WPP executive committee and Board to take a 20% reduction in salaries for an initial period of 3 months in wake of Covid-19 outbreak

• In wake of the Covid-19 outbreak and its impact of business, WPP has taken measure like freezing new hires, reviewing freelance expenditure, stopping discretionary costs, including travel and hotels and the costs of award shows and postponing planned salary increases for 2020.
• Additionally, 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.
• Since the impact of COVID-19 on the business is expected to increase in the next quarters, WPP has to withdraw its guidance for the 2020 financial year.

WPP in its recent update regarding the Covid-19's impact on business said that the first two months’ trading were in line with their expectations. The network has taken prudent actions to maintain its liquidity position and that it will continue to serve its clients effectively at a crucial time for strong communications.

Some of the key highlights from the update were:

• 2020 started well with strong business momentum: key account wins and good retention
• Encouraging financial performance, pre COVID-19 impact: first two months Group LFL revenue less pass-through costs ex Greater China +0.4%1; Group -0.6%1; USA -0.9%1
• All its businesses operating well under remote working conditions; producing effective campaigns for clients, governments and NGOs around the world
• March performance is weaker, reflecting spread of virus and government containment actions
• Significant uncertainty over immediate outlook: withdrawing guidance for 2020
• Strong balance sheet supported by further immediate action to maintain liquidity: buyback and 2019 final dividend suspended given current uncertainty; final dividend will remain under review
• Additional measures taken to manage cash flow and profitability include reduction in costs and capital expenditure, and tight controls on working capital
• First quarter trading update on 29 April 2020

Supporting its people and communities and maintaining service for clients

Since the start of the Coronavirus crisis, WPP said its first priority has been the safety and welfare of its people, and doing what they can to limit the impact of the pandemic on the communities. "Our leadership has communicated continuously to our people around the world and we have followed or exceeded the guidance of governments and international health organisations in the measures we have taken to protect our employees’ health and to help slow the spread of the virus. We know this is a stressful and unsettling time for our people, and are encouraging all managers to stay in close contact with their teams to provide the support needed. We continue to give regular guidance on mental and physical well-being."

"Our second priority has been to maintain service to our clients at a critical time and we have successfully moved to remote working across the vast majority of our business, and close to 95% of our 107,000 colleagues are now working away from the office. We are deeply engaged in helping our clients to manage and adjust their communications at this critical time. Our services have never been more important, with many clients already looking to address their longer term brand positioning and communications when the COVID-19 crisis passes."

"We have seen outstanding examples of creativity from our people as they support clients, governments and NGOs in the fight against COVID-19. We are working with international health authorities to promote effective handwashing and we have offered our resources to the UK Government to assist the effort in Britain. Our global media network Wavemaker, for example, helped the Cabinet Office to launch its coronavirus information service on WhatsApp to reduce the pressure on the NHS. Our people are also displaying great ingenuity and resilience as they adapt to new conditions, maintain a positive working culture and ensure continuity of service for clients," read the report.

Year-to-date business performance and outlook for 2020

For the first two months of 2020, excluding Greater China, Group LFL 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%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 their expectations and the guidance set in their preliminary results announcement on 27 February 2020. In the USA, WPP saw an 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%. Its overall new business performance was strong, with a number of key wins including Intel, Hasbro and Discover, and retentions including BBVA.

In China, despite the significant slowdown in economic activity and the closure of offices, WPP said its people have responded extraordinarily well to the unprecedented challenges and have successfully continued to work on client projects. "At the peak of the crisis in China, almost all of our colleagues were working remotely, but as health restrictions are now being lifted, 55% of our local workforce are back in our offices."

In March, we have 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 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. In some markets, we are seeing additional demand in our PR and specialist communications businesses."

As a result, WPP said it 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.

"As we enter the second quarter, it is clear that the impact of COVID-19 on the business will increase but it is not possible at this stage to quantify the depth or duration of the impact. As a result, we have decided to withdraw our guidance for the 2020 financial year. We will provide an update when appropriate," the agency said in its statement.

Cost reduction measures

WPP said that most of its costs are variable in nature. They have commenced a review of their costs to protect profitability, where possible, from a decline in revenue. At the same time, WPP said it wants to protect its people as much as possible, as well as its ability to serve clients and grow when markets recover. "The immediate actions we have taken include: freezing new hires; reviewing freelance expenditure; stopping discretionary costs, including travel and hotels and the costs of award shows; and 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.

We anticipate these measures will generate total in-year savings for 2020 of £700 - 800 million. In addition, we are making a detailed assessment of further actions to reduce cost subject to the impact of the virus on our business over the coming weeks and months."

Cash conservation measures

WPP also said it has reviewed its capital expenditure budgets for 2020 and looked at opportunities to improve working capital. It said it has identified savings in excess of £100 million in property and IT capital expenditure against an initial 2020 budget of around £400 million. "On working capital, we have a standing weekly management process to review cash outflows and receipts to monitor our position. We are continuing to work closely with our clients to ensure timely payment for the services we have 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," read the statement.

Speaking about the current situation, Mark Read, Chief Executive Officer, WPP said, "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.

“Across WPP we now have close to 95% of our people working effectively and productively away from their offices. 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. At the same time, we are supporting many governments and international health organisations on communications programmes to limit the impact of COVID-19 on our communities. 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.”