Key numbers from the Q1 updates for advertising’s major holding companies
All of the major holding companies in advertising, bar Dentsu, have now updated the market on their performances in the first corona-hit quarter of 2020. Here’s what you need to know.
- 7.9% fall in like-for-like revenue in March 2020, in China revenue was down almost 30% the same month while in the UK it was down 10%.
- Revenue fell 3.3% in the first quarter as a whole.
- Despite wide reports of a new business slowdown, WPP claimed to have won $1bn in new contracts in the first quarter of the year, including Intel’s global creative account. It has not lost a significant account, but warned a fifth of pitches it is involved in have been put on hold.
- In anticipation of a challenging year, executives have taken a 20% pay cut for at least three months as part of a plan to save £800m before the end of 2020. Over 3,000 workers have also taken voluntary salary or job cuts.
- It declined to give full-year guidance as a result of the uncertainty.
“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,” said chief executive Mark Read.
“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.”
Analysts praised Read’s “decisive action” to implement early cost-saving measures. Chris Daly, chief executive of the Chartered Institute of Marketing, said: “the opportunity for WPP is significant — it has been strengthening its technology offering over the past two years and this is likely to prove instrumental as digital channels are increasingly the key connector between us, our families, communities and the brands we love.”
- Net revenue was up 17.1% to €2.48bn in the first quarter. Organic revenue declined by 2.9%.
- In Europe, organic growth fell by 9.2% in the quarter. In North America fell 0.5% and in APAC it was down 1.9%, in large part due to a 15.3% fall in China. Latin America suffered the most with organic growth down 10.9% in the first quarter.
- New business wins included Leo Burnett landing the creative business for Bank of America in the Middle East and a holding company win of the media and creative account of FCA in China.
- Has implemented a €500 million cost-reduction plan, cutting dividends by 50%. Chief executive Arthur Sadoun has taken a 30% salary reduction while members of the management board and committee took 20% salary cuts. Maurice Lévy, chairman of the supervisory board, also took a 30% cut.
- Declined to give full-year guidance.
“The month of March was seriously affected by the continuous decline in China and the abrupt deterioration in Europe, due to Covid-19 confinement measures,” said Sadoun.
“All of our countries, all of our activities will be impacted to varying degrees. So our response to this situation needs to be structured, multi-faceted and rigorously executed. Our experience in managing cost and cash in times of crisis, our country model and our strong balance sheet will help us to stand firm in this storm and prepare ourselves for recovery.”
- First-quarter organic growth was 0.3%. Until February its performance was positive but the downturn began in March.
- Reported revenue in the first quarter decreased 1.8% to $3.4bn when compared to Q1 of 2019.
- Operating profit declined by 2% to $420m. Net income for the quarter was $258m.
- In the US organic growth increased by 1.7%, in the UK it increased by 3.7% but in other European markets is declined by 2.3%. In APAC it increased by 2% while Latin America and the Middle East and Africa also decreased by 5.0% and 28.4% respectively.
- New business wins included PHD landing Diageo's global media planning and buying account and Flint USA’s media account. Energy BBDO won Bayer digestive health brands, Miralax and Phillips in the United States while TBWA\China picked up Riot Games League of Legends World Championship.
- As of the end of March, its total debt was $5.1bn.
- It did not provide any forward guidance for Q2 and the full year.
- Measures taken to improve the books have seen staff take voluntary pay cuts. It has stopped new hires, frozen salary increases and eliminated or reduced the number of freelancers used. It has stopped any participation in all award shows.
“The challenges we are facing as the Covid-19 crisis continues to unfold are without precedent. Although we don't know with certainty how things will look going forward, we do know that we will continue to focus on our people, clients and the strength of our business,” said chief executive John Wren.
“We have managed through crises before and survived to thrive in the future. Our people and our company have shown tremendous grit and resilience, which is a testament to our culture and that feels stronger than ever.”
Interpublic Group (IPG)
- Organic revenue growth for the period was 0.3%.
- New revenues fell 1.6% in the first quarter to $1.97bn.
- APAC’s organic revenue was worst hit, down 5.3% while US organic growth was 0.8%, versus 5.7% the same period last year. On average, markets outside the US posted a 0.7% organic revenue decline versus 7.7% growth a year ago. In the UK, organic growth was down 1.8%, compared to 5.7% growth a year ago.
- New business wins in the quarter included Shinola (through UM), Pernod Ricard from Initiative and Mike’s Hard Lemonade through FCB New York.
- At a number of its agencies, salary reductions have been applied, ranging up to 25% of base compensation. The entire management team at IPG has taken a voluntary salary cut for the remainder of 2020.
“In this environment, visibility into marketing and media spend is to say the least, challenging,” said chief executive Michael Roth.
“Given the uncertain duration and extent of macroeconomic pressure and pace of eventual recovery, questions about forecasting and targeting are difficult to answer and quantify. Certainly, we expect a very difficult second quarter after which we should have a better line of sight into the full year."
Havas (owned by Vivendi)
- Organic revenue declined by 3.3%.
- First-quarter net revenues were up 1% to €507m
- North America region reported 4.9% organic growth in the period. All other regions were down, with Europe falling nearly 10%.
- Like others, Havas said the first two months of the year were positive but the negative results came on the back of a severe downturn in March.
“The second quarter will undoubtedly be affected by the current health crisis. Even so, it is essential for brands to continue communicating over this period,” a company statement read. “Havas Group is mobilizing all its resources to monitor the rapid shift in consumer behaviour, to better anticipate its clients’ communication needs. At the same time, Havas Group is adjusting its operating costs to limit the impact on its profitability.”
Dentsu Aegis is postponing the release of its first-quarter figures until May due to the Covid-19 outbreak.