WPP unveils cost reduction plan to tackle corona crisis
The world’s largest advertising company WPP has suspended its £950 million share buyback plan, cancelled dividends and frozen any 2020 new hires and salary increments in a raft of cost reduction measures it is betting on to cushion itself from the coronavirus crisis.
The announcement comes as its share price in the London Stock Exchange plunged to £24.30 from £56.50 at the beginning of the year when it had shown solid performance.
For the last two years the London-based advertising behemoth had built good liquidity and strong balance sheet in what it has attributed to selling of 50 businesses and investments and raising approximately £3.2 billion from disposals programme.
But as the contagion spread beyond China’s borders, the adverse impacts have continued to take a toll on the agency’s business which has seen it revise its earlier growth projections for March. The management has been reviewing costs to safeguard profitability from a revenue slump and calm shareholder and employees jitters.
It has introduced a raft of cost reduction measures which will see its executive committee and board members take a 20 per cent reduction of their salaries for three months, halted discretionary costs and reviewed freelance expenditure. These measures it says will help save up to £800 million by the end of the year.
Mark Read, Chief Executive Officer, WPP: “The actions we have 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.”
As it remains cautionary about the prospects of the next three quarters of 2020 it is looking at savings of approximately £100 million in property and IT capital expenditure against an earlier budget of around £400 million. It has also introduced a weekly management process to review cash outflows and receipts in a view to monitor its position even as it tracks clients’ response and commitments to payments at a time of uncertainty.
And even with up to 95 per cent of its 107,000 workforce working from home, WPP says it is investing in its solid roster of clients to keep it going while assisting them in long term brand positioning and communications. This, as it rides on the COVID-19 pandemic to launch communication campaigns for clients like UK Cabinet office on limiting the impact of the spread.
Mark Read, Chief Executive Officer, WPP: 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.”
The announcement by WPP comes as the global advertising industry continues to haemorrhage from the impacts of the novel virus with businesses that are struggling to stay afloat cancelling marketing budgets.
Publicis recently announced it was taking rigorous decisions to manage operational cost in the wake of the corona virus crisis while IPG withdrew its financial performance targets for 2020.