WPP’s underlying revenues slumped by 15.1% over the past three months as Covid-19-imposed cuts to ad spend deepened.
The holding company's chief executive, Mark Read, said the group had got over “the toughest period of the year” but remained cautious about the speed of recovery.
Read stressed that despite the pandemic dealing a blow to revenues, WPP’s ongoing pivot towards more blended ways of working and digital transformation stood it in good stead to help clients "adapt their marketing strategies at speed and reshape their operations for a new world".
The Drum crunches the numbers and explores Read’s strategy.
The financial impact of Covid-19 on WPP
WPP reported a 15.1% slump in net revenues during the second quarter of 2020.
The UK market was hit particularly hard, posting a 23% dip between April and March. In the US, the company’s operations suffered a fall of just 10.2%. For western Europe, this was 18.8% and the rest of the world 14.8%.
The group also noted a £2.6bn half-year loss, a large portion of which came from writing down the historic value of Y&R (which was merged with VML in 2018). The loss was also triggered by the impact of Covid-19, and driven by a combination of higher discount rates, a lower profit base in 2020 and lower industry growth rates.
The business made cost cuts of £296m in the first six months of the year. Travel and discretionary expenditure were down 47% while staffing costs dipped 5%.
Staff headcount fell by 5,000, or nearly 5%, to 101,000 between January and June owing to “a combination of voluntary leavers whose roles were not replaced as part of the hiring freeze, and redundancies”.
How do the numbers compare?
When it comes to organic revenue from April to June, WPP sits in the middle of its rival holding groups. Interpublic and Publicis Groupe outperformed it, posting losses of -9% and -13% respectively. However, WPP is still ahead of Havas (-18.3%) and Dentsu Aegis Network (-20%).
Mark Read’s plan to return WPP to health
During a call with investors and journalists, chief exec Read was particularly keen to talk up the business’s digital credentials and blended approach to client work. Both of which he has been investing heavily in since 2018 as part of his ‘creative transformation’ strategy.
He added that the simplification of WPP’s structure and the mergers undertaken as part of this had been “validated” by the most recent financial results.
“VMLY&R and Wunderman Thompson were two of our best performing integrated agencies,” he said. “It shows that a traditional siloed approach to marketing doesn’t work.”
Though global advertisers have plans to be shrewd about their marketing spend until the end of the year, Read said clients had been investing heavily in e-commerce and digital media solutions to reach customers. E-commerce now represents 30% of WPP’s UK sales (up 54% year-on-year).
"Brands are seeing increases in online sales of 100% and more, and we are supporting eight of our top ten clients on e-commerce strategies."
WPP’s media arm Group M was hit hard by "the closer correlation of its revenue to client media expenditure". Although creative outperformed media for the group, Read recognised the continued need to invest in digital media talent and tech.
"Digital now dominates media. Today brands need to start their media plan with a digital approach. We’re seeing continued shifts in consumption that have been accelerated by the pandemic, including an uptake on streaming services and the success of Disney+ and TikTok. All of those will lead to permanent changes in media consumption, which we don’t expect to revert to where they were pre-pandemic."
The boss conceded that the company is still getting the balance right when it comes to digital versus analogue: "TV advertising – or video as they call it today – is an important part of what we do... but this isn’t Mad Men, we have a broad range of skills. We live in an omnichannel world. We’ve shown we can integrate our capabilities to grow in the current landscape."
What do the analysts think?
Discussing the results, Chris Daly, chief exec at the Chartered Institute of Marketing, said: "Today’s WPP results will relieve the 400,000 currently employed in the UK’s marketing profession, indicating that business may be returning to normal."
"As the recovery gathers pace, the opportunity for marketers to generate value is immense. Something that WPP has worked hard to improve by strengthening its technology offering. As digital channels continue to dominate, and sectors such as consumer goods, technology and healthcare prove their resilience, WPP’s digital strategy will prove instrumental in achieving a return to growth by 2021."