LONDON (Reuters) – The world’s biggest advertising company WPP (WPP.L) has pulled its dividend and share buyback and withdrawn its 2020 guidance after the coronavirus pandemic sparked the most uncertain time in its 35-year history.
The owner of the Ogilvy, Grey and Hill+Knowlton agencies said its actions, along with a cost cutting drive, would save around 2 billion pounds in 2020 to see it through a downturn in client spending.
Chief Executive Mark Read said fallout from the coronavirus outbreak had been much more rapid than from the 2008 economic crash, hitting different sectors more quickly and leaving many companies with zero revenue and no reason to spend on marketing.
“This is the period with the greatest uncertainty,” Read told Reuters. “We don’t know yet whether it will be the worst.”
The pandemic, which has shut down the global economy with shopping districts deserted, sports fixtures cancelled and millions of people left idle, has come at a difficult time for the company that was founded by Martin Sorrell.
In the middle of a three-year turnaround plan designed to simplify the sprawling company, trading outside of China had improved in the first two months of the year but that came to an end in March.
In a sign of what could be ahead, the British company said organic sales had fallen by 16% in Greater China in January and February and while life was slowly returning to normal there, consumer spending remained depressed.
Rivals IPG (IPG.N) and Publicis (PUBP.PA) have already pulled their earnings guidance for the year.
To conserve cash WPP has frozen new hires, reviewed freelance expenditure, stopped discretionary costs such as travel and postponed salary increases. It will also save more than 100 million pounds assigned for property and IT costs.
Members of the executive committee and board have also taken a 20% salary cut for an initial period of three months.
The group, with 2019 revenue of 13 billion pounds, also had 3 billion pounds of cash at the end of 2019, and additional liquidity.
“The companies that go into this in the strongest position financially will come out of it in the strongest position,” Read said.
WPP said it was producing health campaigns for governments and clients around the world including in Britain where it launched an information service on WhatsApp. Public relations and public affairs advice was in strong demand.
Some clients, particularly in Asia, are working on rebranding while others are shifting media spend from cinemas and outdoor to digital and TV, and pushing it back to later in the year.
Analysts at Citi said the measures were prudent and the 16% drop in China not quite as bad as feared. Shares in the group were up 8%. “The good news is we will come out the other side and at the end of the day we’ll be alright,” Read said.
($1 = 0.8093 pounds)
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