As part of its cost reduction measures, WPP will be freezing new hires, reviewing freelance expenditure and stopping discretionary costs including travel, hotels and costs of award shows.
The global agency network also said that it will be postponing planned salary increases 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. According to WPP, these measures will generate total in-year savings for 2020 of £700 - 800 million (SG$1.2 billion) as the agency network continues to assess further actions to reduce cost subject to the impact of the COVID-19 virus on its business over the coming weeks and months.
In a media statement, WPP also said that it has identified savings in excess of £100 million in property and IT capital expenditure against an initial 2020 budget of around £400 million. The agency network will continue working with its clients to ensure timely payment for the services it has provided in line with contractual commitments.
“On media, we are working with clients and vendors to maintain the settlement flow. Should we see any deterioration in payment from our media clients we will take appropriate action to manage our cash position,” the statement read. Currently, for the first two months of 2020, excluding Greater China, group LFL (like-for-like) revenue less pass-through costs was up 0.4%. In Greater China (approximately 7% of WPP by revenue less pass-through costs) the impact from COVID-19 led to a 16.1% fall in LFL revenue less pass-through costs over the two-month period.
For WPP as a whole, LFL revenue less pass-through costs was down 0.6%, in line with its expectations and the guidance set in its preliminary results announcement on 27 February 2020. In the US, WPP has seen improvement in the rate of decline from 2019 with revenue less pass-through costs down 0.9% in the first two months, compared to a decline in the second half of 2019 of 4.4%. According to WPP, its overall new business performance has been strong, with a number of key wins including Intel, Hasbro and Discover, and retentions including BBVA.
In March, the agency network begun to see a range of different responses from clients globally, depending on the client sector, country and agency services. In the short term, media spend has largely remained committed, or diverted to alternative channels, although there has also been an increasing volume of cancellations. Project and retained work has continued in most sectors, but activity has begun to decline. In some markets, WPP has seen additional demand in its PR and specialist communications businesses.
As a result, the agency network expects its 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.
Mark Read (pictured), chief executive officer, WPP said the actions taken in the last 18 months to streamline and simplify WPP, together with raising £3.2 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 added.
Meanwhile, Read also explained that across WPP, close to 95% of its staff are working effectively and productively away from their offices. The agency network is also supporting governments and international health organisations on communications programmes to limit the impact of COVID-19 on the communities.
“I am very proud of the response from our people, who are looking out for each other and going the extra mile for clients while demonstrating the creativity, collaboration and resilience that will be key to the enduring success of WPP. The important role we are playing in helping our clients navigate a difficult time gives us great confidence in the long-term future of the company,” he said.