started to be materially impacted by Covid-19 in March," Read said in a statement. "Our response has focused on four areas: the health of our people, serving our clients, helping to mitigate the impact of the virus on our communities, and ensuring WPP is financially strong." Revenue declined 4.9% for the quarter, and adjusted revenue less pass-through costs declined 3.8%. As anticipated, the impact of Covid-19 on revenue was felt last month, contributing to a 7.9% decline in adjusted revenue less pass-through costs. WPP outlined the impact on different markets: In the U.S., revenue less pass-through costs fell 3.7% for March, contributing to a 1.9% decline for Q1. In the U.K., a 9,8% decrease for March contributed to a decline of 4.2% for Q1. Germany experienced a 14.9% fall for March and a 4.3% decline overall in Q1. China fell 29.9% in March, 21.3% for Q1 overall. Despite the anticipated difficulties, today's results were met with market optimism. As of publication time, WPP's stock price rose around 8.7% over Tuesday's close of $36.46 to $39.64. This is in stark contrast to the holding company's last earnings report. WPP's stock fell dramatically when it reported Q4 earnings for 2019 in late February, dropping over 15% from its closing price the previous day on news that it had experienced an anticipated decline in revenue. On the earnings call, Read remained optimistic that WPP could weather the impact of the crisis, noting it was in a stronger position financially than during the 2008 financial crisis, that its early cost-cutting measures have helped limit the pandemic's impact. He also cited an "excellent net new business performance" for the quarter, citing WPP winning $1 billion in new business revenue, including Intel selecting VMLY&R as global creative agency of record and Hasbro consolidating its global media account with GroupM. "We want to make sure we protect as many jobs as we can as we do this," Read said. WPP CFO John Rogers outlined how different sectors of the company's businesses performed in Q1, as well as the impact of the coronavirus on its March performance. Global integrated agencies saw a decline in revenue less pass-through costs of 2.6%, with a 6.6% fall in March. Specialist agencies were impacted harder, with a decline of 15.2% in March contributing to a 7.4% decline for the quarter. PR, on the other hand, was down just 1.4% for the quarter. "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 [making] marketing technology investments," Read said in a statement. "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." Read addressed a shift in client spend away from radio, print, cinema, OOH and TV, apart from where national TV spend is hard to shift, with significant increases in the percentage of budgets allocated to digital media to drive sales. He also noted that WPP benefited from its client diversification as some sectors were more resilient than others, with CPG, tech and healthcare/pharma growing by 4.9% during the quarter. Looking toward China, said that while WPP remained cautious, they've learned that "recovery can be very rapid" but that it was important to be mindful of consumer behaviors during the coming months. "We will emerge in a world that is very different, and we need to be prepared for that," he said. Regarding WPP's own plans, Read said, "We will reopen gradually, with the health and safety of our people as a priority, and it is a highly uncertain economic outlook." In response to a question about what the recovery in China said about the outlook elsewhere, Rogers said it seemed they could anticipate an economic impact for at least 2-3 months, meaning Q2 would be significantly impacted while the outlook for Q3 and Q4 remained more uncertain. He also said that WPP was "encouraged" by its performance in the U.S. during the first quarter, which he attributed to the actions that the holding company has taken to realign its business. Near the beginning of the year, WPP continued to realign its business by integrating media agency Mindshare and digital-first global performance agency Neo Media World. This year will bring to a close a leadership legacy at one of WPP's most high-profile agencies. The earnings report follows John Seifert's announcement Tuesday that he would retire as Ogilvy global CEO in 2021.